Mallard Trevor: Climate Change (Emissions Trading and Renewable Preference) Bill — First Reading 
Mallard Trevor: Climate Change (Emissions Trading and Renewable Preference) Bill — First Reading 
[Volume:644;Page:13789] 
Hon TREVOR MALLARD (Acting Minister for Climate Change Issues) 
: I move  
That the Climate Change (Emissions Trading and Renewable Preference) Bill be now read a first time. 
 This is a debate about a landmark piece of legislation—the Climate Change (Emissions Trading and Renewable Preference) Bill—and at the appropriate time I will move that this bill be referred to the Finance and Expenditure Committee. 
The bill establishes two new tools in delivering climate change solutions—an emissions trading scheme and a preference for renewable energy generation by implementing a 10-year restriction on new fossil fuel thermal-energy generation with exceptions that ensure the security of New Zealand’s electricity supply. This will assist in meeting the Government’s goal of 90 percent of our electricity generation being from renewable sources by 2025. 
Reducing greenhouse gas emissions below “business as usual” levels is the objective underlying the emissions trading scheme. The broad design of the policy has received considerable praise—both within New Zealand and internationally. I might say having acted previously for the Minister at the United Nations our approach caused considerable comment from a number of countries. 
People have by and large accepted that climate change is real and that we must reduce emissions if we are to do our bit in helping the world deal with it. Most people agree that the emissions trading scheme needs to cover all gases and all sectors and I think this is the difference between the approach New Zealand is taking and the approach of many countries so far. Overall and generally they agree with a gradual staged introduction. 
The Government’s approach is to maximise the scheme’s environmental integrity while minimising any costs and adverse effects. The Government will assist households and businesses to adapt and will provide a smooth and gradual transition. The Government has relaxed the penalty regime and set up a consultative process to develop allocation plans. 
Other key issues that arose during the previous engagement focused on three key aspects: how the Government should assist through the free allocation of units to sectors and within sectors; how the market will operate in terms of international linkages liquidity and the unit of trade; and the treatment of pre-1990 forest. 
The legislation maintains a policy of free allocation of units as was discussed in the framework document. It makes clear that the planned review of the emissions trading scheme must consider our allocation model in the context of the emissions pricing policies of major trading partners. Even in the last few weeks the international competition issues for our economy have decreased as a result of the new Australian Government’s decision to ratify the Kyoto Protocol and through it to take on a binding cap on its emissions. 
Final considerations on the matter of the phase-out of allocations are not complete and the ongoing views of stakeholders through the Climate Change Leadership Forum and other ongoing engagement are important. The legislation also contains the Government’s preferred approach around issues such as international linkages to other emission trading schemes liquidity and the unit of trade. 
An important issue on which the Government has yet to make a decision at this point is the inclusion or not of the so-called hot air assigned amount units in the emissions trading scheme. Hot air units is the term given to certain Kyoto units issued to countries like Russia and the Ukraine under the Kyoto Protocol. These units represent real emissions reductions in Russia whose ratification of the Kyoto Protocol was crucial to it coming into effect. The Government intends to analyse a series of options prior to making a final decision next year. The ongoing engagement with stakeholders will be highly relevant to this consideration. 
The existing Climate Change Response Act provides a regulation-making power to impose restrictions on the units that may enter the New Zealand Emission Unit Register and what they can be used for. The bill re-enacts this power making it possible to place restrictions on hot air units if the decision is to do so. Any changes to the rules on what units can be surrendered for compliance or held in the registry will not apply retrospectively and the bill makes this clear. 
In respect of pre-1990 forest the Government’s proposal would see compensation for landowners on the basis of hectares of forest. The Government has not been able to identify any fairer method for targeting that assistance. The overall level of allocation to deforestation is generous and it is equal to the full amount of deforestation emissions at historic rates of deforestation. Some forest owners purchased their forests after the cap on deforestation was announced. Some forest owners have deforested significantly in the period since the cap was announced and others have been unable to. 
The bill is silent on how units will be distributed to individual landowners and provides a process for an allocation plan to provide for free allocation to landowners of pre-1990 forest. The allocation plan will be publicly released in draft form and submissions will be considered before the final plan is agreed. 
The bill provides for a self-assessment model in which participants who do activities must monitor their activities record their emissions report them and surrender units to cover the emissions. Provision is also made for participants undertaking removal activities such as afforestation of post-1989 forest land to earn units for every tonne of emissions they remove from the atmosphere. The administering agency will have the powers to audit participants’ compliance with their obligations and to take enforcement action where there is failure to comply. 
Important issues remain upon which the Government has yet to make decisions. We are determined to engage fully in these issues over the next year. 
The legislation being introduced includes default provisions for all sectors including activities on the dates upon which sectors assume obligations which align with the announced dates of entry into the scheme. The bill also sets broad parameters that will govern the free allocation of units to the forestry industrial and agricultural sectors although it does not state the total number of units available for allocation to the industrial or agricultural sector or precisely which individuals and firms within the sectors will receive a free allocation of units. The inclusion of these default provisions in no way negates the Government’s commitment to ongoing engagement with stakeholders on implementation issues. The default provisions are included because an essential principle of the scheme’s design is that it applies fairly across all sectors and to all greenhouse gases. 
It is important that there is certainty to all sectors in the absence of further legislative action that they will be covered by the scheme. It is important that the forestry and transport sectors which are entering the scheme first have the assurance that they will not be alone in having obligations under the scheme. The option of either a processor or a farm-level obligation in the agricultural sector is one example where the Government wishes to consult further before making a final decision and where the legislation allows either decision to be implemented. 
One important element in the original framework of the emissions trading scheme elicited little debate indicating a broad consensus. That was the overall objective of the scheme. The objective outlines the need to establish a new equilibrium between environmental impacts and economic growth. For too long there has been an imbalance. 
There must be a concerted international response to climate change. Emissions trading is a crucial element of New Zealand’s response. It is especially pleasing that the framework we launched in September has received strong support in many quarters including reviews by internationally respected organisations. I commend the bill to the House.