Parker David: Urgent Debates — Emissions Trading Scheme—Government Announcement 
Parker David: Urgent Debates — Emissions Trading Scheme—Government Announcement 
[Volume:642;Page:12092] 
Hon DAVID PARKER (Minister responsible for Climate Change Issues) 
: 
 I just want to reply to Jeanette Fitzsimon’s question about why I think emissions will go down overall. I think there will be a decrease in electricity emissions. I think that deforestation emissions will go down very substantially after this year. They will peak this year because it is natural—I am not saying it is good; but it is natural—that people will try to beat these rules. So there will be a spike in deforestation this year. We will have some extra sequestration as a consequence of more trees being planted but the member is also right in saying that that will not be substantial during the first commitment period. The member is correct that it will take a few years before transport emissions will be on a downward track although we are starting to bend the line in terms of trying to improve the efficiency of the vehicle fleet. So I expect transport emissions will be on an upward track. But I do hold out some hope that agriculture will start reducing its emissions particularly through the widespread use of nitrification inhibitors which we know—it has been proven scientifically—are efficient at reducing nitrous oxide emissions from fertiliser and from livestock urine and are probably the cheapest way of growing extra grass. I think that the most substantial of those reductions in emissions will be reduced deforestation emissions which will peak this year. 
I want to talk about climate change policy in general for a start. Climate change policy at its heart is very simple. That is we have to reduce greenhouse gas emissions. There is no other way for the world to overcome this climate change challenge. I give credit—which is I think deserved—to those who have long held this view and have fought hard for it. I think of my predecessor Pete Hodgson I think of Jeanette Fitzsimons and I think of Simon Upton. But I would like to say that I think we also owe a debt of gratitude as a nation to our Prime Minister. The Prime Minister has taken a political risk here. She has put sustainability issues at the heart of the Government’s agenda and she has said that we will be held accountable by what we do as a Government to reduce emissions to turn downwards the upward track of emissions which has been going up since industrialisation began in New Zealand. 
I do think it is fair to reflect on the fact that APEC did have a good outcome this year. It was not a perfect outcome but it certainly put APEC a long way ahead of where it was last year. I think it is fair to reflect on the fact that climate change was on the APEC agenda as a consequence of the previous year’s meeting only because our Prime Minister put it there. I think we should thank her for that. 
To control climate change we have to reduce emissions of course. Today the focus is on emissions trading but we ought not to forget that a lot of other Government policy will aid in reducing our emissions. Regulatory changes are improving building standards. As a consequence a house built in accordance with the new building code will use 30 percent less energy than one built under the previous building code. That means 30 percent less energy will be used on space heating. That is a significant change. 
We have promoted simple things like compact fluorescent bulbs. A few years ago there were very few of those in the country. Through schemes run by the Government mainly through the Electricity Commission and with good support from Kiwis who want to do their bit to improve things we now have more than 10 million of those bulbs in our country. That will start to make a difference. The measures that are coming up in the National Energy Efficiency and Conservation Strategy which Jeanette Fitzsimons has been instrumental in will help in that regard too. 
There are new rules on the way which we have said we are developing in order to improve the efficiency of vehicles in the fleet. Once a vehicle enters the fleet it will be used until the end of its natural life. It is important that we improve car efficiency at the point of entry into the fleet and improve the efficiency of the fleet as a whole as we go. 
We are investing a lot more money into research and development in agriculture. In fact I think that one of the things that deserves a lot of attention as a consequence of today’s announcements is the increased investment in low mitigation technologies in agriculture including investment in things that have been promoted by environmentalists but have until now been seen as fringe. I refer to things like research into biochar which is a potential way to store carbon and indeed could remove carbon from the atmosphere in a way that is even more effective and more long-term than trees do because a tree comes to the end of its life sooner than biochar. 
People ask how the emissions trading scheme works. An emissions trading scheme works to reduce emissions by encouraging businesses to lower their emissions. We all know that business is about money. That is not a bad thing but an emissions trading scheme makes it worth businesses; while to reduce their emissions. More emissions cost more and lowering one’s emissions makes one a profit. So more use of renewables and less use of coal is the outcome. An emissions trading scheme is about protecting our environment and our economy by reducing emissions. It seems increasingly clear that there is a building consensus around the world that the world needs to reduce emissions. So if we let our emissions grow unchecked we would be increasing the future cost to the economy of reducing emissions because we would later have avoidably higher emissions. 
We are not alone in introducing an emissions trading scheme. Emissions trading is the way the world is leaning. Europe already has it. We can say “Europe” pretty quickly but of course Europe includes Germany Italy and the United Kingdom which are all large economies. It includes the border States that were part of the Soviet Union and are now in the European Union. Similar things are happening in the Scandinavian countries like Norway and Sweden. Emissions trading schemes are being developed in various states in the United States the most significant of which is the Californian model. Interestingly the Californian model is similar to the model here in New Zealand in that it proposes a cap on emissions rather than having an intensity-based emissions trading scheme. That differs from what is currently proposed in Australia although Australia itself is proposing an emissions trading scheme. 
So why are people pursuing emissions trading schemes around the world? The reason is that it is the right thing to do and it makes basic economic sense to do it that way. Just as it makes sense for businesses to be more efficient and waste less energy we think it is the same for households. The Government is already helping people to lower their energy bills by efficiency measures such as insulating homes and using more efficient light bulbs appliances and cars and we intend to do more about this. 
