Parker David: Climate Change (Emissions Trading and Renewable Preference) Bill — Second Reading 
Parker David: Climate Change (Emissions Trading and Renewable Preference) Bill — Second Reading 
[Volume:649;Page:18075] 
Hon DAVID PARKER (Minister responsible for Climate Change Issues) 
: 
 I move  
That the Climate Change (Emissions Trading and Renewable Preference) Bill be now read a second time 
. New Zealand has a proud history of rational and effective economic and environmental policy. Our history shows that most of the important reforms have been led by Labour Governments as is also the case with social policy. We are proud to be doing so again today. 
There is a global movement; developed countries are adopting emissions trading schemes to reduce emissions. Our scheme is advanced in that it includes all greenhouse gases covered by the Kyoto Protocol and over time encompasses every sector of the economy. This is important given the mix of emission sources in New Zealand and in order to reduce emissions at the least cost. 
Today I will outline the changes to this bill made as a consequence of the select committee consultation process and of discussions with support parties. I will not focus on the billion-dollar household energy efficiency fund which will give the biggest boost to energy efficiency that New Zealand has ever seen and which will help New Zealanders to reduce their energy costs and their environmental footprints. 
I thank the members of the Finance and Expenditure Committee; the changes they recommended have improved the bill in ways that will enhance its ability to help New Zealand to reduce greenhouse gas emissions and to meet our international obligations while protecting the competitiveness of our businesses. I also thank the support parties whose contributions over the last few weeks have further strengthened the bill in a number of areas. 
The bill as reported back by the Finance and Expenditure Committee has not changed the core design principles of the emissions trading scheme. It still provides for the inclusion of all sectors and of all greenhouse gases by 2013. It is important that all major greenhouse gas emitters face the full cost of their emissions at the margin from the outset. Assistance for industry remains at 90 percent of 2005 emissions and no free allocation of emission units will be given to firms that can pass on the costs to consumers of accounting for their emissions. These core principles are vital for producing an economy that is resilient to a low-carbon future. 
The emissions trading scheme has been designed to minimise compliance costs and currently only 200 or so of the firms in the industry and energy sectors will participate directly in addition to those in the forest sector. However the scheme has also been designed to have the flexibility to evolve over time. It does not preclude individuals from taking personal responsibility for their emissions in the future. 
Three major changes have been made to the bill by the Finance and Expenditure Committee. First it defers the entry of transport fuels to the emissions trading scheme until 2011—2 years later than originally proposed. The change is expected to reduce inflation pressures and also to reduce the pressure on household finances given the large increases in fuel prices over the last 2 years. 
Secondly the bill extends the start of the phase-out of freely allocated emission units by 5 years. Phase-out will start in 2019 and end in 2029 although the level and rate of phase-out is one of the issues to be considered in the regular reviews of the emissions trading scheme. The change to phase-out will I believe help businesses to maintain their competitiveness create greater certainty for business and reduce the prospect of economic regrets. 
Thirdly owners of forests bought before late 2002 which qualify as pre-1990 forests will be allocated more emission units than originally proposed. The number has been increased from approximately 39 units to an estimated 60 units per hectare. In addition 18 units per hectare have been set aside for future Treaty claimants who receive Crown forest land. Both these changes better help forest owners who face the greatest costs from the emissions trading scheme. The Finance and Expenditure Committee considered submissions calling for offset planting to be recognised but rightly noted that to provide this in our domestic scheme now when it is not provided for internationally would result in significant liabilities that the taxpayer would bear. However recognising that international rules may evolve the bill now includes the ability to make rules allowing pre-1990 foresters to offset the emissions caused from deforesting by planting new trees on another piece of such land if such offsetting is provided for in future international agreements. 
