Climate Change Response (Emissions Trading Reform) Amendment Bill

I yield to the Minister.

💬 Hon James Shaw: I seek leave for all provisions to be taken as one debate, with the questions to be put separately.

💬 Hon Members: We’ve already done that.

💬 Hon James Shaw: Oh, I beg your pardon.

Sorry, Mr Chair, I was yielding to the Minister. We’ve got through the procedural stuff and we’re OK to go? OK. Good.

Look, thank you, Mr Chair. This is a complicated, multifaceted, detailed piece of legislation. The bill itself—the document that’s sitting on the Table—runs to in excess of 400 pages, and so as the debate on the specific clauses and sections of the bill pursues this afternoon, I and my colleagues will want to ask the Minister a number of questions about the practical application of this piece of legislation. And, in so doing, we are very cognisant on this side that, actually, this is the “doing” piece of the climate change reform package that the Government has introduced. The first portion of the legislation was the zero carbon Act, and that, essentially, set up the framework for the establishment of a commission and the various targets around time frames and gases for reduction. But this emissions trading scheme piece of legislation is the one that actually provides the Minister of the day with the levers to have an impact on the day-to-day lives of New Zealanders through a pricing mechanism that is our emissions trading scheme. And, effectively, that’s exactly what it is: it’s a piece of statute that is designed to, effectively, reward good behaviour and, effectively, punish poor behaviour in terms of carbon emissions.

So that then leads to a whole range of consequential impacts, not the least of which is the situation regarding the potential for much more exotic afforestation of the countryside than many people feel comfortable with. It’s on that point, at this stage in the debate, that I’m keen to know from the Minister in the chair: does he feel that this legislation actually poses a risk to primary production, particularly our export-led primary producers—in that, if the carbon price is increased, as his announcement yesterday indicates that it will be, with the cap moving to $35 a tonne, will that actually provide an incentive for further afforestation and, potentially, create an environment where it’s financially viable and profitable for carbon farmers to plant pine trees on land that, up till now, has been producing grass and the associated primary products that come from sheep and beef and cattle farming?

So we are, on this side, concerned that, in the legislation, there doesn’t appear to be sufficient, robust ability to prevent mass afforestation, and that’s been an issue that has been of huge concern to people in rural communities and provincial communities who are worried that, in order to have this situation take place, it will be their communities that are, effectively, depopulated and denuded in terms of effective, functioning communities. And so I am keen to have that answer from the Minister. Where is it in this piece of legislation? Where is the mechanism that prevents mass afforestation in a way that can give assurance to rural and provincial communities that land that is currently in pastoral, productive business won’t be just planted in forests. We also want to have—and I’ll take another call later on, Mr Chair. I’m interested to know about the Government’s general view on offsets per se. But, in the meantime, just initially keen to have an indication from the Minister on the point I raised.

Thank you. I thank the member Scott Simpson for his question. So in response to the member’s question about where in the legislation is the mechanism to limit the risk of mass afforestation of productive farmland: this issue was canvased during the debates around the zero carbon bill last year. Of course, the zero carbon bill was an amendment to the Climate Change Response Act 2002, and this bill is also an amendment to the Climate Change Response Act 2002. The member’s party actually won a concession during the zero carbon legislation, which is that it’s a mandatory consideration for the Climate Change Commission when considering its emissions budgeting processes, and a similar obligation on the Minister and the Government when responding to the advice of the commission, to consider the implications of land-use change for communities and the wider economy. So that was actually built into that legislation.

As the member has said, this legislation here is where the rubber hits the road—metaphorically, obviously—in that those considerations, at the high level that the commission has to consider in those 5-year emissions budgets, and then emissions trading scheme settings and so on, filter down to this piece of legislation. So that concern is built into the legislation already as a result of that.

In addition, I wanted to say that I understand the concerns of rural communities. There has been a 0.25 percent—i.e., a quarter of 1 percent afforestation of land in beef and lamb territory, for example, at the moment. I just want to compare that to historical trends. So planting rates actually peaked in 1994—and I see the Hon David Carter’s in the—

💬 Rt Hon David Carter: Wonderful year.

