Parker David: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
Text is incorporated into the Bound Volume 
Parker David: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
[Sitting date: 24 November 2009. Volume:659;Page:7932. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 I will talk about the ridiculous rate and length of time that free allocation is given to major emitters under this Climate Change Response (Moderated Emissions Trading) Amendment Bill. The legislation that we currently have in New Zealand is already generous in its allocation to major emitters. There is good reason for that. If major emitters are exposed to competition in countries that are not pricing emissions and we were to force upon them the cost of all of their emissions overnight then that would break some of those businesses. They would move offshore in the short term and probably never come back yet in the medium term when other countries were properly pricing emissions they would be able to compete. So that is why we have free allocation. That is why we say to a company like Rio Tinto which produces aluminium in Bluff that we will pay for a lot of its carbon emissions for a transitional period. 
But that does not come cheaply. In the case of Rio Tinto the calculation that was relied upon by the Parliamentary Commissioner for the Environment showed that the cost per employee per annum of that free allocation is $100000. The cost of its free allocation of carbon emission rights is $100000 per worker per year. Another submitter said that that amount is an under-estimate and that it is closer to $200000 per annum; in my speech I will accept for the purposes of this argument that $100000 per annum is the right figure. It is notable that we had no advice to the select committee that disproved those figures. The only advice we had in terms of cost in the case of Rio Tinto was that of about $100000 per annum which came from the Parliamentary Commissioner for the Environment and which was relying on a study that had been done for the Climate Change Leadership Forum last year in consultation with Government officials including officials from Treasury. So $100000 is a good estimate. 
But a $100000 cost per annum per worker is something that we cannot continue forever because it comes at enormous cost to other things that we could do with that money. We could pay for an Inland Revenue Department tax credit. We could retire debt. We could actually reduce New Zealand’s Government debt very significantly—by $100000 per Rio Tinto worker per annum—if we did not have that free allocation. 
The Government has changed that free allocation from being phased out completely by 2030 to phasing out at 1.3 percent per annum. Under the current legislation—and we do have a good emissions trading scheme already in law in New Zealand—[ 
Interruption 
] We do and indeed the free allocation under that existing legislation has already been criticised by Dr Suzi Kerr as being too generous. She says that it is already too generous at an 8 percent per annum phase-out after 2018. We gave people 10 years from the start of the scheme when they would have a free allocation of 90 percent of 2005 emissions and that rate would not abate at all until after 2018—10 years later—which is when we said it would abate at 8 percent per annum. An economist like Dr Suzi Kerr says that if anything that is too generous to emitters because it comes at too high a cost to the economy: other taxpayers effectively are paying that cost. If anything the existing framework is too generous. 
In respect of the National Government’s changes here I say that the Government is phasing the free allocations out on the never-never. They will virtually never be phased out. In 2050 major emitters will still get more than one half of that figure—that is $50000 per employee per annum subsidy. That rate of $50000 per annum by 2050 is plainly unsustainable for our economy. That is why Treasury warned us that by 2050 Government debt will go up by $110 billion compared with the status quo under the existing legislation. Government members might decry those figures now because they do not suit them but that is the forecast from Treasury. The reality is that if those free emission charges were being auctioned to emitters that money would come back to the Crown and the Crown would have $50 billion extra plus interest which would make $110 billion by 2050. 
We heard Dr Smith say that what the Labour Party had proposed was ridiculous. Well I tell Dr Smith to look at the minority report and look at the graph there which is reproduced from the United States legislation the Waxman-Markey Bill. I have a copy of it here which I will seek leave to table at the end of this contribution. It shows a rate of phase-out of free allocation. It is very close to what is in the current Labour legislation which is already good law in New Zealand. It is very very similar. It has most free allocation being phased out by 2030. By then free allocation will be down by about 66 percent according to that graph whereas in New Zealand we will get out to 2050 and major emitters will still get free allocation of more than half of their emission rights. It will be free to them but it is not free to the country; it is paid by other taxpayers. Other businesses that are not getting free allocation will pick up the bill. 
Dr Smith said in the House today that most of the free allocation will be going to agriculture as if that is a sufficient answer. Why? The theory that underlies free allocation is that without it we would lose production which would go overseas. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
Hon DAVID PARKER 
: Before the dinner adjournment I was describing how the level of free permit allocation is so excessive and lasts too long. I explained that under the existing Labour Party scheme which is already in law major emitters get a very generous rate of free allocation which is capped at 90 percent of the rate of their 2005 emissions. They get that free for 10 years then after that 10-year period their free allocation abates at the rate of 8 percent per annum so that by 2030 they have to pay for their emission rights just as all other members of the public have to pay for their emission rights their electricity and their petrol. At least by 2030 then we would have equality across the economy and by that time companies would have had 18 years to adjust to emission pricing which seems a pretty fair transitional period. 
In contrast the National Party scheme has an uncapped allocation so that emissions can grow. Indeed I challenge the Minister to answer the questions that Brian Fallow posed in the  
New Zealand Herald 
 which the Minister refused to answer at question time. The questions are: because there is so much more generous free allocation how much do emissions go up? How much later do they peak? How much extra is the bill as a consequence? Anyway we came down from the general proposition to an example in respect of Rio Tinto of the annual cost of a subsidy estimated by the Parliamentary Commissioner for the Environment—in the only study that has had the involvement of Treasury; I think it was involved in a study for the Climate Change Leadership Forum—to be $100000 per employee per annum. 
The other example I will use is one that we referred to in our minority report; it is Methanex. Methanex uses gas to convert it into methanol. The company has come to New Zealand because New Zealand’s gas price even now is lower than the average gas price around the world. Before Methanex came to reopen its factory in New Zealand it came to the then Minister responsible for Climate Change Issues and Minister of Energy and asked what the effect would be on emissions pricing. I happen to know very well what happened at that meeting because at the time I held those portfolios. I told Methanex that under our emissions trading scheme it would face the cost for its increasing emissions. Methanex understood that and it invested on that basis. Its free allocation under the model we had which is currently the law gave it $9.5 million worth of free allocation under the existing scheme. As of tonight that will increase to a minimum of $15.1 million per annum and possibly go as high as $80 million which is an increase of over $70 million per annum. 
The question I have for the Minister is why New Zealand has not seen one bit of analysis as to why that increase is justified. We have not seen how much that will cost per employee. If it goes to $80.9 million per annum the cost may well be close to $1 million per employee per annum and it is just not wise. We have not seen one bit of analysis from the Government on the part of Treasury or anyone else that analyses why that is necessary. In reality if that were not given to Methanex it would do as it would otherwise have done: it would pay for gas and it would probably share the cost of emissions with the gas producer. It would continue in business but the taxpayer would not be poorer to the tune of up to $80 million per annum which could well be a subsidy per job of close to $1 million per employee per annum. That is just absolute nonsense.