Shaw JamesCLIMATE CHANGE RESPONSE (AUCTION PRICE) AMENDMENT BILLFirst ReadingHon JAMES SHAW (Minister of Climate Change): Thank you Madam Speaker. I present a legislative statement on the Climate Change Response (Auction Price) Amendment Bill.ASSISTANT SPEAKER (Hon Jenny Salesa): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon JAMES SHAW: I move That the Climate Change Response (Auction Price) Amendment Bill be now read a first time. I nominate the Environment Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 4 March 2021 and that the committee have authority to meet at any time while the House is sitting (except during oral questions) during an evening on a day on which there has been a sitting of the House on a Friday in a week in which there has been a sitting of the House and outside the Wellington area despite Standing Orders 193 195 and 196(1)(b) and (c).E te Māngai tēnā koe. Tēnā koutou e te Whare. This bill amends the Climate Change Response Act 2002 and the Climate Change (Auctions Limits and Price Controls for Units) Regulations 2020. Its purpose is to ensure that when the emissions trading scheme (ETS) units are auctioned for the first time next month that they are sold at a price that reflects activity in the secondary market. It is a technical but necessary amendment that will help to create a more reliable carbon price signal and help ETS participants to make long-term investment decisions.To reduce greenhouse gases in the most cost-effective way there needs to be a sufficient and a predictable price on emissions. To that end you will recall that legislation to reform the New Zealand emissions trading scheme passed through this House last year. Of the changes made one of the most important was the introduction of a cap on the total emissions allowed within the scheme. Prior to this Aotearoa New Zealand somewhat absurdly had a cap-and-trade scheme without a cap meaning that the emissions permitted under the scheme were effectively unlimited. Because of this anomaly coupled with open access to a glut of cheap international units many of which had little or no environmental integrity the New Zealand ETS had failed to deliver on its primary purpose namely to bring down emissions. By putting in place an emissions cap and amending the principal Act to align with New Zealand's contribution to meeting the goal of limiting average global temperature increases to 1.5 degrees Celsius we have now changed that.We've also changed the way that some ETS units will be allocated by introducing a set of rules for auctioning which is what brings me to the purpose of the bill that we're here to debate today. Over the course of 2021 we expect that a total of 19 million New Zealand units (NZUs) will be auctioned through the emissions trading scheme. The availability of these units will be spread evenly across four scheduled auctions the first of which will take place next month on 17 March. If these auctions are to create a long-term well-defined and transparent framework for the efficient allocation of units which is what we intend especially as the pre-allocations of units is phased out and if auctions are to encourage investment in low-emissions technologies which the Climate Change Commission made clear last week are urgently needed then these auctions will need to operate within certain parameters. That is why the $25 fixed-price auction which was always meant to be temporary but has ended up as an artificially low ceiling on the cost of emissions has been replaced with both a price floor and a cost containment reserve. Working in tandem these mechanisms will help to stop the price of emissions getting either too low or too high. They'll work like this: if when an auction takes place the clearing price for units is higher than $50 the cost containment reserve will be triggered. At this point an additional number of NZUs will be made available to help moderate the price. The price floor complements this by ensuring that unit prices at auction do not drop below $20 in 2021. This will help to manage the risk of emissions prices falling for the wrong reasons thereby undermining investment. It is between the price floor and the cost containment reserve between the lowest price an emissions unit can drop to and the highest it can reach before it triggers the cost containment reserve where the ETS auctions will now operate. Of course the mechanisms that we legislated for last year support price stability in the auction itself which would be known as the primary market. But one of the features of the ETS is the creation of a secondary market where already issued units can be traded between various buyers and sellers. Put simply the primary market is where a unit changes hands for the first time; whereas the secondary market comprises all subsequent transactions. These secondary markets are crucial to the functioning of the emissions trading scheme not least because they provide a means for participants to sell surplus units which creates a powerful incentive to reduce emissions. But for that incentive to exist over the long term which is a prerequisite for any organisation looking to make low-carbon investments the secondary market needs to remain stable. And that's what this bill is for.It introduces a mechanism for New Zealand units to be held back from sale if at the end of the auction the clearing price for a unit is lower than what is known as a confidential reserve price". The principle is simple: ahead of each auction a confidential reserve price would be set relative to the secondary market price of New Zealand units; if once the auction has been completed the clearing price has dropped below this reserve price no units will be sold. This will help to maintain a minimum carbon price and strengthen the incentives for major long-term investments in low-emissions technologies which in turn will stabilise the secondary market should prices collapse if an auction does not go to plan. A reserve price will also mitigate the risk of exposing the Crown to a fiscal cost if units are sold for less than the prevailing secondary market price.As you know Madam Speaker the changes that we made to the emissions trading scheme last year were the result of five years' work that was carefully signposted and consulted upon every step of the way. Following the passage of the subsequent reform bill there was agreement from both sides of the House that a confidential reserve price was necessary to the functioning of auctions under the ETS.The orderly passage of this bill ahead of the first of those auctions on 17 March is crucial for building trust in the integrity of the process as well as signalling to business that this House can provide the long-term policy certainty that they are calling for particularly in the wake of the Climate Change Commission's draft advice. It is in no one's interest to undermine the auctioning process and to allow the secondary markets to be undercut not least because the greater stability that this bill provides for will encourage investment which will lead to increased productivity and employment opportunities as well as lower pollution levels. I therefore commend this bill to the House."