—Chamber, and he may remember this—when 98,000 hectares of land were planted in forests. Throughout the 1990s—during which time, of course, there was a National Government through pretty much all of the 1990s—a total of 554,000 hectares were planted. So if you compare that to today, there are only 13,300 hectares per year—so considerably lower than the afforestation rates that took place during the 1990s. What we’ve anticipated is that the forestry changes to this bill will result in an increase to 23,000 hectares a year, which is still, again, substantially lower than the afforestation rates during the 1990s.

The other thing, of course, is that there has been a considerable deforestation rate. So after the planting in the 1990s, which was considerably higher than it is today, there was considerable deforestation rates. So there have been, for example, 70,000 hectares deforested just in the last 10 years alone, and deforestation has outstripped afforestation over the course of the last two decades. So, for example, in 2017 we had 6,000 new hectares of planting but 9,000 hectares of deforestation. So on a net basis, actually, the rates of deforestation have outstripped afforestation historically.

I also just want to be mindful of the fact that, actually, forestry itself has an economic value. There are 35,000 people employed in the forestry and wood-processing sector. I understand that red meat employs about 66,500, so roughly twice as many people as are employed in forestry, but on five times as much land. So the forestry sector actually employs more people per hectare than the red meat sector. Forestry is a $7 billion export revenue earner. So you need to sort of balance out the set of considerations.

I completely understand the concerns, and I also know that the lived experience doesn’t necessarily match the data, right? So when someone, let’s say for example, in Wairoa, gets up in the morning where there has been sheep out on the fields and then they kind of get up and they see huge amounts of forestry, it feels like the whole world has changed. It hasn’t, but I can understand that their experience may be such.

Thank you, Mr Chair. I’ve got a couple of questions for the Minister for Climate Change, thank you very much, but before I do pose those questions, just to confirm that National views this Climate Change Response (Emissions Trading Reform) Amendment Bill to be the “doing” part of the climate change response. National did support the zero carbon Act and, overall, supports where New Zealand is going, towards a lower carbon economy, but we do have several misgivings, and I’ll use this contribution to open with a couple of questions.

I did have my two questions set, but the Minister just made a comment that I would like some further explanation on, and that was that forestry employs more people per hectare compared to the red meat sector. The reason I’m interested in that is because that is not my perception, although I’m sure the Minister has plenty of information to back up that claim, and I’m looking forward to him expanding on why he says that—perfectly prepared to accept his explanation. The only comment I would make around that assertion is that it may well be true that the forestry sector may well employ more people per hectare than the red meat sector, but where are those people? Where do those people live? There isn’t a sawmill on every corner, and yet there is a farm on arguably ever corner of rural New Zealand, and so I am interested. Because the demographics of the spread of workers, the workforce, does matter in New Zealand, doesn’t it? We’re a country of several large cities, but many, many small rural communities, and those rural communities are supported by the red meat sector. That forms one of our objections to this bill: that the impact of this climate change bill at this time will mean that small communities will pay an economic penalty because of the timing of this bill in the post-COVID world. So I am interested in the Minister’s greater response to that question.

My second question, again, is a matter of timing, and again it is in the context of our post-COVID environment, which, for the primary industries and for the red meat sector and, particularly, for the dairy sector, but also others, is that one of the requirements in this bill is that there will be mandatory reporting obligations on livestock emissions, and they will apply at farm level for emissions from the year beginning 1 January 2024. Now, 1 January 2024 is not that far off in fact. So 1 January 2024, if you work backwards from that, this bill will be enacted—let’s say this bill will become law in the latter half of 2020. The Parliament will pause for the general election. We will resume, potentially, in November; break for Christmas. Suddenly we’re in 2021 and that leaves two years until the reporting obligations come into force at farm level. So, when I get to the real nub of my question—it is given a runway, if you like, of around two years—what is it going to take, what support is going to be given to the red meat sector to be able to comply with those obligations?

Look, I’m sorry I came late to this bill; I only joined the committee in late February. Are all the regulations in place, or are they—like a number of other measures in this bill—still to be developed; in which case, do we have to shorten that runway even more? Thank you.

I’d just like to start by saying that the member has actually got quite a good handle on it, given the complexity of it and the time that she’s had available. There are a number of questions in there. I can give a partial answer on the locations of forestry jobs. I’ve got them for forestry, but I don’t have them for the red meat sector, so it’s not easy to compare. The 35,000 people employed in the forestry and wood-processing sector: there’s 7,500 in tree planting, harvesting, and forest management; 2,500 in log transport and at ports; and 25,000 in wood-processing. So those wood-processing facilities, obviously, are located in rural towns around New Zealand. I’ve got 66,400 people working in the red meat sector, and, obviously, some of those would be on farm in the same way that, you know, some of the forestry sectors are out on the land, but also a lot of them would be in processing also in rural communities and small towns. But I don’t have the distribution within that 66,000, so I’m sorry about that.

