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:7962. Text is incorporated into the Bound Volume.] 
CHARLES CHAUVEL (Labour) 
: 
 I will speak on three more amendments that stand in my name. They are Supplementary Order Papers 95 and 96 and a typescript amendment that does not have a number. 
Supplementary Order Paper 95 would remove from the Climate Change Response (Moderated Emissions Trading) Amendment Bill the 50 percent discount during the 2010 to 2012 transitional period and raise the price gap from $25 to $100 a tonne turning it into a true safety valve rather than a day-to-day subsidy which is frankly what it is at the moment. On this side of the Chamber we think that price caps are undesirable because they distort the response to the emissions trading scheme. The Kyoto-compliant market is already large. Participants in the emissions trading scheme mainly companies worth billions of dollars can already hedge their risk against substantial rises in the cost of carbon until at least 2012 by buying units on that market. So the transitional measure proposed in the amendments from the Minister for Climate Change Issues requiring only one emissions unit to be remitted for every 2 tonnes of emissions in the electricity sector would not necessarily reduce the impact on electricity prices as the Minister says time and time again that it will. In fact the European experience demonstrates that the long-term marginal cost of new generation does not change. So electricity generators will charge consumers the same amount and effectively pocket the value of the emissions units they do not have to remit at cost to the taxpayer. In principle if the market is not trusted then the Government should have pursued a carbon tax rather than an emissions trading scheme. But a cap at less than the market price results in a further subsidy from taxpayers to emitters and reduces the incentives the emissions trading scheme is meant to create to reduce emissions. Supplementary Order Paper 95 would remedy that position. 
Supplementary Order Paper 96 would cap free allocation. As we said in our minority report we uphold the strong criticism that we heard of the approach in the bill of combining an intensity-based allocation that has no effective cap on either total or sectoral emissions with a very very slow phase-out of free allocations. The Parliamentary Commissioner for the Environment told us that this will lead to a significant increase in emissions thus increasing the number of carbon credits the Government and therefore taxpayers will have to purchase. An alternative favoured by many of the submitters we heard is an overall cap on emissions. The lack of that cap will be a problem. We want to do away with the problem which is what this Supplementary Order Paper will do. The absence of the cap weakens the incentive for emitters to move to being less carbon intensive. As my colleague Pete Hodgson said earlier it is a sign of a lack of ambition on the part of the Government. We do not want to see this highly distorted mechanism retained in the legislation. 
I am keen to hear the Minister speak on the Government’s attitude to the Supplementary Order Paper to put the cap in place on free allocation the Supplementary Order Paper to end the discount and finally the amendment to prohibit the banking of non-forest New Zealand units during the transitional period. Dr Suzi Kerr suggested this amendment would be a good idea. It would prevent any New Zealand units issued during the transition period from being surrendered converted or transferred after 31 December when the price cap comes off. This will prevent people from collecting credits while the price of carbon is low and then selling them at a higher price once the cap is removed. As I said Dr Kerr advised of the possibility that banking and trading free allocated credits taken with price caps could result in a positive incentive to increase emissions or else could increase windfall gains to polluters. Surely neither of those are goals that the Minister wants to see. 
These amendments taken as a package—removing the 50 percent discount putting a cap on free allocation and prohibiting the banking of the non-forest New Zealand units during the transitional period—are a neat solution to the problems that have been identified. I really hope that the amendments will be given due consideration because they will undoubtedly according to the expert independent advice that we received result in a much better scheme.