Smith StuartSTUART SMITH (National—Kaikōura): Thank you Madam Speaker and it's a pleasure to speak on the Climate Change Response (Auction Price) Amendment Bill. I met James Shaw prior to Christmas where he asked me whether we would support this change in this bill because of the anomaly in the Act that we had passed last year. And I said well yes but depending on what was in the bill and I'd like to see that. Unfortunately I didn't find out it was coming up until this morning even though it was published late on Friday. I think that's quite poor and I thought James is better than that actually. I also note that James during your time in Opposition you railed against urgency unless there was almost a near-death emergency on our way. This is not the case with this bill. This could have been brought to the House before Christmas giving us plenty of time for a select committee process and people to put in submissions. That would have been quite—it's not as though the legislative calendar was that full last year as it was they were scraping for legislation. So I think it's appalling. We've gone through this whole debate about truncated processes in the previous bill but I won't go across all of that country again. But this is a highly technical bill and a highly technical—or particularly the markets and how they operate are highly technical. We need expert advice on this as to whether it's the right thing to do in the way this bill was drafted. We support getting this right. We absolutely support that.We want this to work efficiently and effectively. But is this the right mechanism? We simply don't know and I'm sure that the Government doesn't know either. So to have what is a three week-and-a-bit select committee process I don't think is long enough to get that expert advice. We know that the traders in the market commodity markets are—and this is effectively what this is it's a commodity market—massive and they're very complicated in the way that they work and I'll talk about how the system might be gamed a little later. So it's important we get those people in and to give their submissions. I'd like to hear from Fonterra actually they run a very good auction system. I'd like to know what their view is on this. But we want to ensure of course as the Minister said that the secondary market remains intact and keeps its integrity and I support that.And I note in the whole process—and this is the rules for auctioning in the New Zealand emissions trading scheme (ETS)—what the Minister didn't quite explain is that each bidder puts in a bid stating their price and the quantity of the New Zealand units that they want to acquire they are then ranked from highest to lowest. Then each successful bidder receives a quantity bid at prices at or above the clearing price. That uniform price means that all bidders pay the same clearing price and that price is the lowest successful bid. So effectively what the concern is here is that people in the market could get together come to an agreement a side agreement—which would probably be illegal—and then ensure that the low bid was very low acquire those units at that very low price then sell them on the secondary market later or in fact wait for the price to go up. So I think we understand why you'd want to do that and we do need to get this to function properly and we want confidence in the market but the other—in terms of fiscal risk at $25 it's just over $2 billion just over $2 billion up to $20 $25. Actually that's at $25 it's more likely to be $3 billion. So there is a significant fiscal risk for the Crown and I think that's great that we get this sorted. I note also that the cost containment reserve where the Government will put back into the market other units to ensure that the price stays within that containment reserve I think that's also a very important point that we need to understand and I want to hear a lot more about that through this process. Carbon budgets and the ETS or the carbon budgets with the sinking lid that we will effectively have on our emissions through the ETS is the best way for us to manage our emissions. It's far better than utilising a policy approach which is a top-down approach which I note that the Government seems to be quite keen on. The Climate Change Commission talks at great length about policies. They also talk about us walking more and cycling more and put a number on that so I'm not quite sure how they think they're going to manage that.But we can see how that doesn't work when we look at the power market in Germany and the UK. In Germany they utilised high subsidies to encourage wind and solar power production. They now have the highest power prices in Europe and also a very small reduction in their emissions. In contrast the UK which utilises an ETS had a very successful rate at lowering their emissions quite significantly and that was when power producers who had coal power supply stations changed over to gas. Gas has half the emissions of coal and they've significantly reduced their emissions and also have kept their power prices much lower than in Germany. So the ETS is the right mechanism for us to lower our emissions. So the National Party supports that.We also think the carbon budgets and the sinking lid as I said before are really important and we can see that the ETS is working here in New Zealand. There's quite a debate about the number of farms or the hectares going into forestry particularly on the East Coast of the North Island and that is as a result of the high carbon price in New Zealand—at $38 it's trading at at the moment. That is encouraging the market to plant more trees. We also see it working in the transport sector. The Climate Change Commission—I'm somewhat surprised—don't believe that the ETS is working that well but actually we can see that if you hop into a taxi at any time more than likely it's a hybrid and it's a hybrid because the taxi drivers are very sensitive to price of their operating expenditure which is fuel and hybrids are much cheaper. So they're making a rational market decision and that's what the ETS does. We should have more trust in that. But of course it does depend on having a market that's going to be effective and efficient and one that participants will have a lot of confidence in.Is the Minister the right person to set up the mechanism and the reserve price? I'm unsure whether that's the right way to go about it. As I said earlier I'd like to hear from Fonterra and other commodity traders. I'd like to hear from the banks and so on. They have a very short period of time to put their submissions together. Like the rest of us they'll have only found out that this has come out probably today. By the time they get their submissions together the select committee gets its head around it I think it's a fairly short process. I worry that the select committee won't get the best opportunity to go through those submissions to get our heads around it. I'm very much looking forward to hearing from these people because we need to know if this is the right way to go about it.In fact there's even a debate to say that if indeed people went about this—certainly not illegally but if the price fell lower than the secondary market there would an argument to suggest that's not a bad thing. We'd be finding the lowest cost option to lower emissions and that would be a good thing from New Zealand's perspective. The ETS—the way it works is it will not necessarily go up at the same rate all the time linearly because it'll react as the economy slows down the increasing price of New Zealand units will likely slow down along with that. As the economy becomes more successful if you like or as our economic activity goes up the New Zealand units will probably go up along with that—that'll follow that along. So I don't think that's a bad thing.So in short we support this through to the select committee. We think that this is a slow process which we think is quite regretful—sorry should be a much slower process. We think it's regretful that the Government have put us in this position and we would really like to hear from the Government side as to all the reasons why they didn't deal with this in a much more timely manner and ensure that we got a far better process and a better outcome as a result of that. So with that I commend it.