In answer to your second question, you had questions around the time lines for mandatory reporting at farm level. There are a few things I’d like to say about that. First of all, that time frame was actually worked out with the agricultural sector itself. The member may remember that, in about September of last year, we entered into an accord with the agricultural sector called He Waka Eke Noa, which is a process which is essentially a partnership between the Government and the large sector representative bodies to develop a farm level measurement, management, and pricing system for farm level emissions of biogenic methane, in particular. So those time frames actually came as a result of that conversation. The sector has said, “Look, it’s challenging, but it’s doable.” And the feedback that we’ve had from them is they’re really keen to show New Zealand that they can do it because they are aware that they are the only sector that isn’t in the emissions trading scheme at the moment—and, of course, quite keen not to be part of the emissions trading scheme. The emissions trading scheme is really most effectively designed for industrial sectors, and the whole idea behind the He Waka Eke Noa work stream is that it will develop, essentially, a parallel system, but one that is much more suited for the agricultural sector. So we’re comfortable with that because we launched that with the sector itself.

The other thing that I’d like to say about that is that we’re not starting from scratch. So, for example, Fonterra are already doing farm plans for virtually all of their farms. Synlait are doing it for all of theirs. Horticulture New Zealand are doing it with all of their planters around the country. In fact, the previous Government had a significant investment programme stretching back 10 years for agricultural greenhouse gas research, which tens of millions of dollars has gone into and which has started to yield some results.

So I’m pretty confident that with the investment that’s historically gone in both from the public sector, and also from the private sector over the course of the last decade and the commitment that the sector itself has made to those time lines, they are doable.

Thank you to the Minister for Climate Change for providing those answers. I just have a further question around the mandatory reporting obligations and those time lines. Thank you for explaining to the House that the industry have worked together with the Minister to develop strategies for meeting their obligations. I’m interested to know whether that work was completed in its entirety before the lockdown in the middle of March or whether that work was completed subsequent to the COVID-19 lockdown.

Together with that, I’m interested to know from the Minister: what are his projections for how long it is going to take the red meat industry to recover from the COVID-19 lockdown and its impacts? I’m talking about things like the bottleneck that we experienced at processing plants during level 4 and, to a certain extent, level 3 and the subsequent impacts on farming operations from having to hold stock, stock losing condition, having to buy an extra feed, and the subsequent feed budgeting into the spring and then on to the summer, all of which, I’m sure the Minister will be aware, will have an impact on farmers’ work programmes, their ability to rise to new challenges, and just simply getting through the day. So I want to know that the Minister has completed this work with the industry bodies, taking COVID-19 into account, because my very rough runway for compliance of two years could very quickly shorten up to 18 months to six months.

Thank you. So the time line is such that the roll-out doesn’t happen on farms until 2023, 2024, 2025. The work stream that we set up with the industry is, essentially, an R & D function—that would be one way to think about it—where we’re pulling together all of these different pieces of work that have been done by both Crown research institutes and the sector bodies and so on over time to try and knit those together into a sort of coherent whole. But the point of having a reporting deadline is to actually get those systems out on to farms by that time. So if you think about it from the lens that the member was just referring to, which is what’s happening at the farm level today, then by the time we’re actually rolling this out in 2023, 2024, 2025—assuming that there’s no additional outbreaks and so on, but actually the present crisis will have well passed by the time it gets to that level.

There is a steering group for that work programme, which includes, from memory, Beef and Lamb New Zealand, DairyNZ, Fonterra, Horticulture New Zealand, Federation of Māori Authorities, an iwi representative, and representatives from the Ministry for Primary Industries and the Ministry for the Environment, and they have been meeting virtually—as have we all—over the course of the last couple of months, and I haven’t been advised by them that they foresee any significant delay in that work programme as a result of COVID-19. I think that’s probably a function of the circumstances of the timing where we are. You can imagine, for example, if the pandemic outbreak had occurred in, say, 2023, right at the exact point that we were trying to roll this out on farm, that it would cause considerable disruption to our ability to do that, but it doesn’t at the moment. That also, by the way, I have to say, doesn’t relate to the bill, but rather to that work programme.

