Shaw JamesHon JAMES SHAW (Minister for Climate Change): I thank the member for her questions. Just in relation to that very last question remember that this is an amendment to the same piece of legislation as the zero carbon bill and therefore all of the mandatory considerations that we built into the zero carbon bill also apply here because this essentially is subservient to that higher-level framework that we agreed last year. So I think that that's built in. But there are two quite complex groups of questions in there: one around the energy-intensive trade-exposed firms which I have given considerable consideration to over the past 2½ years and also around household costs and impact on households. So I'll just say in relation to the energy-intensive trade-exposed sectors and businesses the industrial allocation—if you go back to 2008 and 2009 when the emissions trading scheme was first introduced—was actually supposed to phase out starting then at a much faster rate than what is being proposed here. And in response to the global financial crisis and the Christchurch earthquake the Government at the time cancelled that phase-out and that has put us in a position where essentially no progress has been made in the intervening 12 years. So this bill has actually been five years in the making. It was the result of a review that was kicked off I think by Tim Groser when he was in the climate change role recognising that actually at the settings at the time we weren't actually making the kind of progress that we needed to make. So the process of working through the phase-out rates for industrial allocation has been signposted with those companies regularly and they've been consulted many many times over over the course of the five years not just in the recent weeks as we've been deliberating on the bill but actually in the design of it as we went through. So I have to say I'm sceptical about claims that it's unpredictable. The whole point is predictability because we're actually saying over a 30-year time horizon here is the phase-out rate. Up until this point all it's saying is Well there's a kind of sword of Damocles which is we may phase these things out at some point but we're not going to give you the ability to plan for that because we're not actually signposting in advance what it is."; whereas what this bill does is it actually signposts over a three-decade time horizon what that looks like. Second of all the claim that there are no new technologies emerging is actually also not borne out by the evidence. So in the past sort of three or four years there have been significant innovations on zero emission production of both steel and aluminium using hydrogen and those technologies—in fact Apple and Alcoa entered into a $2 billion contract. I think it was Alcoa or Alcan that entered into a $2 billion contract to set up the world's first hydrogen-based zero emission aluminium smelter in the northern hemisphere. So that new technology is there. Clearly it's not here yet but the point is that with the kind of phase-out rate and the length of time that we're giving these businesses assuming that they decide to stay onshore for you know other business reasons they'll have access to that technology easily within the time available.To give you a sense of the impact of the cost on those firms if you take New Zealand Steel for example their revenues were $937 million in the year 2019. Their allocation of units—so what we gave them—was valued at $44.6 million assuming a $25 a tonne carbon price which is roughly what it's floating at at the moment and has been for a while. Their exposure is the equivalent of 1.48 percent of their revenue. If we start the phase-out rate as outlined here at 1 percent that equates to 0.49 percent of revenue—so under one half of 1 percent of revenue—and the numbers are lower for aluminium at 0.34 percent and for Methanex it's 0.27 percent. So you can see that the impact of what we're suggesting that 1 percent phase-out rate is absolutely marginal. And when you consider other costs that they face—for example fluctuations in currency or fluctuations in electricity price or the argument of course that the aluminium smelter constantly has about transmission pricing—those are many many many more times more material to this business. [Bell rung] Mr Chair?CHAIRPERSON (Adrian Rurawhe): James Shaw—the Hon James Shaw shall we?Hon JAMES SHAW: You can call me what you like Mr Chair. Hon Member: OK.Hon JAMES SHAW: Not you; him. Actually what we're talking about is really small but it does start to send that price signal and signal a direction. The other thing I want to say about industrial allocation is that there is a risk there we're actually over-allocating businesses at the moment. So whilst we say that they get a 90 percent free allocation under the scheme and are only liable for 10 percent of their obligation—we're starting to investigate this; we don't have evidence yet—we think that there is a possibility that at least in some cases they may be receiving over 90 percent and in fact in some cases over 100 percent. In other words the Government is allocating them more cash value than they are obliged to pay in total. And so the impact of the phase-out should have if that bears out over the course of the next couple of years really no impact on their profitability at all. The other thing that the member asked was around competing countries. So I'll just refer to China which is of course the world's largest producer of steel and a direct competitor to BlueScope Steel in New Zealand in terms of products available in the New Zealand market. China has seven provincial-level emissions trading schemes operating. They ran those for a number of years essentially as an experiment to try and work out what are the optimal settings. They are I think from this year putting in place a nationwide emissions trading scheme. Now initially it only applies to the electricity generation sector i.e. coal-fired power plants but they're phasing in other sectors at the rate of—I may need to check this but I understood that it was at the rate of one new sector each year and that does include steel. So they will be imposing carbon pricing on their steel production as well. The nature of their emissions trading scheme is different to ours but the point is that there will be a price applied at the margins. We've been for many years in quite close contact with the Chinese officials about the design of the schemes because of course everybody is in the same boat in relation to this. Any country that has to produce steel needs to cooperate with other countries that produce steel if there is ever to be any kind of emissions pricing on steel anywhere whether that's via an emissions trading scheme or via a carbon tax. So I'll leave it at that at the moment although I understand the member may have additional questions around industrial allocation and the emissions-intensive trade-exposed firms. I'll just bring my comments now to her questions around the impact on households. There is quite a lot of work that's been done on this. This is one of the interesting debates about whether now is the right time to do this? And if you look at the impact the economic crisis has had on petrol prices I think that retail prices have dropped—again I'll need to check this—by about 48c a litre over the course of the last few months because demand has dropped. By comparison the additional price that would be imposed let's say if prices rose to $35 a tonne from the current $25 a tonne—that would impose about a 9c a litre additional cost. You know prices have fallen 48c per litre so you can see that actually households are still better off in terms of their petrol prices. The other thing I want to say about this of course is that the whole point is to induce change. So all of the modelling—and this is a source of some frustration to me—assumes no change and therefore everything only ever appears in the modelling as an increased cost. But of course if firms do start to for example introduce a biofuel component into the mix of their petrol then the carbon obligation would go down and therefore the cost would go down. If there's no price then there's no incentive to change and you end up with the same result."