Chauvel Charles: Questions for Oral Answer — Questions to Ministers Questions to Members 
Chauvel Charles: Questions for Oral Answer — Questions to Ministers Questions to Members 
[Volume:647;Page:16132] 
2.  
CHARLES CHAUVEL (Labour) 
 to the  
Minister of Finance 
: What recent reports has he received on the revenue implications of the proposed emissions trading system? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I have seen a range of reports some suggesting that the scheme will be a revenue-raising machine raising up to $80 billion. Any estimates are of course subject to assumptions but Treasury’s latest advice to me is that on the assumption that in the second commitment period the cap will be lowered under international agreements by 5 percent from the current caps the net revenue gain for 2013 to 2018 will be $159 million a year. If however the cap is lowered by 15 percent there will be a net revenue loss of $106 million a year. In either case these are relatively small numbers compared with total Government revenue. 
Charles Chauvel 
: What reports has the Minister seen on support for the proposed emissions trading system? 
Hon Dr MICHAEL CULLEN 
: I have seen many reports—in particular a report from one member of Parliament indicating support for the scheme last year followed by an announcement last weekend that his party will no longer support it. I am reminded of course that the same member previously described the Kyoto Protocol as a hoax before going on to say that he had always believed in it. It does suggest a certain inability to have a firm and fixed position on perhaps the largest challenge facing the world at the present time. 
Hon Member 
: Who was that? 
Hon Dr MICHAEL CULLEN 
: That of course was Mr John Key. 
Hon Dr Nick Smith 
: Does the Minister agree with the statement by David Parker the Minister responsible for Climate Change Issues: “the emissions trading scheme does not create any cost for the economy.”? 
Hon Dr MICHAEL CULLEN 
: What Mr Parker was saying is completely correct in that the costs are created by Kyoto. Those costs bear upon—[ 
Interruption 
] The Kyoto Protocol imposes costs upon the Government. 
Hon Member 
: That is sophistry. 
Hon Dr MICHAEL CULLEN 
: That is not sophistry; that is a fact. The question is about how those costs are going to be shared. Are they shared entirely by the Government—that is the taxpayers—or are they transmitted through an emissions trading scheme? That has the added advantage of sending the appropriate price signals about changing behaviour whereas simply increasing taxes does not send that signal at all. 
Hon Dr Nick Smith 
: Why did the Minister responsible for Climate Change Issues say that there would be no windfall of profits to the Crown in the first commitment period when the climate change emissions trading Cabinet paper notes “The increased revenues for government associated with increased costs of electricity could also be significant. Estimates of the windfall profits that are likely to be received by SOEs … is $70-220 million/year.”? 
Hon Dr MICHAEL CULLEN 
: Those numbers probably reflect the impact of the marginal pricing arrangement of electricity considering that an emissions trading scheme raises the marginal price and therefore there would be increased windfall to renewables generation in particular. However the member forgets what the Minister I think outlined yesterday and that is that the State-owned enterprises have built those profits into their assumptions around reinvestment back into renewable generation. Without that revenue stream the Crown will have to provide equity injections in order to enable that investment to occur. 
Hon Dr Nick Smith 
: Why will the Government not release the advice on the flow of revenue to the Government under the emissions trading scheme in which under the range of scenarios it shows that the best estimate is a $13 billion surplus from the sale of emission units and a possible range of $6.6 billion to $21 billion of surplus? 
Hon Dr MICHAEL CULLEN 
: The numbers the member refers to are projected out to 2030 on the latest advice that I have. Most of those so-called gains are back loaded—in other words they occur during the latter part of the period. Of course by then the economy is likely to be some $300 billion - plus a year. So a gain of perhaps $1 billion to $1.5 billion a year by that stage will be a relatively small part of the total economy and will have been recycled no doubt either into expenditure to compensate for costs or into tax reductions. Treasury is quite clear that the direct gains to the Government in the initial period are very small and even those in the second period from 2013 to 2018 are actually quite small. I am happy to table that advice today. 
Jeanette Fitzsimons 
: Does the Minister agree that if he wishes to recycle some revenue into helping the most vulnerable consumers to meet the higher costs of energy then the best way of doing so would be to invest in making their homes and transport choices more energy efficient so that their bills go down even if prices go up; the second-best way of doing so would be to raise incomes; and the absolutely worst way of doing so would be to give consumers a reduced electricity price which would completely remove the whole incentive of the emissions trading scheme to get people to invest in more energy-efficient choices? 
Hon Dr MICHAEL CULLEN 
: I think the last point is a fair one and I believe compensation is best made not through a price mechanism but through other mechanisms. I think the member is quite right that considerable assistance can be given through retrofitting in terms of insulation and obviously assistance around public transport. But of course people who already have a well-insulated home and perhaps do not use public transport very much would still face a net increase in cost. So the Government will be giving a lot more consideration between now and the introduction of electricity into the scheme at the start of 2010 as to how best to achieve compensation. Already there is commitment with New Zealand First to look into the issue of a rebate for superannuitants. But that of course is not a reduction in price—it will be a flat rebate. 
Hon Tariana Turia 
: Tena koe Madam Speaker tena tatou katoa. Does the Minister agree that the nature of Maori land tenure may result in disproportionate effects on tangata whenua from controls on deforestation; and what initiatives will the emissions trading scheme introduce to mitigate this effect? 
Hon Dr MICHAEL CULLEN 
: No I do not entirely agree with that position. There has already been significant discussion with iwi leadership groups about how best to allocate forest entitlements units in a way that is consistent with overall equity and that addresses some issues and an agreement has been arrived at in that regard. I think it is a perfectly fair outcome. At the end of the day it is not possible to exempt a large part of the primary sector economy from the impact of the emissions trading scheme and expect to have a positive effect because the cost of that would be transferred to all other parts of the primary sector economy. 
Hon Tariana Turia 
: What response will he be making to the recommendations from the Maori reference group regarding compensation if the demands under the emissions trading scheme undermine the value of the Crown rental forest lands returned to Maori? 
Hon Dr MICHAEL CULLEN 
: In terms of lands being returned certainly from at least 2002 onwards obviously including central North Island lands the impact of the emissions trading scheme or a similar scheme whether it is carbon tax or whatever has already been factored into decisions that are being made around the price for that land. In effect more land is available because the value of the land is less. It is the quantum that is the key factor in that regard. With respect to Ngai Tahu in particular which is the most affected in terms of negotiations in the past discussions are continuing at the present time. 
Jeanette Fitzsimons 
: Does he agree that the increased cost to the taxpayer of bringing in transport 2 years later is also a revenue implication of the emissions trading scheme and that this will amount to a revenue reduction to the Crown of over $900 million at $30 a tonne? 
Hon Dr MICHAEL CULLEN 
: There is certainly an operating balance and indeed a balance-sheet effect of delaying by 2 years the emissions trading scheme with regard to liquid fossil fuels. If it is at $30 a tonne it would be some $900 million and sooner or later that deficit has to be made up. There is no free ride for anybody in the whole issue around climate change. Those who argue we should have a climate change policy where no changes have to be made are simply engaging in a totally illogical position. 
Hon Dr Nick Smith 
: I seek leave to table the report of the Emissions Trading Group on the revenue flows from the auction of emission units. 
Document by leave laid on the Table of the House. 
Hon Dr MICHAEL CULLEN 
: I seek leave to table the latest advice I have from Treasury on the net revenue implications of the emissions trading scheme. 
Document by leave laid on the Table of the House.