Chauvel Charles: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
Text is incorporated into the Bound Volume 
Chauvel Charles: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
[Sitting date: 24 November 2009. Volume:659;Page:7904. Text is incorporated into the Bound Volume.] 
CHARLES CHAUVEL (Labour) 
: 
 The Government has made a mockery of Parliament’s processes by the way it is dealing with the Climate Change Response (Moderated Emissions Trading) Amendment Bill. The amendment itself is flawed on multiple levels. It will make us poorer our economy weaker and our emissions increase. The tragedy is that none of that needed to happen. We could have instead achieved something enduring through good-faith discussions but that is not something the Minister for Climate Change Issues is capable of. By the end of this week every part of Parliament’s consideration of this bill will have been rushed and inadequate particularly given the immense economic social and environmental outcomes at stake. 
At the Finance and Expenditure Committee submitters experts and officials were all given impossibly abbreviated time frames in which to contribute effectively. The committee was given less than 2 months to scrutinise extremely substantial amendments and to consider 379 written submissions. Oral submitters were given only 10 minutes to speak—if they could do so given the short notice they were provided with. Our independent expert Dr Suzi Kerr was not able to provide information until the final day of deliberation. As such her advice was not able to be incorporated into departmental reports which were likewise unable to be provided until the final couple of days of deliberation. The Parliamentary Counsel Office could provide only an untested draft of revision-tracked amendments on the day of deliberation itself. There was a fundamental lack of robust supporting information available to assist the committee and submitters in evaluating the rationale for and costs associated with the amendments. 
The bill was roundly and publicly condemned by Treasury. Treasury said that the level and quality of the analysis available were just not up to the significance of the proposals and that the analysis did not provide an adequate basis for informed decision-making. Treasury is right: there is no analysis of what drives the key changes in this legislation and throughout the Minister has obstructed attempts to obtain background information that might assist the committee or the public to assess the bill—just like his selective quoting of documents in question time today. This includes key documents such as Treasury’s long-term analysis of fiscal costs. 
The committee and submitters were completely unable to scrutinise the forthcoming amendments foreshadowed prior to the first reading of the bill; they comprise 121 pages and were tabled in the House at 2 o’clock today. They include changes that were settled on only yesterday in exchange for the support of the Maori Party—apparently as the proxy for the Iwi Leadership Group. The impacts fiscal and otherwise of these backroom deals will never receive proper parliamentary scrutiny. 
How can the process I have described give anyone confidence in the end-policy outcome? Given the shambolic process that the bill has been subjected to it is no surprise to find that it is fundamentally flawed but the magnitude of the policy incoherence is breathtaking on many different levels. It will make New Zealanders poorer our economy weaker and our emissions higher. 
The worst area of the bill concerns the level duration and model of the allocation of units—in other words the way that it gives emitters ongoing rights to pollute. The bill puts in place an uncapped intensity-based allocation model. This allows the overall level of allocation and therefore emissions themselves to actually increase. In other words there is no cap in this “cap and trade” scheme. The lack of a cap obviates the whole point of an emissions trading scheme which is to reduce emissions over time at least cost. It should do this by allowing the trading of permits under a cap and then reducing the cap over time. If production of emissions-intensive trade-exposed activities increases by more than 1.3 percent a year as it almost certainly will in many years then absolute levels of allocation will actually increase. So therefore will emissions. The Parliamentary Commissioner for the Environment rightly advised us that a cap is vital to create the right incentives to reduce fiscal risk and to create policy certainty for business. The intensity-based nature of the allocation model does not support emissions reductions appropriately and it does not provide the incentive of the full emissions price at the margin. 
