Parker David: Climate Change Response (Moderated Emissions Trading) Amendment Bill — First Reading 
Parker David: Climate Change Response (Moderated Emissions Trading) Amendment Bill — First Reading 
[Volume:657;Page:6860] 
Hon DAVID PARKER (Labour) 
: 
 This debate on the Climate Change Response (Moderated Emissions Trading) Amendment Bill is an argument about good economic management and fundamental economic principles of economic management. I know that there are parties in this House that do not think that climate change is a problem and that we should therefore not be in the Kyoto Protocol and should not price emissions. That is not the argument we are having today. The argument is about how an emissions trading scheme should be designed.  
I will not respond to the Hon Dr Nick Smith’s accusations about process. Suffice it to say that the paper trail in respect of process is on the web. If people go to the Red Alert website they can look at it. The comments that Dr Smith made are not correct. 
There were four outstanding issues of significance between Labour and National. We have offered to compromise on all of them but not to go the whole extent on the fourth issue. The first one was the date for entry of sectors. Because the Government has delayed so long in practice we cannot bring in stationary energy on 1 January next year.  
Hon Dr Nick Smith 
: You never could! 
Hon DAVID PARKER 
: I disagree. So we agreed— 
Hon Dr Nick Smith 
: Officials say you never could. 
Hon DAVID PARKER 
: The member has had his turn. We agreed to extend that date to the middle of June and we also agreed to the Government bringing transport forward to that same date noting that it brings forward the date of costs for consumers of transport contrary to some of the claims made by National. We do not understand the reason behind delaying agriculture any further. Already New Zealand faces the cost of increasing greenhouse gas emissions in agriculture. We have to count them under the Kyoto Protocol so why is the Government not sending an economic signal that reflects that reality? None the less we said even on that issue that it is politically important to the Government. It won the election so we would compromise on that issue too. So there was not an unsolvable problem there.  
In respect of price caps if we are to trust the markets then we should not have price caps. If we are to trust the markets and we want the emissions trading scheme to work we should not have price caps. Again we said that the longer the price cap is and the lower the price cap is the bigger the problem is; if it is not too long and it is not too low we could probably go there too. I do not think that would be the best outcome but we could compromise on that. I am not convinced that the so-called halving of electricity cost works because of course we do not change the price of electricity in the long run. It is driven by the marginal costs of new supply which are unaffected by the discount given to electricity wholesalers. None the less we said that we could live with that.  
We were then left with the biggest issue which was free allocations. This is where the analysis by the Government has been so poor. The Government has not yet justified its transitional measures. It says it is trying to have a transition that moves to the full pricing of emissions over time yet during that period it will let people increase the amount of free emissions. 
Hon Dr Nick Smith 
: What did the New Zealand Institute of Economic Research say? 
Hon DAVID PARKER 
: The New Zealand Institute of Economic Research had a report that was flawed in a number of areas. For a start as it said in its own report it had not properly factored into its report the effect of increasing dairy land prices and other marginal land prices on forestry. It said that in the end it was a line call on the basis of its analysis. We asked Treasury officials about this. We asked them whether they relied upon a general equilibrium model that produces a line call to overturn settled economic theory. Of course the answer is that they do not.  
The reality here is that New Zealand faces the cost of increases in emissions. During a period when other countries are not pricing emissions there is a very real risk that industries that are exposed to competition from those countries will not be able to compete and during that transitional period New Zealand would therefore lose businesses that in the long term should be sustained here. That is why there should be a generous free allocation to major emitting industries that face competition like that. It does not mean that it is in New Zealand’s economic interests to let that cost grow. It does not follow that one should do that.  
There are some similarities between this policy and tariff reduction policy. Arguments are still had to this day in New Zealand about when Sir Roger Douglas and others deregulated the New Zealand economy and exposed the New Zealand economy to competition from other countries. We phased out tariffs. I actually agree with that move; we should have phased out tariffs. The question is whether we should have done it a wee bit slower than we did. I actually think that is a fair question. We clearly should have done it but no one thinks—whether or not it should have been slightly slower than the pace that we did it at—that we should have increased protection during the phase-out of tariffs. That is what this bill does. It increases the protection of the agricultural sector to allow it to increase its emissions above its current levels of emissions and taxpayers have to pay for it. That leads to the misallocation of economic resources— 
Hon Dr Nick Smith 
: Not true! 
