Graham Kennedy: Budget Measures (Miscellaneous Fiscal Matters) Bill — First Reading Second Reading In CommitteeText is incorporated into the Bound VolumeGraham Kennedy: Budget Measures (Miscellaneous Fiscal Matters) Bill — First Reading Second Reading In Committee[Sitting date: 15 May 2014. Volume:698;Page:18025. Text is incorporated into the Bound Volume.]Dr KENNEDY GRAHAM (Green): This bill before us the Budget Measures (Miscellaneous Fiscal Matters) Bill is a composite bill so the various policy considerations that attend to it in its entirely separate pieces make for a contaminated democratic process. But that is the nature of this Government.In the first reading I want to address only Part 2 on climate policy. Part 2 is described as removing an unintended consequence in the emissions trading scheme that has the potential to expose the Crown to significant fiscal risk. This bill is a testament to past folly. It is an acknowledgment by this Government that its emissions trading scheme has failed. This bill seeks to prevent after the fact the practice of arbitrage. Arbitrage is a rort. It is defined as the purchase of currencies securities or commodities in one market for immediate resale in order to profit from unequal prices.How did New Zealand get to this state in its climate policy? The primary purpose of the basic Climate Change Response Act is to enable New Zealand to meet its obligations under the United Nations Framework Convention on Climate Change. The Act aims to reduce New Zealand’s emissions. That is a binding obligation. To achieve this the Act sets up the emissions trading scheme. The scheme is described as a scheme that reduces net emissions to below business-as-usual levels. To achieve that the local carbon currency the New Zealand Unit has been introduced as the mainstay of the scheme but foreign units the Kyoto units are allowed into New Zealand as extra currencies. Since the scheme has come into force New Zealand’s gross and net emissions have continued to soar. The purpose of the Act has not been met. In fact New Zealand is in breach of its international obligations.There are two ways by which New Zealand Units are initially acquired: an emissions trading scheme participant can earn them through forestry sequestration or they can be gifted by the Government to cover any liability as a polluter. But the scheme also allows people to purchase foreign units at a cheaper rate than the New Zealand Units and surrender those to the Government instead. They then hold on to their New Zealand Units to sell them later at a higher price. They have therefore made a financial profit off a scheme that is designed to bring down emissions. In the case of forestry they may be harvesting their forests thereby increasing emissions or they may not. They may simply be deregistering from the emissions trading scheme and reregistering the next day. Either way they make a financial profit off a scheme that is designed to change society’s economic behaviour towards the goal the imperative of emissions reduction.There are some 2400 post-1989 foresters in the emissions trading scheme covering 330000 hectares of forest. In the second half of 2013 550—almost a quarter—applied to deregister. About 40 percent have applied to reregister. In making carbon a commodity for trade as opposed to a pollutant to be reduced the designers of this scheme have thwarted the purpose. In allowing windfall profit from a scheme that is intended to protect the planet from dangerous climate change the champions of the free market have excelled themselves in the art of political cynicism. In doing so they condemn their own children to a dangerous future.Eliminating this form of arbitrage will result in the price of the domestic New Zealand Unit rising. How much it will rise by is hard to estimate but it will rise. This will have the effect of reducing emissions or curbing growing emissions. The Green Party therefore intends to support Part 2 of this legislation for that fundamental reason.But the question has to be asked why this Government is confining the halt to arbitrage to the post-1989 forestry sector. The forestry sector has been asking for a unit restriction on international units for years so this is in line with that. But why make thischange yet allow other kinds of emitters—industry pre-1990 forestry energy—to continue to use international units for surrender?The same principle is exploited by industry—aluminium and steel by way of example—under industrial allocation plans. They get given volumes of New Zealand Units each year for nothing. They too bank them and surrender cheap international units instead. Why single out one sector forestry which is reducing emissions which has a break-even carbon price of $15 but is getting $3 under National’s failed emissions trading scheme?Does National believe in the free market or not? This move shows it believes in the free market for some emitters but not others. How many New Zealand Units were allocated to the three other sectors in the last year on record ended June 2013? How many were issued to industry fishing and pre-1990 forestry? The answer is 36.5 million. This involves aluminium smelters being allocated 90 percent of their annual emissions as New Zealand Units yet they too can hand back 100 percent as international units. Is that arbitrage or is it not?What about the steel mills the wood processors the methanol producers the pulp and paper mills? They are all allocated between 60 and 90 percent of emissions as New Zealand Units yet they can hand in any kind of unit. Those 36 million New Zealand Units allocated last year have a current market value of $110 million yet any of these sectors can replace the same level of emissions with emission reduction units worth $7 million.Why did it take 6 years for the modestly self-proclaimed brilliant economic stewards currently on the Treasury benches to trip over the blatant rorting of their emissions trading scheme? Was it by chance a blind ideological devotion to the free market—the free market of global carbon credit distortion? If so the invisible hand was inside the pocket of every New Zealand taxpayer. Where was ACT when we needed it? Where was the compassionate conservatism of Bill English? The Minister of Finance Minister of profit by arbitrage was asleep at the wheel. Where was the insightful judgment of John Key the Prime Minister of everything including degradation of the planet? He was awake but unable to recognise a problem whose characteristics have defined his life experience. It is no wonder they do not act.Or was it by chance a determination to ensure that greenhouse gas polluters of this country are not constrained in their freedom to respond to the mercantilist policies of the John Key - Government—the mercantilism of a 21st century milk and log colony? If so the invisible hand is passing the taxpayers’ money across to selected corporations. Bravo—a better brighter New Zealand.The underlying basis of New Zealand in terms of Treasury climate policy is global least-cost abatement. But global least cost is not the dubious emissions reduction units of track 2 type. There is no global carbon price as yet and there will not be for a decade. The international price ranges from NZ50c to NZ$30. Do we really believe that NZ50c is a true global least cost to save the planet? Allowing the cheapest of these units to come in undermining the integrity of our emissions trading scheme is cynicism of the highest level. Emissions reduction units remain valid in New Zealand until 31 May 2015 so their purchase and trading and surrender can continue until then even though most people who have a commercial interest will have already done the purchasing but any further arbitrage will undermine the emissions trading scheme.My own member’s bill the Budget Measures (Miscellaneous Fiscal Matters) Bill has been in the ballot for 2 years now. It would have prevented the import of all these cheap foreign units so that the New Zealand price could float up. That would have applied across all sectors of our economy which is how the policy should be. We shallbe looking forward to the Minister’s explanation as to why this bill does not allow restrictions on emission reduction units across all sectors.