But we must not forget what lies underneath all of this ambition. We must not forget that the experts are telling us that climate change is serious. The cost of doing nothing is much higher than the costs that will flow to us not just environmentally but also economically if the situation gets much worse. We need just to look at the Australian droughts and the floods we had up north recently. The predictions are that if we do not get greenhouse gas emissions under control we will get a lot more of this. What is currently a one-in-20-year drought event might be a one-in-5-year event. That would be very serious for the country. 
And that is just the effects for New Zealand. The effects here are likely to be less directly severe than in other countries. We can see that people in countries like Bangladesh are pretty nervous at the moment. More people have drowned in Bangladesh since World War II as a consequence of flood events than died as a consequence of the Hiroshima and Nagasaki nuclear bombs in World War II. I always find that a pretty shocking statistic because those two events are writ large in my memories of childhood as to what were the worst things in the world that ever happened. Nagasaki and Hiroshima seemed to be those. Yet with current sea levels more people have died in Bangladesh since World War II as a consequence of floods. That is how close people in that country are to drowning. That is the reality. I was at a meeting recently where we were negotiating post-2012 arrangements and after a couple of days of slow-moving negotiations—they moved a bit faster than they normally move actually but they were still slow moving—the Bangladeshi Minister stood up and said: “Hey you guys get real!” Do members know that if sea levels rise by 1 metre it is estimated that 30 million people in Bangladesh will have to be moved? Thirty million people would have to be moved because they would not be able to live where they currently live in what is already one of the most heavily populated countries in the world if not the most heavily populated country. We can see that the consequences for those people would be absolutely dire. But to have 30 million people on the move means that the consequences for other people including us could be pretty dire too. 
We are a country that is reliant on growing things and it is in our best interests that we get this under control. Agriculture of course is threatened by climate change perhaps more than any other sector in New Zealand. The sector is at the forefront of dealing with climate on a daily basis so there is an increasing consensus amongst our leaders within the agricultural community that we need to do something about it. 
What are we doing under this emissions trading scheme? Well we are bringing sectors in sequentially. The first to come in is forestry. We are proposing full devolution in forestry—full devolution of all costs and benefits full costs and benefits in both pre and post-1990 forests. It is sometimes forgotten in the forestry debate that because of a decision that I think might have been taken by the previous National Government we have already protected the owners of pre-1990 forests against the cost of lessening levels of carbon. Those trees are getting close to being ready to be felled and in the next few years that class of tree is actually decreasing in carbon content. Because of a decision that the then Government rightly made those foresters are protected from those consequences of decreasing overall carbon levels during the first commitment period but they are not protected if they do not replant. So if they turn a big tree into a little tree that is fine; they do not have to count any carbon emissions. If they completely cut down their forests and do not replant at all that causes the country a cost and we are saying that some of that cost should flow through to that sector. 
In respect of the rest of the forestry sector which is accreting carbon those forests will be real winners under this scheme. Indeed in respect of those forests planted prior to 1990 if we allocate deforestation permits as we are proposing most of those foresters will be winners too because they will have a deforestation permit. It is an emissions permit that they can sell. 
In terms of subsequent sectors we have transport coming in next in 2009 followed by stationary energy in 2010 which is electricity heating for industry and process emissions for industry. After that we have agriculture coming in in 2013. In terms of allocation issues the most important principle is that there ought to be no free allocation of units to those that can pass the cost on anyway. That was a mistake made in Europe and we can learn from its mistakes. Although I say that Europe made mistakes it is actually ahead of the rest of the world. So I am not critical of Europe but we can learn from its lessons. That means no free allocation in transport and it means no free allocation in electricity generation. 
In respect of other sectors that are facing competition in their exports from competitors overseas that are not exposed to the price of emissions there are trade concerns so we are proposing generous levels of allocations of 90 percent of 2005 emission levels. This still creates the critical price for emissions at the margins. There is still a full cost faced by all sectors after they come into the scheme for their increases in emissions and a full benefit to their pockets if they reduce emissions. That is how an emissions trading scheme is made to work. As a consequence we predict that what is currently projected as our deficit during the first commitment period 45 million tonnes will cut back to 25 million tonnes and that is good progress. 
I want to say something about engagement with other parties because we want to move forward positively and constructively with other parties on this. It is true that other parties have more recently started to talk about emissions trading and putting a price on carbon. The Greens have been talking about it the longest other than us and National has recently been talking about emissions trading—although I do have to say that its initial steps were to be in electricity alone but more recently it has also supported devolution to some extent in forestry. So I think there is a building consensus around this issue and I am keen to build upon that. 
In terms of the effect on consumers we need to be careful not to exaggerate the price effects. We will get consumers worried if we exaggerate. There will be plenty of threatened self-interested groups who will try to do exactly that. These costs are for some time in the future and they are not enormous—4c a litre of petrol pales into insignificance compared with the approximately 40c per litre increase that we have had in the last few months. Indeed those increases in petrol prices recently would be more than the amount that consumers will feel from both petrol price rises and electricity price rises into the future combined. Also the Government intends to help people in that regard. 
Finally I draw this discussion back to the topic of carbon neutrality. We are advancing towards the aspiration of carbon neutrality that the Prime Minister mentioned. We will achieve carbon neutrality in the electricity sector by 2025 with a very modest level of offsets. We will be 90 percent renewable by then too—in fact more than that probably. We will achieve carbon neutrality in the whole of the stationary energy sector by 2030 and achieve it in transport by 2040. That is a very difficult task but I believe we can achieve it. To achieve it we will have to be one of the first adopters in the world of electrically powered vehicles. These really are charging ahead internationally and as a consequence they will be very very cheap to fuel. Thank you.