ETS debate speech

Charles Chauvel, speech to third reading of Climate Change Response (Moderated Emission Trading) Amendment Bill, 25 November.

Mr Speaker, we are about to pass into law a bill that is fundamentally flawed on multiple levels. It is economically irrational, socially inequitable, environmentally counter-productive and fiscally unsustainable. And its hallmark has been one of poor procedure and hasty consideration.
Mr Speaker, the committee stage of this bill was taken in around 8 hours, under urgency. That allowed for no proper chance to remedy the defects associated with the select committee process, including the withholding on the part of the Minister of key aspects of the official analysis of this legislation. Worse, the 8 hours was completely insufficient to allow Parliament to come to terms with the 2 supplementary order papers tabled only yesterday – one of 121 pages from the Minister- which we opposed, and one from the Maori Party enacting a treaty clause, which we decided to support.
Worse, the National Party, the Maori Party and Peter Dunne voted down every amendment put up by the opposition designed to improve this bill. Having deprived the people of an adequate select committee process, those parties then prevented any real improvement being made in later stages of the legislative process.
ALLOCATION
Labour proposed an amendment to cap overall levels of free allocation, given that the Bill, as it stands, puts in place an uncapped intensity based allocation model. An uncapped method allows the overall level of allocation - and therefore emissions themselves - to increase – as there is no “cap” in this cap and trade scheme. So it carries with it an extensive fiscal risk if recipients choose to increase production. This is why the Parliamentary Commissioner for the Environment advised us that a cap is vital to create the right incentives, to reduce fiscal risk, and to create policy certainty for business. National, the Maori Party and Peter Dunne did not support this amendment that sought to advance fiscal responsibility and environmental effectiveness.
PHASE OUT OF SUBSIDIES
Labour also tabled amendments to phase out free allocation to industrial and agricultural activities completely by 2030. This is because, as the Bill stands, the level and duration of allocation is excessive. Providing free allocation for more than 80 years - with a phase-out rate of only 1.3% per year - defies any commonsense notion of a ‘transition’. The Minister says that 1.3% allocation won’t survive future reviews, which begs the question why he wishes to enact it. But at this level of generosity, as with any protection or subsidy, future governments will find it very difficult to roll this assistance back - allocation recipients will have a powerful incentive to maintain the status quo. National, the Maori Party and Peter Dunne voted to keep these permanent pollution payments.
TRANSPARENCY
Given the immense costs of the levels of allocation – costs not just fiscal, but also to the economy as a whole and the environment – it is crucial that there should be transparency over how allocation takes place. The bill reduces that transparency, so Labour sought to enhance it, and put in place safeguards against corruption, by requiring the details of every allocation to be published. Allocation involves the transfer of enormous amounts of wealth, in the form of carbon credits, from the taxpayer to specific individuals and firms. As such, the taxpayer deserves to know the level of these subsidies to particular activities, industries or sectors – and a clear analytical rationale as to why such levels of subsidies are provided. Without such transparency, there will be no public trust in the scheme and there will continue to be a rightly held suspicion that allocation levels are based more on politics – through backroom deals behind closed doors - rather than economics. So Labour tried to also require any donation to a political party by a recipient of allocation to be disclosed. But National, the Maori Party and Peter Dunne did not support the right of the public to know these things.
TRANSITION PERIOD
Labour tabled amendments to remove the half obligation and raise the price cap from $25 to $100 during the 2010 to 2012 transitional period. The half obligation in the Bill is unnecessary and shifts costs by more than half from the polluter to the taxpayer. And despite the Minister’s claims, in the electricity sector it will not reduce the impact on electricity prices proportionally – as the European experience shows. Worse, the fixed price is set at such a low rate that it does not fulfil the purpose of any transitional price cap – to provide certainty against price spikes. Any price cap set should be high enough that it acts as a safety valve to provide certainty against large price spikes; not just yet another subsidy. I also sought to prohibit the banking of non-forest NZ units during this transitional period. The amendment would have prevented the collection of credits while the price of carbon is low, and the selling of them at a higher price once the cap is removed. Banking and trading free allocated credits, taken with price caps, will result in increased emissions, and windfall gains to polluters. National, the Maori Party and Peter Dunne did not support fixing the bill in these ways.
AGRICULTURE
Labour also tried to put the entry date for agriculture back from 2015 to 2013. As the Parliamentary Commissioner for the Environment advised Parliament, there is no evidence to justify delaying the entry of agriculture into the ETS to 2015. The ability exists to measure emissions at processor level from 2013, and emissions reducing technologies are available - particularly in the form of nitrogen inhibitors. Delay merely keeps the full costs of emissions with the taxpayer until 2015, and delays appropriate levels of emissions-reducing investment and behaviour in this sector. National, the Maori Party and Peter Dunne did not support this amendment.
COMPLEMENTARY MEASURES
Labour also sought to establish a fund to reduce greenhouse gas emissions through the promotion of complementary measures. This would have provided for an annual appropriation of $20 million or 10% of all revenue accrued from the ETS, to promote energy efficiency, renewable energy and research and development. We put this amendment forward because assistance provided to households beyond 2012 has been axed, as the Bill removes the Household Fund from the Act. The Household Fund was an initiative to provide $1 billion of energy efficiency assistance to low income households over 14 years. The Maori Party traded its abolition off for a one-off $24 million scheme targeted at low income households. In other words, low-income households, many of which will be Maori, will receive $976 million less in energy efficiency assistance than they would if this Bill were not passed. National and Peter Dunne are part of that deal.
CPRS HARMONISATION
The Bill as it stands makes highly undesirable changes to the Act in order to achieve alignment with the Australian CPRS - an objective that the Treasury, the Parliamentary Commissioner for the Environment, a leading independent expert and others all tell us is without any clear analytical basis – given the unique emissions profiles and industrial profiles of the countries. The fact that the CPRS is still only proposed and was subject to an AU$7bn revision this week only adds to the incoherence of the harmonisation proposal. We proposed an amendment to remove the harmonisation objective. Despite this being clearly in the national interest, National, the Maori Party and Peter Dunne opposed it.
EMISSIONS TARGETS AND INDEPENDENT ADVISORY COMMITTEE
We tried to enshrine national emissions targets in law, and to require the Minister to ensure that they are met. Targets should not simply be a matter of good intention. The current levels, duration and model of allocation is completely incompatible with the Government’s target to reduce 1990 emissions by 50 percent by 2050. If the Government’s ‘50 by 50’ reduction target is anything more than a catchy slogan, the Minister should have been prepared to enshrine this target into law. Finally, we proposed amendments to establish an independent Advisory Committee on Climate Change to provide advice to Ministers and promote informed public debate on the public policy response to climate change. The development of climate change policy in New Zealand has been controversial. There is no consensus on key issues - as there is in Europe. There has been insufficient independent analysis of the costs and benefits of climate change policy initiatives. The select committee process we have witnessed aptly demonstrates just why such an independent body is so sorely needed in this country. National, the Maori Party and Peter Dunne opposed these measures.
CONCLUSION
Mr Speaker, this Bill is fundamentally flawed on multiple levels. As I have said previously, it will make New Zealanders poorer, our economy weaker and our emissions increase. The amendments Labour tabled over the past day would have addressed some, but not all, of these significant deficiencies. But like our attempts to reach a consensus with National earlier in the year, they were spurned. National, the Maori Party and Peter Dunne have ensured we have an ETS that favours narrow corporate interests over the general well-being.
We will repeal this bill at the earliest opportunity.