Shaw JamesHon JAMES SHAW (Minister for Climate Change): Thank you Madam Chair. So I just want to mention that many of the dozen or so questions there were asked and answered in the session before the dinner break. But at the risk of repeating myself I will do those members the—Hon Nathan Guy: Thank you. Go for a quick buzz around.Hon JAMES SHAW: You should know by now Mr Guy that there is no such thing as a quick buzz around when it comes to the emissions trading scheme. So let me just kind of cover a number of the points that were raised.So Mr Bennett asked me about what consideration" means. That's contained in the zero carbon bill; that's not part of this piece of legislation. It was something that was thoroughly canvassed with the now leader of the National Party at the time when we were negotiating what that piece of legislation would look like. So it's not contained in the legislation but remember we have common law in this country and if someone feels that the commission or the Government have not paid adequate consideration of those matters they can ask for a judicial review. So it will emerge over time what those things look like but we have a fairly well-established tradition in this country. You've got mandatory considerations in all sorts of legislation covering many different provisions; we've got a pretty good idea of what that looks like. Part of that includes consulting with affected communities in sectors and so on and so forth. So I don't think that we need to go any further than we have in any other piece of legislation where we have mandatory considerations.One of the questions that the Hon David Bennett raised was around whether dairy companies are already in the emissions trading scheme and whether they receive free units in the industrial allocation system. The point that I was making before was that agricultural emissions in the form of biogenic methane and nitrous oxide are not part of the emissions trading scheme; so industrial users like Fonterra—which was the point that you raised—are because that's carbon dioxide so it's an industrial gas and is covered by the emissions trading scheme. But my point was that in the sector in terms of the primary production component those gases are not included in the emissions trading scheme—only carbon dioxide and a handful of other minor gases are.He's also correct that Fonterra and other processors don't receive an industrial allocation under that system for milk drying. I wasn't around at the time when someone dreamt up the industrial allocation system and we are taking a look at that whole industrial allocation system because of the various inconsistencies that have arisen over the course of the last 10 12 years. But at the time that the decisions were made about who qualified for an industrial allocation and who didn't the process of milk drying didn't meet the threshold of emissions intensive and trade exposed. So there was a whole process by which they looked at every form of industrial use and so on. Whey and lactose do—so there is an industrial allocation for that. Tomato growing does. So those are contained in terms of industrial allocation but he's correct that milk drying is not. And that's probably a good thing because milk drying is one of those things where it is low-grade heat so it is actually quite an easily substitutable at a reasonably economic price technology. So if you subsidised it and you said that they didn't have to face those allocations then there would be absolutely no incentive for them to shift out of coal or gas or fossil fuels into alternatives.The next question was around the milestones in He Waka Eke Noa—what the audit processes are. So it took us quite a long time to work through the various milestones that need to be reached in the whole five-year process of that with the sector. So quite a lot of effort was sort of put in to make sure that for those milestones it is reasonably clear about whether or not thresholds have been met. I know that the member does have a background in audit so it's not strictly the same but the whole point of the Climate Change Commission is that it is an independent third party removed from Ministers to the point that there is even a nominating committee in order to put people on to the commission; again to just provide yet more arm's length.In terms of costs on production I think we canvassed that pretty well before the dinner break. It's sort of between I think it was 1c a litre for milk and 3c a kilo for red meat—just to respond to that point. There was a question which wasn't asked before about processor-level obligations versus farm-level obligations. I will just make this point: there were actually dairy sector organisations that were arguing for a processor-level obligation because if you're one of those processors and you've got—I don't know—25 100 farms in your system whilst you the organisation the processor would be the point of obligation you'd actually be able to work with all of those farms collectively on a response. And we all know for some farms it'll be really easy for them to bring their emissions down quite a lot; other farm systems much more difficult to bring them down. Wouldn't it make more sense to be able to say "Well let's kind of net that out across the whole thing."?So we bought the argument that was made to us by the sector that in an ideal world it would be a farm-by-farm - level obligation and that's why we set that whole work programme up because it does allow individual farmers to have control over their farm system. But there is an argument for processors to be involved in that and Fonterra and Synlait and Silver Fern Farms and you name it are all getting in on this and actually have made several years' worth of progress already.Finally there were the points around Tīwai and aluminium. Again I did canvass this before the break but the point that I was making is that the marginal price here—even if the price was to double to $50 a tonne—is tiny in comparison to other fluctuations like in the smelter's case the transmission pricing review or frankly currency fluctuations which are many orders of magnitude more significant than this. We had a whole conversation there about profit versus revenue and so on and so forth but it is a very marginal cost.The one thing I would say as the member's brandishing his iPhone is that Apple—and this is a point that I am repeating—have entered into a US$2 billion agreement with another aluminium producer to do hydrogen-based zero emission aluminium smelting and that makes our smelter completely uncompetitive. So what we want to do in an ideal world is onshore that technology to our smelter here in New Zealand but we won't do that as long as there's absolutely no incentive for them to do so. We're really keen to work with them to get our hands on that technology and to bring it in just as we are for some of the emerging—steel's probably about another five 10 years behind where aluminium is but we're quite keen to see some of what a new hydrogen-based steel production is like for our steel mill for the same reasons.I think the principle here is that actually we've got to take some responsibility for what it is that we're consuming. We're consuming steel; we're consuming aluminium. Wherever in the world it comes from we do have an obligation to work out how to deal with the emissions that arise from the industrial processes that are associated with the products that we consume and rely on; and that means getting into the really thorny issues of how to measure manage price and ultimately to change the technologies in those industries and we're really keen to partner with those industries in order to do that."