Thank you to the Minister for Climate Change for providing that explanation. It didn’t directly address the question I posed, which was: given that farming operations have been impacted by COVID-19 and farming operations don’t just suddenly recover all by themselves—because they have to make planting decisions for the spring and they have to make sure they have enough feed; they have to have feed on the lambing paddock. All of those considerations have got to be in the minds of farmers.

I want to thank the Minister for the explanation of the work that is being done, but what allowance will there be in this law if farmers and farming groups cannot comply with their obligations by 21 January 2024? How is the Minister going to deal with the “what if”? What if the farming community, farming sector, cannot comply?

The Climate Change Commission has the ability to review progress and to suggest any changes to the programme. But, again, I think, given where we are in terms of the pandemic today, by the time we get to 2024 it won’t be a problem. Certainly no one in the sector has suggested to me that there should be, at this point, any decisions made about deferring or changing the time line for that roll-out based on what’s happening today.

Thank you, Mr Chair. I’d just like to start by saying to the Minister that his officials were outstanding at committee. As Mr Simpson mentioned, this was a hefty bill, it was full of detail; frankly, it was really difficult to get our heads around those 400 pages, and the officials that were provided were outstanding, and they put up with some—well, certainly from my point—questions that they may have found a bit trying. But to get our heads around this, we had to ask them.

The Minister, in his speech and many other contributions yesterday, talked about the need for certainty and how this bill was going to bring about certainty. I want to ask some questions around trade-exposed industries and the automatic phase-down of allocations. We heard from submitters in select committee, and it certainly wasn’t their view that this bill was bringing certainty. I can’t imagine a world in which, until 2050, we’re going to not need steel and aluminium and concrete and glass—those things are going to be required, and National always made a provision to allocate trading units to trade-exposed industries, like steel and cement and aluminium, so as not to force the closure of those industries and risk thousands of jobs and potentially carbon leakage overseas. Our policy was not to phase out this assistance until other countries—in our region, at least—had introduced a carbon cost, and none have done that as far as I can see. So I want to know what the Minister’s thoughts are on that, because we are putting those industries at risk, because the bill phases out support at a rate of 1 percent and then 2 percent and then 3 percent.

The other thing that I’d like to ask the Minister is that the bill makes this regulation power to vary the phase-out date after 2030, but only if it’s recommended by the Climate Change Commission. Now, it’s always been our position that the commission should have recommendation powers only, and I’d just be interested in the Minister’s view on that. We heard from New Zealand Steel and we heard from O-I Glass and a number of other trade-exposed industries, and they talked about the lack of certainty and the lack of any technology coming on the horizon that’s going to allow them to meet these targets, and so they are facing significant costs in the future if the allocation of units is phased down, and they certainly didn’t think this bill brought them certainty.

The other question I’ve got for the Minister—we’re in a new world. We’ve potentially got 300,000 Kiwis out of a job in the next year or so. Hopefully, it’s not that big, but that’s what the Ministry of Social Development are planning for. They’re losing their incomes, they’re potentially losing their homes, we are potentially in the worst economic crisis in living memory, and this bill—no one can argue—will increase the cost of living to all New Zealanders. Now, I know in the zero carbon bill, because I sat in on that bill, that there is a mechanism in that bill, when there are events like this, for the Climate Change Commission to alter its views on things, and for the Government as well.

But what I want to specifically ask the Minister is that yesterday he put out a press release and he’s announcing, under his regulation-making powers, caps on the emissions trading scheme of 160 million tonnes of CO2—but this doesn’t mean anything to New Zealanders. What I want to know is: what does this do to the price of fuel? What does it do to the price of carbon per tonne? What is this going to do for the basket of groceries for New Zealanders? Given that we’re in these—as everyone always says—unprecedented times, has he thought about the effects of COVID-19 on his press release yesterday and what that means for everyday New Zealanders in a post-COVID world? And, like under the zero carbon bill, is there anything in this bill, or under these regulation-making powers, that he should think about when imposing caps under those regulation-making powers? Thank you, Mr Chair.