The level and duration of allocation here is overly generous and too slow. Both the Parliamentary Commissioner for the Environment and the independent expert Dr Kerr say this. The phase-out rate of 1.3 percent for at least 80 years defies any common-sense notion of transition and as with any protection or subsidy future Governments will find it very difficult to reduce previously promised protection levels. The bill makes it very difficult to alter levels of allocation with additional 5-yearly reviews following any change recommended. If levels of allocation are no longer appropriate surely they should be altered promptly. It is unfair to the taxpayer to do otherwise. Indeed the Institute of Policy Studies sums up this point up. It told the select committee: “the bill [is] designed more to tie future Governments’ hands with red tape rather than to enable flexible and effective policy …”. Also problematic is the proposed transitional period which provides a half-obligation and a fixed $25 per tonne price to the energy transport and industrial processes sectors until the end of 2012. This shifts more than half the costs of emissions until 2012 from the polluter to the taxpayer and reduces incentives for appropriate levels of emissions-reducing investment and behaviour. 
A further concern is the delay in the inclusion of agriculture from 2013 to 2015. The Parliamentary Commissioner for the Environment notes “there is insufficient evidence to justify delaying the entry of agriculture to the [ETS].” It will keep the costs of emissions with the taxpayer until 2015 and will delay appropriate levels of emissions-reducing investment and behaviour in this sector. 
So why are these changes being made? In reading through the regulatory impact statement it appears that the primary official reason is to prevent “carbon leakage” especially to Australia. And there is not much more analysis than that. Just how much economic activity will move in the absence of this bill? How many jobs would be lost? How does the value of these losses compare with the value of the subsidies provided? None of this most basic information has been made available. It may exist; it may have been withheld by the Minister along with much other vital information. We as a Parliament will never know. Treasury itself concluded that there is no clear analytical basis to align with the currently proposed Australian Carbon Pollution Reduction Scheme given New Zealand’s and Australia’s unique emissions profiles and industrial structures. The fact that the Australian scheme is still proposed only and could be subject to further revision—assuming that it survives the Liberal Party caucus room in 3 or 4 minutes when its meeting finishes—only adds to the incoherence of the proposal to harmonise. 
Dr Suzi Kerr advises that free allocation should be phased out relatively quickly irrespective of our competitors’ behaviours. She says that this is for the same reasons that we do not subsidise agriculture even though the US and the EU still do. In her words: “The benefits to the protected activities are vastly outweighed by the costs to the economy as a whole.” She considers that the phase-out of free allocation in the current Act at 8 percent ending at 2030 was probably already too slow on economic grounds. It is proposed to be replaced by a phase-out of allocation at 1.3 percent for the next 80 years. This bill would make highly undesirable changes in order to achieve objectives that Treasury the Parliamentary Commissioner for the Environment a leading independent expert and others tell us are without any clear analytical basis. 
The tragedy here is that Parliament could instead be assembled today to debate a politically sustainable scheme. It is a matter of public record that early this year Labour offered talks to National as to what amendments might be needed to reach enduring certainty over climate change policy. When National walked out on those negotiations in favour of advancing the amendments contained in the bill there were only three issues outstanding. The first was the entry date of agriculture; the second was the transition period half-obligation and fixed price; and the third was the allocation model level and phase-out rate. We were prepared to compromise on these in order to achieve an enduring emissions trading scheme. We would likely have agreed to a compromise agriculture entry date of 2014. We would likely have accepted the transitional price cap and half-obligation. We would likely have accepted an intensity-based allocation within a cap subject to reasonable phase-out rules. All were less than ideal compromises but we were prepared to make them in the interests of achieving an enduring emissions trading scheme. 
We negotiated in good faith and we could see no reason for National not to do so as it appeared that the only significant issue for it to compromise on was the issue of the cap on free allocation in agriculture. If National had done that an enduring and effective emissions trading scheme could have been achieved. We forgot whom we were dealing with. Instead we have a bill that will make New Zealanders poorer our economy weaker and our emissions higher. If Parliament passes the bill in anything like its current form a priority for Labour will be its repeal and its replacement with legislation providing for a robust emissions trading scheme and fit-for-purpose complementary measures.