The bill has been amended to include a more specific purpose statement detailing what the emissions trading scheme is aiming to achieve—namely the support of global efforts to reduce greenhouse gas emissions by helping New Zealand meet its obligations under international agreements and by reducing our net emissions below business-as-usual levels. Some sectors now have an on-ramp into the scheme. This involves voluntary reporting of emissions starting 2 years before the sector begins surrendering emission units followed by mandatory reporting a year later then full compliance and obligations to surrender units a year after that. This approach will ensure that sectors are well prepared for their entry to the scheme and will provide incentives for emission reductions before participants start surrendering units. 
Fugitive emissions from coal-seam gas are now included in the scheme to provide coal companies with the right incentive to convert the gas into carbon dioxide rather than allow emissions of methane into the atmosphere. 
The concerns of industry having been listened to the bill has been amended to delay the entry of imported hydrofluorocarbons and perfluorocarbons into the scheme until 2013 to include hydrofluorocarbons and perfluorocarbons imported in products from 2013 and to provide for entitlements to units for those who export or collect and destroy hydrofluorocarbons and perfluorocarbons. These changes recognise that it is a small sector and a complex one to bring into the scheme. 
Changes have also been made to criteria governing how New Zealand units are allocated in order to provide more certainty to business and incentives to develop emission-reducing technology. This includes enabling allocation plans to create a reserve of New Zealand units for new business within the cap of overall units available for allocation. The review process for the emissions trading scheme is being strengthened so that reviews happen every commitment period or otherwise every 5 years. They must be completed 12 months before the end of the commitment period rather than before the original 9 months. The review which must now be conducted by an independent panel needs to consider additional factors like the potential for linking our emissions trading scheme to similar schemes. It must also consider any social and environmental effects of the scheme. A significant change from the original bill is that a restriction has been placed on using assigned amount units—or AAUs—imported into New Zealand during commitment period 1 of the Kyoto Protocol to cover emissions that occur after this commitment period under the emissions trading scheme. These changes reflect the Government’s desire to keep open options for linking our scheme to other emissions trading schemes in the future. 
Also the bill now includes compulsory consultation on regulations concerning limitations on types and volumes of units in the emissions trading scheme and concerning measuring and calculating emissions in the removal of emissions. It establishes a lead-in time for these regulations. These changes recognise the impact that regulations affecting units could have on market participants and give more certainty to forward contracts for purchasing units. 
Discussions with support parties over the last few weeks have led to further beneficial amendments to the bill which are to be introduced in a Supplementary Order Paper. An innovation fund of 150000 emission units will be established from within the overall industrial allocation pool which represents about 1 percent of that pool. This will be a contestable fund used to encourage the development and uptake of technology that will significantly reduce emissions. The fund will be available to trade-exposed companies that have not received a free allocation of units. Another fund the household efficiency fund will be set up to encourage household investment of energy-efficient products such as insulation. It will be targeted to households according to income or energy need it will operate for 15 years and it will have a total budget of $1 billion. 
The bill will also provide for a one-off payment to all households and a cash payment for beneficiaries superannuitants and Working for Families recipients as close to 1 January 2010 as feasible to assist with the impacts of electricity price increases made as a result of emissions trading. 
The approval process for allocation plans has been strengthened so that allocation plans for agriculture and industry will be scrutinised by the select committee and Parliament. Clear deadlines are included and parliamentary approval will occur under a negative resolution. We are developing allocation plans that the responsible Minister must consider—a new principle that when people are eligible to receive emissions units it is preferable that they receive units for only their products that are trade exposed. Assigned amount units being surrendered under the emissions trading scheme will need to meet criteria. Approved source countries will be those that New Zealand has bilateral agreements with. Criteria will ensure the steps they are taking to ensure the environmental integrity of their assigned amount units. This change reverses the presumption in the earlier version of the bill. 
Those in the fishing sector will be supported with an allocation of free emission units to 50 percent of the impact of their fuel costs and there are other targets relating to agriculture biodiversity. There are various other non-legislative changes that have also been announced and we really are committed to encouraging the early uptake of emissions-reducing technology in the likes of the agriculture sector. Part 2 of the bill relating to renewable preference remains largely unchanged. I commend the provisions of this bill to the House.