I thank the member for her questions. Just in relation to that very last question, remember that this is an amendment to the same piece of legislation as the zero carbon bill, and therefore all of the mandatory considerations that we built into the zero carbon bill also apply here, because this, essentially, is subservient to that higher-level framework that we agreed last year. So I think that that’s built in. But there are two quite complex groups of questions in there: one around the energy-intensive trade-exposed firms, which I have given considerable consideration to over the past 2½ years, and also around household costs and impact on households.

So I’ll just say, in relation to the energy-intensive trade-exposed sectors and businesses, the industrial allocation—if you go back to 2008 and 2009 when the emissions trading scheme was first introduced—was actually supposed to phase out, starting then at a much faster rate than what is being proposed here. And in response to the global financial crisis and the Christchurch earthquake, the Government at the time cancelled that phase-out, and that has put us in a position where essentially no progress has been made in the intervening 12 years.

So this bill has actually been five years in the making. It was the result of a review that was kicked off, I think, by Tim Groser when he was in the climate change role, recognising that, actually, at the settings at the time, we weren’t actually making the kind of progress that we needed to make. So the process of working through the phase-out rates for industrial allocation has been signposted with those companies regularly and they’ve been consulted many, many times over, over the course of the five years, not just in the recent weeks as we’ve been deliberating on the bill, but actually in the design of it as we went through.

So I have to say I’m sceptical about claims that it’s unpredictable. The whole point is predictability, because we’re actually saying over a 30-year time horizon, here is the phase-out rate. Up until this point, all it’s saying is, “Well, there’s a kind of sword of Damocles, which is we may phase these things out at some point, but we’re not going to give you the ability to plan for that because we’re not actually signposting in advance what it is.”; whereas what this bill does is it actually signposts over a three-decade time horizon what that looks like.

Second of all, the claim that there are no new technologies emerging is actually also not borne out by the evidence. So in the past sort of three or four years, there have been significant innovations on zero emission production of both steel and aluminium using hydrogen, and those technologies—in fact, Apple and Alcoa entered into a $2 billion contract. I think it was Alcoa or Alcan that entered into a $2 billion contract to set up the world’s first hydrogen-based zero emission aluminium smelter in the northern hemisphere. So that new technology is there. Clearly, it’s not here yet, but the point is that with the kind of phase-out rate and the length of time that we’re giving these businesses, assuming that they decide to stay onshore for, you know, other business reasons, they’ll have access to that technology easily within the time available.

To give you a sense of the impact of the cost on those firms, if you take New Zealand Steel, for example, their revenues were $937 million in the year 2019. Their allocation of units—so what we gave them—was valued at $44.6 million, assuming a $25 a tonne carbon price, which is roughly what it’s floating at, at the moment, and has been for a while. Their exposure is the equivalent of 1.48 percent of their revenue. If we start the phase-out rate as outlined here, at 1 percent, that equates to 0.49 percent of revenue—so under one half of 1 percent of revenue—and the numbers are lower for aluminium, at 0.34 percent, and for Methanex it’s 0.27 percent. So you can see that the impact of what we’re suggesting, that 1 percent phase-out rate, is absolutely marginal. And when you consider other costs that they face—for example, fluctuations in currency or fluctuations in electricity price or the argument, of course, that the aluminium smelter constantly has about transmission pricing—those are many, many, many more times more material to this business. [Bell rung] Mr Chair?

CHAIRPERSON (Adrian Rurawhe): James Shaw—the Hon James Shaw, shall we?

You can call me what you like, Mr Chair.

💬 Hon Member: OK.

Not you; him. Actually, what we’re talking about is really small, but it does start to send that price signal and signal a direction.

The other thing I want to say about industrial allocation is that there is a risk there we’re actually over-allocating businesses at the moment. So whilst we say that they get a 90 percent free allocation under the scheme and are only liable for 10 percent of their obligation—we’re starting to investigate this; we don’t have evidence yet—we think that there is a possibility that at least in some cases, they may be receiving over 90 percent and, in fact, in some cases over 100 percent. In other words, the Government is allocating them more cash value than they are obliged to pay in total. And so the impact of the phase-out should have, if that bears out over the course of the next couple of years, really no impact on their profitability at all.

