Shaw JamesCLIMATE CHANGE RESPONSE (EXTENSION OF PENALTY TRANSITION FOR FORESTRY ACTIVITIES WITH LOW VOLUME EMISSIONS LIABILITIES) AMENDMENT BILLFirst ReadingHon JAMES SHAW (Minister of Climate Change): Thank you Madam Speaker. I present a legislative statement on the Climate Change Response (Extension of Penalty Transition for Forestry Activities with Low Volume Emissions Liabilities) Amendment Bill.ASSISTANT SPEAKER (Hon Jenny Salesa): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon JAMES SHAW: I move That the Climate Change Response (Extension of Penalty Transition for Forestry Activities with Low Volume Emissions Liabilities) Amendment Bill be now read a first time.Having made it through the title I don't have a lot of time left so I'll crack on with it! I nominate the Environment Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 11 November 2022 and that the committee have authority to meet at any time while the House is sitting except during oral questions during any evening on a day upon which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House and outside the Wellington area despite Standing Orders 193 195 and 196.E te Māngai tēnā koe. Tēnā koutou e te Whare. The New Zealand Emissions Trading Scheme the ETS is the Government's primary tool for meeting our domestic and international climate change targets. It operates on a simple premise: businesses that are responsible for the greenhouse gases that cause climate change face a price for those emissions and those that remove emissions get a financial reward.Aotearoa New Zealand is the only country to have forestry included in an emissions trading scheme where forest owners can earn units for the carbon absorbed by their forests. There are currently almost 390000 hectares of post-1989 forest land in the ETS which have been voluntarily registered by around 2900 participants to earn units. In addition the ETS puts a price on emissions for removing forests that existed before 1990 which were counted towards New Zealand's baseline emissions when the ETS was first established. This means that those who cut down pre-1990 forest land become mandatory participants and must pay units to account for their emissions.The ETS is underpinned by a strong compliance system to safeguard its integrity. This was strengthened in 2020 following a review of the ETS. Among a range of changes this saw the introduction of a stricter penalty that applies when participants fail to meet their unit obligations on time. It usually arises when forests are harvested deforested or deregistered from the scheme.I will refer to this penalty as the three to one penalty" because it is set up at three times the price of carbon as set in regulations for each unpaid unit. There is no ability for the regulator to waive or to reduce the penalty in size. A key reason for its introduction was to ensure consistency with international practice. However it's important to note that unlike New Zealand most international schemes do not include forestry and can often exclude participants that emit less than 25000 tonnes of carbon dioxide equivalent per year.The three to one penalty came into force for most participants on 1 January 2021. I say "most participants" because its application was deferred for small forestry participants being those with annual unit liabilities of less than 25000 units until the end of this year. This was due to concerns that the three to one penalty could cause serious hardship for small forestry participants if they were to incur it.Instead a transitional arrangement was put in place. Under this arrangement the previous penalty set at $30 per unpaid unit with discretion to be reduced by up to 100 percent has continued to apply when small forestry participants fail to pay by the due date and incur a penalty.With the year end soon approaching so is the expiry date of the transitional arrangement. I do not believe that allowing expiry on 31 December this year would be in the best interests of small forestry participants or the wider scheme itself. I say this due to the scale of the penalty meaning that if a small forester were to incur the three to one penalty and be unable to pay it their assets—such as their home or their farm—could be at risk if they default.To put this into perspective if a small forestry participant with 10 hectares of forestry land was required to pay units valued at $500000 under the ETS they would be subject to an additional penalty of around $1.5 million if they did not pay those units on time. These penalties will continue to increase if the price of carbon rises.The transitional arrangement which I have discussed today has enabled officials to develop and consult on options for a new penalty to apply to small forestry participants which is proportionate and fit for purpose. That work is well progressed and I'm pleased to say that advice has been provided to Ministers to make final policy decisions on a new penalty very soon.This bill will extend the transitional arrangement until the new penalty takes effect on 1 January 2025 by making a small amendment to current provisions in the Climate Change Response Act 2002. This will ensure that there is enough time to educate participants on the new penalty before it takes effect whilst safeguarding small forestry participants from the risks posed by the three to one penalty in the meantime.The orderly passage of the bill ahead of the expiry date of the transitional arrangement is crucial to avoid serious hardship to small forestry participants if they were to incur the three to one penalty. I therefore commend this bill to the House.ASSISTANT SPEAKER (Hon Jenny Salesa): The question is that the motion be agreed to."