Smith Nick: Climate Change Response (Moderated Emissions Trading) Amendment Bill — In Committee 
Text is incorporated into the Bound Volume 
Smith Nick: Climate Change Response (Moderated Emissions Trading) Amendment Bill — In Committee 
[Sitting date: 24 November 2009. Volume:659;Page:7986. Text is incorporated into the Bound Volume.] 
Hon Dr NICK SMITH (Minister for Climate Change Issues) 
: 
 I always enjoy dialogue and debate with Mr Parker because he is thoughtful and well informed and I think he has genuinely made a significant contribution to New Zealand in climate change policy by advancing an emissions trading scheme as the Minister responsible for Climate Change Issues under the previous Government. But I also want to debate in a proper way a number of the points he raises. 
He says that there is no economic analysis on which to base the approach with which we are doing the allocation. I accept that it is a debatable point; there is a range of views. But let me read very clearly the in-depth analysis that was done by the New Zealand Institute of Economic Research and Infometrics in the conclusion of their inquiry. They said: “Our recommendation in the short run is to introduce an ETS with free allocation to competitiveness-at-risk sectors with agriculture excluded if measurement of its emissions is prohibitively expensive. Free allocation should be output-linked and phased out as competitors adopt carbon pricing. If agriculture is initially excluded it should be transitioned into the ETS as measures become economic.” That is the key conclusion of the major analysis that was done this year in that regard. 
I want to cover a couple of other points. I want to deal with the question of economic analysis and how costings are done. I want to make this analogy for Mr Parker and Labour members so they understand. If they want to argue that the $110 billion figure is the way in which we need to cost policies that is we need to add up the cost every year and if it is a loss of income—because it is a loss in terms of these changes—then we need to add interest at the standard rate which is what those figures involve. Let me tell members what that means. 
Hon David Parker 
: Or borrowing costs. 
Hon Dr NICK SMITH 
: Labour has said that it will proceed with its tax policy in respect of research and development tax credits. That policy is described as costing $260 million. Labour members mean that there will be foregone revenue of $260 million per year. If we apply the same costing approach that Labour members are adopting and we run it through to 2050 the cost of that policy is $43 billion. Is it fair when Labour announces such a policy as we go before the next election for us to use the same pricing method on a research and development tax credit that results in a loss of revenue in exactly the same way as they would want to use the $110 billion figure? The third point I will make— 
Hon David Parker 
: Then explain away the $50 billion. 
Hon Dr NICK SMITH 
: The member challenges the figure of $50 billion. The real crux—and I have an interesting analysis here that the member may be interested in—and the key sensitivity of that number is the phase-out rate. We are starting the phase-out rate a little earlier. We are doing it in 2013 at 1.3 percent. Agriculture tax starts in 2015 at 1.3 percent. If we change the rate to 2 percent the number would reduce to $40 billion. It we reduced it to 4 percent it would be $20 billion. If we phased out at 6 percent per year it would come out at about zero. 
Hon David Parker 
: We could have compromised with that. 
Hon Dr NICK SMITH 
: Members on this side of the Chamber are saying this and this is an invitation to the Opposition. I am not sure where international negotiations will go. I am not sure where the carbon price will go. I am not sure where the technologies that we are spending significant money on will go. I am not married absolutely to that 1.3 percent rate. That is why it is one of the key features that will be reviewed in 2011. Our policy position is that that phase-out rate should be in line with our major trading competitors as per the comprehensive analysis from the New Zealand Institute of Economic Research and Infometrics. When the Government says that the 1.3 percent rate is only in the short term for Labour members to put great weight on what the implications of that will be in respect of 10 20 30 or 40 years’ time is in my view quite misleading. When we do the review in 2011 I invite Labour to engage with the Government because the analysis is very sensitive to that rate. The last point I will make is this: if we scratch the surface of what Mr Parker just advised us if the allocation is just to 2030—