The other thing that the member asked was around competing countries. So I’ll just refer to China, which is, of course, the world’s largest producer of steel and a direct competitor to BlueScope Steel in New Zealand in terms of products available in the New Zealand market. China has seven provincial-level emissions trading schemes operating. They ran those for a number of years, essentially, as an experiment to try and work out what are the optimal settings. They are, I think, from this year, putting in place a nationwide emissions trading scheme. Now, initially, it only applies to the electricity generation sector, i.e., coal-fired power plants, but they’re phasing in other sectors at the rate of—I may need to check this, but I understood that it was at the rate of one new sector each year, and that does include steel. So they will be imposing carbon pricing on their steel production as well. The nature of their emissions trading scheme is different to ours, but the point is that there will be a price applied at the margins.

We’ve been for many years in quite close contact with the Chinese officials about the design of the schemes, because, of course, everybody is in the same boat in relation to this. Any country that has to produce steel needs to cooperate with other countries that produce steel if there is ever to be any kind of emissions pricing on steel anywhere, whether that’s via an emissions trading scheme or via a carbon tax. So I’ll leave it at that, at the moment, although I understand the member may have additional questions around industrial allocation and the emissions-intensive trade-exposed firms.

I’ll just bring my comments now to her questions around the impact on households. There is quite a lot of work that’s been done on this. This is one of the interesting debates about whether now is the right time to do this? And if you look at the impact the economic crisis has had on petrol prices, I think that retail prices have dropped—again, I’ll need to check this—by about 48c a litre over the course of the last few months, because demand has dropped. By comparison, the additional price that would be imposed, let’s say, if prices rose to $35 a tonne from the current $25 a tonne—that would impose about a 9c a litre additional cost. You know, prices have fallen 48c per litre, so you can see that, actually, households are still better off in terms of their petrol prices.

The other thing I want to say about this, of course, is that the whole point is to induce change. So all of the modelling—and this is a source of some frustration to me—assumes no change, and therefore everything only ever appears in the modelling as an increased cost. But, of course, if firms do start to, for example, introduce a biofuel component into the mix of their petrol, then the carbon obligation would go down and, therefore, the cost would go down. If there’s no price, then there’s no incentive to change and you end up with the same result.

Thank you, Mr Chair. I just want to pick up a little bit on the comments made by my colleague Erica Stanford in relation to the industrial allocation. I want to thank the Minister for his answers to her questions, but there are a couple of matters that I do just want to tease out, if I might. At select committee and in our report, we felt—well, a majority of us felt—that actually there was a greater need for ministerial flexibility when it came to reviewing industrial allocation phase out. The statute that we are considering suggests initially that, if there are to be changes, it should be on the recommendation of the commission—and we don’t have any disagreement with that—but, because the number of high-emitting businesses that are allocated industrial allocations is relatively small, some of them have very specialised contributions to make to the New Zealand economy and our way of life.

One of them that came to select committee and really did go into some detail was the New Zealand refinery up north at Marsden Point. And therein lies a real issue, because they told us that they had a special agreement that had been entered into in good faith years and years ago, at the time when the refinery was set up, going back as far as the mid-1960s, to a period of time before the refinery was set up, when actually we imported refined fuels into New Zealand in a finished state. I don’t think we would want to, as a country, go back to that. So there’s a case in point where the refinery company makes a good, solid contribution in terms of the day-to-day lives that we have—and, yes, over a period of time, one would expect that the reliance that we have as a nation on fossil fuels to provide fuels for transport, for light and heavy vehicles, will diminish. That’s fine and dandy. But the Minister, in his answer to my colleague Erica Stanford’s question, was quick to point out that the component that was the free allocation cost, if you like, to that business, relative to revenue, was very tiny. But, as a former boss of mine used to often tell me, a sale isn’t profit. And, what’s more, actually it’s the margin; it’s the proportion of the impact on the profit and the ability for that entity to trade profitably on an ongoing basis that’s, frankly, more important than the revenue number.

And, yes, in recent months, petrol prices at the pump have dropped, but I don’t think, even in his wildest imagination, the Minister is expecting that to continue for very long. And, at the current level of $25 a tonne, it’s estimated that that portion is about 4c a litre—and if I heard the Minister correctly, he said, at $35, it’s going to increase by nine. So is that 13c in total, or is that 9c in total at $35? So I’m keen to know just clarity around that, because $35 a tonne is just the sort of transitional stepping stone, and it’s the point at which New Zealanders start to understand the true impact and cost of climate change when it hits their wallet. Of course, when you get, for instance, at $35 a tonne, a 9c a litre impact at the petrol pump, that has a ripple effect through the entire economy. It’s not just the price that the consumer pays at the pump; that’s the same price that the courier or the freight company delivering tins of spaghetti to the supermarket—and that has a price component that multiples through the economy.

