Court SimonSIMON COURT (ACT): Thank you Madam Speaker. The ACT Party was opposed to this bill at select committee because we believe that essentially the emissions trading scheme (ETS) as it's written is broken. A market system like the ETS can establish controls on price or the quantity of units but what the Government has set out to do through the legislative system is to do both. That is why it is broken and that is why ACT would not support this at select committee. There were a number of issues discussed at the Environment Committee that were raised by submitters some of whom may have had more warning than others but which were very real concerns and risks. They were concerned firstly that the bill was brought to the House with urgency and so close to the initial auction date on 17 March. That itself caused uncertainty from market participants who had been prepared to engage in the market based on the original legislation and now there was this new mechanism a confidential reserve price being introduced. Some of the submitters said that it may well be appropriate to have a confidential reserve price but in that case why do you need a floor price because you really only need one. If the Government has a mechanism to set out its price intentions or the cost of a New Zealand Unit why have both? Other submitters pointed out that if you're going to have a confidential reserve price and you're going to have an auction process where people bid then those bidders who bid above the confidential reserve price—as you would expect—should be able to take the units away that they had bid for above the reserve price. They pointed out that there's actually a design flaw with the legislation. It may be designed that way on purpose but they considered it a design flaw none the less. That flaw is that if the number of auctions that are put up—and in this case it's going to be 4.75 million units every three months. If the prices bid for those units are above that price but one bidder bids for a fraction of those units remaining below the reserve price then no one will get to take any units home. Submitters raised that at select committee and we raised that with officials and they came back with a completely unsatisfactory response. So the bill we see here today at second reading includes some of the amendments proposed by officials which include to refer a failed auction—because that is a real risk—back to the Minister and to the auction manager for review to review the methodology. But that doesn't address the real risk that the submitters raised and that risk was that in a constrained market—and the secondary market is constrained—we heard that typically a few hundred thousand units are traded at a time. The Government is proposing to release 4.75 million units at a time. Because the secondary market is constrained if the Government's primary auction fails there could be a rush to the secondary market by those businesses which have obligations because what the emissions trading scheme does and the zero carbon Act does is it puts obligations on businesses that emit carbon as part of their business to have New Zealand Units—carbon credits—and then to hand them in. That's their obligation: to pay for their emissions and then to hand those certificates over to the Government at the end of the financial year. If they can't get the units that they need then there's a risk that they could have to scramble to the secondary market. There could be price spikes or there simply won't be enough units available for a business to meet its obligations. You might say Well this is something that they should plan for." Well they have been planning for it. They have been planning since the original bill was passed and now what we see is this amendment bill—the auction price amendment bill—being brought to the House under urgency to add in this new control this confidential reserve price. So submitters said that the confidential reserve price wasn't necessary. Others said "If you're going to have it for goodness' sake let us take the New Zealand Units that we bid for"—that are above the reserve—"and let us take them home at the end of the auction. But please please avoid the risk of having an auction tank and all of those units drop back into the Government's bucket because that is a risk that would introduce a significant amount of uncertainty into the market place system." The ACT Party believes that an emissions trading scheme with a market-based system is the right system to manage our emissions. It's a system that allows New Zealand businesses who have emissions to offset their emissions by buying New Zealand Units within the New Zealand local context from those businesses which store carbon and capture carbon like foresters. There is still a flaw to the New Zealand ETS. It is a flaw that even the Climate Change Commission has identified in their report and that is that New Zealand businesses cannot possibly because of our current emissions path—and that includes the massive increase in the amount of coal being burnt to generate electricity in New Zealand which is up 40 percent in the past two years—access enough New Zealand Units within the New Zealand market to satisfy their obligations. So even the Climate Change Commission recognises this. It has suggested in one of its policy options for the Government to allow New Zealand businesses to buy emissions units from overseas because it's quite likely that it's much cheaper for New Zealand businesses to manage their climate obligations and to offset their emissions in other jurisdictions because after all climate change is a global problem. Carbon dioxide emitted in New Zealand is no different to carbon dioxide emitted in South America or Europe or North America. So for that reason the ACT Party believes that New Zealand businesses should have access to credits that are available on international markets from other emissions trading schemes whether that's California or Europe or anywhere that businesses are sequestering carbon and capturing carbon and can then offer those units to the market. If that was the case it's quite likely that the price would be much less than what we're currently seeing on the New Zealand market. We're seeing prices of $38 or $39 on the secondary market. The Government has a fixed-price offer for businesses currently at $35 per New Zealand Unit so that they can buy credits for last year's obligations and yet what we see in other markets is that it's actually possible to mitigate their emissions for much lower costs. It may be even $5 or $10 per tonne as opposed to the $40 to $50 that we're hearing about in New Zealand. If New Zealand businesses were able to mitigate their emissions at much lower cost then that would also reduce the risk that these businesses would have to leave New Zealand. We're talking about cement we're talking about steel we're talking about manufacturing businesses and even businesses that refine chemicals and other products here that we do in an environmentally friendly way that we then export to the rest of the world because I would trust New Zealand scientists and engineers to manage our environmental effects here more than I would some of those less-developed countries where we know these industries—these petrochemical and manufacturing industries—will simply relocate to if the cost of compliance in New Zealand is too high. But the ACT Party recognises that if we're to have a fully functioning ETS we must when the opportunity arises propose some mechanisms that actually make it better so we have tabled an amendment—which we're looking forward to debating at the committee stage—which actually means that when an auction takes place any bids above the confidential reserve price for New Zealand Units will be successful. So we want to address the risk that submitters raised which is that in good faith they might bid above the reserve and yet not be able to secure the credits that they're seeking to fulfil their obligations. So the ACT Party has proposed an amendment on Supplementary Order Paper 15 which effectively determines that should any units be bid for above the clearing price they should be available to the bidders. So on that basis we oppose this second reading but we look forward to debating this further at committee stage. Thank you."