Hon DAVID PARKER 
: I tell Dr Smith that it is. If it were not true he would be able to agree to a cap on the free allocation in the agricultural sector. He has said—at least in the short term—that the cap on the allocation in the industrial sector would have been able to be agreed to by his Government because his new allocation methodology in industry would not reach that cap anyway. I accept him at his word. We will go through the numbers on that. But in respect of agriculture we know that the Government and the industry already say they are at the world’s best practice. Therefore farmers will not have to do anything more than increase their output in order to get more free allocation. That makes New Zealand poorer not wealthier. It sends the wrong economic signal. We will not have a change in land use away from higher emissions behaviour towards lower emissions behaviour.  
The agricultural sector accounts for one-half of our emissions. This is economic mismanagement by the current Government. You know it was a National Government that previously visited supplementary minimum prices on New Zealand. That was poor policy from a prior National Government and it actually took a Labour Government—with the help of Sir Roger Douglas David Lange and others—to remove what were improper supplementary minimum prices. This measure is actually smaller; it is not nearly as significant as supplementary minimum prices were. 
Hon Dr Nick Smith 
: That is ridiculous. 
Hon DAVID PARKER 
: But it is. It is a subsidy for increased emissions in the agricultural sector. It is exactly the same in principle; there is no difference. That is why we cannot agree that we should have an uncapped free allocation in agriculture.  
I want to move to a couple of other issues. 
Hon Dr Nick Smith 
: But you can for industry. 
Hon DAVID PARKER 
: No we cannot. We should not have an uncapped free allocation for industry either. The reality is as the Minister says that so long as the rate of allocation under an intensity basis in industry is reasonably strict we do not actually reach the cap. It becomes a semantic argument. But it is not a semantic argument in agriculture and as a consequence we will not see the hectares of land that we need planted out in trees to absorb carbon because it is a low-cost way of reducing our emissions and we will not see the reductions in agriculture emissions that we should see by encouraging emitters towards lower emissions behaviour. Quite apart from the environmental outcome we will get poorer as a country as a consequence of this change to the allocation methodology rather then richer. That is bad policy.  
It is not about jobs as the Minister says it is. We all agree that there should be generous free allocations so that we do not cause enterprises to leave. But the means of production in agriculture are fixed. It is land. It is processing equipment. It is livestock. No one will pick them up and take them away. The question is whether we want to see that sector expanding in a way that does not internalise the cost of its emissions. It will still expand in areas where it is profitable to do so if it is facing marginal costs of emissions but it will not expand where it is not profitable to expand when the marginal costs of emissions are included. That is what an emissions trading scheme is meant to do. The current scheme which the Government seems determined to push through will actually make New Zealand poorer not richer. Quite apart from the environmental consequences we will become poorer not richer. 
Hon Dr Nick Smith 
: You are far too pure! 
Hon DAVID PARKER 
: I am not being pure. I am saying we can have intensity-based allocation. I am just saying that during the transitional phase if we want emissions to come down we should not pay for them to go up—beyond a cap. We can allocate on an intensity basis up to that cap. It is not as good as our historical base in terms of the marginal pricing signal it sends to the emitter but it can be done.  
Lastly this Government is breaching another very important point of principle. Treaty settlements are full and final. Treaty settlement assets become assets that are subject to the laws of this land. The National Government deal with the Maori Party says that that is no longer the case and that it will do a special deal for Ngai Tahu in respect of assets it received. The Government of the day did nothing wrong. It did not misrepresent the position. 
Hon Dr Nick Smith 
: Not true! 
Hon DAVID PARKER 
: Yet a specific line says National will address the issues on the value of pre-1990 forests that went to Maori under Treaty settlements.