So I’m keen to know just, firstly, about some of those industries that are currently receiving the industrial allocation who play a special part in the very fabric of the New Zealand economy and our way of lives, and how he sees that playing out and the flexibility he sees in this legislation to enable him as Minister to respond to situations as they have occurred. And, for instance, we’ve seen just in the last month or two, an unexpected huge situation arise, that no one could have rationally foreseen, that requires an ability for ministerial intervention in a nimble, flexible, timely way, if necessary. And, secondly, I’m keen for him just to be a bit more precise about the impact, for instance, of petrol prices at $35 a tonne and also what that might mean beyond petrol prices and for other aspects within our economy.

Right, so just for the sake of clarity, it’s an increase of 3c to 9c, right? My point was to illustrate the fact that during an economic downturn, when you have reduced demand, prices fall—statement of the blindingly obvious. But the point is that, in introducing change now—which is the central argument that the National Party has been making about this legislation—because prices have fallen so much, the cost, actually, is a lot lower. If COVID-19 hadn’t continued—

💬 Hon Member: The hurt is lower.

Well, what I’m saying is that, actually, the prices that households are paying for their petrol—same amount of petrol if you’re driving around—are considerably lower today than they were three months ago. And that, actually, if COVID-19 hadn’t shown up, and, you know, the economy was humming along, and we’re at capacity constraints, and all of that kind of stuff, then prices would be higher because of the pressure in the economy, and, therefore, that marginal additional difference would be felt a great deal more at that moment. So I guess what I’m saying is: I dispute the central notion that now is the wrong time because, actually, prices are so much lower right now than they would normally be that you don’t notice it. This is the point about a market mechanism, of course, is that it changes depending on the conditions in the market. Carbon prices themselves are lower now because there is less demand for units because, for example, Air New Zealand is flying less than they have, and so their requirements for units have really shrunk. Therefore, prices have come down. And that’s a fundamental difference between an emissions trading scheme and a carbon tax, for example. A carbon tax is simply a staged increase over any number of years—just wanted to say something about that.

Second thing, he’s asking for ministerial oversight. One of the key things that we were trying to do with the zero carbon bill was to depoliticise the debate. I’m concerned about the idea of reintroducing too much political debate and also, frankly, the ability of organisations and sectors that have got strong lobby groups being able to influence political decisions at their own advantage but, actually, at the disadvantage of other sectors in the economy. I have to say, we’ve seen a bit of that recently where, you know, people acting in their own self-interests, which is entirely understandable, propose a change to the legislation that would have, perhaps, a catastrophic effect for another sector or, actually, for household prices. So the reason for ensuring that Government acts only on the advice of the commission is a way of guarding against those two things. However, of course, Parliament is supreme, and, as we’ve seen over the course of the last few weeks, in an emergency, it is possible and entirely understandable for emergency legislation to be introduced if there is a need to do so, and we’ve got a number of cases of that just recently

Finally, the member asked about the refinery, and the refinery is actually a unique case because they were not—in fact, at the moment, are not—participants in the emissions trading scheme. They entered into a negotiated greenhouse gas agreement in the 1990s with the Government, which was essentially a special arrangement where they made commitments to achieve certain targets, and, in return, they wouldn’t come into the emissions trading scheme until a certain point. The member is absolutely correct; they entered into that agreement with certain undertakings. The issue recently, of course, is that, since those undertakings were made, technology and other things have changed. So there was a concern that they were going to be brought in on a different basis from firms that were already in the emissions trading scheme that were receiving industrial allocations. Now, there are a number of concerns about industrial allocation, obviously, but we made the call to say, look, we should honour the agreement that was entered into, regardless of, you know, history since. And also, we should treat them on the same basis that we are treating all of the other emissions-intensive trade-exposed firms that receive an industrial allocation. And that was the certainty that they were looking for, and we gave them that. Now, there will be a review of industrial allocation, but it isn’t just going to apply to one company or one sector; it will apply to all equally. So everyone will be treated fairly as we progress through that.

