Smith Nick: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
Text is incorporated into the Bound Volume 
Smith Nick: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
[Sitting date: 24 November 2009. Volume:659;Page:7902. Text is incorporated into the Bound Volume.] 
Hon Dr NICK SMITH (Minister for Climate Change Issues) 
: 
 I move  
That the Climate Change Response (Moderated Emissions Trading) Amendment Bill be now read a second time 
. This bill is about implementing for New Zealand a workable affordable emissions trading scheme which will enable New Zealand to make progress on the hugely complex and difficult issues that confront all nations over climate change. The revised emissions trading scheme is consistent with National’s pre-election commitments. It will align our scheme more closely with Australia’s. It will provide incentives for industry to reduce emissions without encouraging an exodus overseas of industry and its skilled staff. It will amend the scheme so that households farms and businesses will not be funding multibillion dollar windfall gains to the Government. 
In broad terms this bill is about New Zealand doing its fair share rather than taking a position that had New Zealand way out ahead of any other country. I am very pleased to have been able to work with the Maori Party to secure an agreement that ensures it can join us in supporting this bill. The agreement reached with the Maori Party strikes the right balance between protecting the future of our economy and protecting our environment. The revised emissions trading scheme will be good both for iwi and for New Zealand as a whole. It will halve the initial cost increases of the scheme for households and it is workable for business while ensuring that New Zealand does its fair share to combat climate change. 
Some people are questioning the merits of the Government’s ambition to try to pass with the support of the Maori and United Future parties our amendments by Christmas. However if the bill is not passed the existing scheme comes into effect on 1 January. This would increase power prices from that date by 10 percent and it would put $400 million a year on to the costs on industry without allocation plans. There are also a number of serious errors in the existing legislation that would have cost New Zealanders jobs. 
The bill makes a number of important changes to the scheme. Firstly it makes critical adjustments to entry dates. Under the bill the industrial energy and transport sectors will enter the emissions trading scheme on 1 July next year and agriculture will enter the scheme in 2015. There will be a transition phase for the first 2½ years with a half obligation and a fixed-price option of $25 a tonne. These changes will halve the increase for electricity and fuel for both consumers and business. 
The bill also makes changes to support for trade-exposed emissions-intensive industry and the agriculture sector. It is broadly accepted that without these measures all we would do is export emissions-intensive industries offshore which would cost New Zealanders jobs and result in the emissions occurring from some other country. The first change is that a high and medium-intensity threshold is specified. Secondly the allocations will be based on an industry-average basis not just on 2005 levels. This will ensure that we do not reward those with higher emissions and punish those who invested early in improving their efficiency. 
Thirdly the allocations will be production-based. If companies and farmers cut their production their allocations will drop; if their production grows their allocations will increase. This is about the very important issue confronting all nations designing an emissions trading scheme and that is the issue of leakage. This Government is not about exporting jobs offshore; we are about incentivising more efficient production here in New Zealand. Fourthly the phase-out of support after 2013 is being changed. The existing scheme leaves it flat out to 2018 and then reduces it at 8 percent per year. This bill provides for a reduction in that allocation support of 1.3 percent per annum though I think it is very important to note that this will be reviewed each 5 years and as I said in the House earlier the broad principle that it should apply to that phase-out rate is that it is similar to our trading partners. Finally we have introduced flexibility to the point of obligation in the agricultural sector commencing at processor level with the option to move it to the farm gate. 
The bill also makes further technical changes to make the scheme more workable. A good example is removing the liability associated with nitrogen curing of cabling which would have actually cost New Zealanders their jobs in places like New Plymouth if we had left the existing scheme in place. 
This bill was referred to the Finance and Expenditure Committee. It was my preference to refer it to the special climate change committee but members opposite objected to that. We then agreed with them that we would send it to the Finance and Expenditure Committee and as a sign of just how much bad faith there is from members opposite they then voted against the motion for it to go to that committee. The committee received 379 written submissions on the bill and heard a total of 125 oral submissions. It is disappointing that the committee was unable to reach agreement on amendments to the bill because there was actually very broad agreement on many of the changes contained in the amendments to make this bill work. 
The Government will be putting forward Supplementary Order Paper 98 to address a number of the issues that arose from the submissions and from the legal review by officials. As part of the agreement reached with the Maori Party the Maori Party will be putting forward an amendment that recognises the Treaty of Waitangi. This provision will specifically set out the ongoing decisions on which the Government or Crown has an obligation to consult with Maori. Most of the changes contained in the Government’s Supplementary Order Paper are refinements of policies that are already in the bill or simply technical amendments. In relation to pre-1990 forestry amendments are made so that changes in the legal title after 2002 do not unfairly disadvantage landowners when beneficial ownership has not changed. Without these changes some forest owners might unfairly receive a lower allocation. We have also clarified that subject to clear criteria forest owners managing wilding pines from planted source should be eligible to apply for a tree weed exemption. This will help to ensure that important efforts to control tree weeds in a number of areas like the Marlborough Sounds and in Southland are not disadvantaged by the emissions trading scheme. 
In addition the Government has also made a decision to exclude the combustion of solid biofuels from the emissions trading scheme. Given that this is a very small source of emissions and given the Government’s commitment to encourage fuel switching in this area we have made a pragmatic decision to exclude emissions from this local-cost clean energy source from the emissions trading scheme. The cost of that provision is very small and the emissions are approximately 25000 tonnes per year. 
Supplementary Order Paper 98 provides for the exclusion of solid biofuels from the emissions trading scheme. That Government Supplementary Order Paper also contains a number of technical changes in response to submissions. For example in response to concerns regarding the earlier date of entry for liquid fuels a shorter registration period has been provided for large users of such fuels. A number of further amendments are included in the Supplementary Order Paper to improve the effective operation of the bill but they do not make any substantive policy changes to it. 
I note that in the United States Congress there is a vigorous debate about putting in place an emissions trading scheme and I note that the same thing is going on across the Tasman in Australia. In every one of those countries the issue has been fractious it has been divisive and it has been hotly debated. That is proper: this legislation is probably the most significant change and reform of a financial nature since the introduction of GST. But I note that there were public submissions in 2007 there was a select committee process in 2008 there was another inquiry in 2009 and there have been four rounds of submissions. On an issue like climate change there comes a point where it is important to make progress and in my view this bill does a very good job of balancing New Zealand’s environmental and economic interests while ensuring that we do our fair share as a responsible country around this huge challenge of climate change.