Shaw JamesCLIMATE CHANGE RESPONSE (LATE PAYMENT PENALTIES AND INDUSTRIAL ALLOCATION) AMENDMENT BILLThird ReadingHon JAMES SHAW (Minister of Climate Change): I move That the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill be now read a third time. Thank you Mr Speaker. I have described industrial allocation as I've just said as ugly policy. The way that it deals with international competitiveness is essentially by subsidising pollution because a New Zealand Unit (NZU) inside the emissions trading scheme is in essence a licence to pollute a tonne of carbon dioxide into the atmosphere. The scheme has been around for almost 15 years now and the primary way that we have dealt with the differential carbon pricing between domestic production and competing imports from around the world is by essentially giving New Zealand businesses that are highly emissions-intensive free units in order to meet their obligations under the emissions trading scheme. Those units are equivalent if they are highly emissions-intensive to 90 percent of their total obligation and if they're moderately emissions-intensive it's 60 percent of their allocation. Now since 2008-09 when this scheme was up and running it has I believe been allowed to drift because there haven't been any kinds of regular checks to see if the basis on which businesses are being given these units actually still stands. If it does fine but if it doesn't we need to take a look at that. So over the course of the last few years we have found that actually some businesses have been receiving a number of licences to emit pollution into the atmosphere greater than 100 percent of the total pollution that they do put into the atmosphere. In other words they're receiving more permits to pollute than they pollute. Now that's nonsensical and so we need a system to tighten that up and to ensure that there is an accurate basis on which companies are being allocated these units for free. Now it's not an ideal solution. It's not an ideal policy—you know we live in a less than ideal world. In an ideal world there would be a global carbon price or—the second-best option—there would be adjustments at the border that could take account of the differential between what domestic production is and the price that's allocated in the countries where those competing products come from. But we don't have that system although the European Union Canada Australia the United States and others are all looking at that and so we might see something akin to that occurring over the course of the next few years in which case this third-best option may come up for review at that time. But that is some way away from where we are today. So in the meantime what we do is we do provide these units for free to act as a buffer for companies where they are producing things that—for example steel which is a necessary ingredient in modern civilisation. It currently has a very high emissions intensity to it for it to be able to produce that steel here in New Zealand for New Zealand consumption even whilst we are also importing steel from countries that do not impose the same price—or in some cases any price—on steel production although that is also changing over time. This bill actually does have quite a narrow scope. It really just does deal with the issue of whether we are over-allocating units to those businesses. As I mentioned during the committee of the whole House stage the most recent year for which we've got data shows that we allocated about 6.6 million pollution permits or NZUs in the system. If you think about that that's about 6.6 million tonnes of carbon dioxide and our total pollution going into the atmosphere is about 75 million tonnes a year. So it's an appreciable portion of the total. Now we estimate on a reasonably conservative basis that by tightening up the system in this way we will be handing out 800000 tonnes fewer worth of pollution permits than we do today. So what that is saying is: well we've been handing out these units and they're unnecessary right? They're not required for international competitiveness matters but they do create a slackness in the system. And so in that sense what this bill does is to make the emissions trading scheme both more accurate and also more predictable for the participants in the system.I know it has been an anxiety for some of the companies who currently receive allocation that there will be a regular schedule of reviews and of calling for data. But actually by being able to check in on a regular basis and to say well we know when that's going to happen as opposed to the current system—which is entirely arbitrary and entirely up to the Minister to do that as and when the whim of the Minister requires—we've now got a system where businesses know that there will be these kinds of check-in points and that a check-in point a call for data and for information is not the same as changing the allocation. It's simply saying: is the basis on which those were handed out and those allocations decided—is that basis the same now as it was when it was first allocated? And if there is a case that actually things have changed to a point where a business is again being over allocated at that point you can review it and change it.I do just again want to acknowledge the work of the select committee. I have to say this is one of those moments where I think that Parliament worked as it is intended to do where there was some doubt about some parts of the bill and the select committee worked very hard on drilling into that given that it is you know kind of technically challenging to get into and did require expert support—as I mentioned the Climate Change Commission the Parliamentary Commissioner for the Environment and others independent experts particularly Dr Christina Hood who came in I think two or three times into the select committee to support them. The select committee asked for additional time to grapple with this and get it right. Again I just want to acknowledge the work that every member of the Environment Committee did to ensure that this bill landed in as good shape as it did. I really thank them for that. And I particularly want to acknowledge the chair of the Environment Committee the Hon Eugenie Sage who in my opinion is a superb chair of that committee and did a great job of dealing with this issue; also with many of the other very complex issues that the Environment Committee was dealing with simultaneously.Hon Phil Twyford: You should keep her on.Hon JAMES SHAW: I would love to keep her on. So having said all of that I do think that this bill has landed in very good shape. I think it has been improved significantly as a result of the parliamentary process. I would like to thank the National Party Te Paati Māori and other parties for supporting this Government bill. I think having a level of parliamentary consensus—not complete consensus but a very high level of parliamentary consensus—on this sends a very reassuring signal to the industries that are participants in it and they can rest assured that it has been thoroughly worked over by both sides of the House through the select committee process.I do think that this bill does help to futureproof the emissions trading scheme. There are other aspects of the emissions trading scheme which are up for review and which we need to get to but this is a reasonably narrow but very important component of what it is that we need to do. And that is accurately determining the rates of industrial allocation and ensuring that there is a framework to upgrade them in the future which we have not had for the last 15 years or so of that. So the changes that we make today will help us to meet our emissions budget by having a more accurate and a tighter system. It will help us to meet our international obligations. It will make it a little bit easier to meet our otherwise very challenging broader climate change goals. And it also will offer a bit of relief to those small foresters who I think were kind of unfairly or unreasonably exposed under the old penalties regime. So by updating the penalties regime it does provide some more reassurance there.I think it's a very good bill. I thank the House for it. I commend the bill to the House.