That is quite a slow process, which brings me to the member’s next point, which is that revenue and profit are not the same thing. The reason I was using revenue is because I can see revenue. But the nature of profit is not always so easy to discern, particularly when it comes to international companies where, due to the nature of tax arrangements and so on, it is possible for firms to have quite high revenues, but quite low profits in one territory if they think that that forms an advantage. So we’ve been using revenue, recognising that it’s not a perfect measure, but because, you know, we can’t look through firms into all of the finer details of their accounts, it’s not really possible for us to use profit as a basis of comparison. The other thing, of course, is that you can compare revenue between different companies, but you can’t easily compare profits between different companies for the same reason. So revenue is not a perfect measure, I acknowledge that, but it’s a more functional measure than using profit in this regard.

Thank you, Madam Chair. I’d just like to thank the Minister for Climate Change. I think he’s been very helpful this afternoon in the way that he’s responded to questions. If he can carry on that approach—because, as a respected Minister, I think he’s actually doing a very good job in the House this afternoon. So if we could carry on that approach, it would be good.

I’ve just got a few questions that have arisen from his answers, and the first question is just what we just talked about before about the increase in the petrol price. The Minister said, well, basically, there’s been a 48c reduction. Consumers might have a 9c increase or 3c increase, but, in general, they’re not going to be too poorly off because they’ve had a massive reduction. I just want the Minister to answer what it actually means for the average household on their income side though. The reason you’ve had a 48c reduction in petrol prices is because the world economy stopped. The world economy stopped because of the crisis. So world prices of oil, basically, went to zero—negative, actually. That is not going to last, as the Hon Scott Simpson said—but the impact on households will last because we are going into a recession, if not a depression, and, in that period of time, the most vulnerable households will lose income.

It’s all right talking about the expense side and saying, “Well, they were paying less in fuel.”, but they are now facing a situation where they don’t have a job. They’re now facing a situation, if they did have a job, where it’s on reduced hours. And they’re now facing a situation, if they did have a two-income family, where they’ve probably only got a one-income family, if that. So it’s all right to say, well, “Hey, you’re not going to lose too much on the expense side.”, but the reason petrol prices are low is because these people aren’t going to have work. They’re not going to have the income.

That’s our point. At the very time the most vulnerable people out there will be hurt through a crisis like this—the rich will always find a way of getting around it, but the most vulnerable people will hurt the most out of this crisis. When that price of fuel goes up, they can’t avoid it. They just can’t avoid those fuel costs. It might be less than what they paid for before, but they’re earning a lot less than what they were earning before.

So I want the Minister to look at it. He talked about economics and things like that. Well, the first economic question I’ve got to him is: how does he explain the rationality for having a cost increase on the most vulnerable people when they’re going to have an even bigger reduction in their revenue in the next few months to couple of years? And how can he, in good conscience, do that to the people that are most vulnerable out there?

Thank you, Madam Chair. I just want to pick up on what I started, Mr Scott Simpson continued, and the Hon David Bennett has mentioned.

I want to take issue with the Minister when he says that now is the right time, because I would argue that now is the worst time. And I’d argue that it’s the worst time because we have no idea, at this stage, of the impacts of COVID-19 on our economy.

We’re predicting potentially 300,000 people out of work. I don’t think we have any idea of the potential impacts on New Zealanders. It doesn’t matter if the price of fuel is $1.50, or if it’s $2.50, when you don’t have a job and you don’t have any income and your livelihood has been destroyed by COVID-19. As Scott Simpson mentioned, we don’t know what the price of fuel is going to do.

James Shaw, the Hon James Shaw, mentioned earlier that in 2008 to 2009, after the Christchurch earthquakes and after the global financial crisis, National made some decisions in pulling back on some of those levers round the emissions trading scheme. And we did so for good reason. We did so because we wanted to protect New Zealand’s jobs and New Zealanders’ livelihoods.

We’re in an even worse situation now than we were then. And this Minister thinks that now is the right time to, effectively, impose new taxes on everyday New Zealanders who are potentially going to be going through the worst possible time of their lives because of this crisis.

What we are proposing is to just put it out for a 12-month period so that we have the full information about exactly what this economic crisis is going to do to New Zealanders. I don’t want the Minister to stand up today and tell me how this climate change is so very urgent that we must act now, because the Minister has had $100 million of a Green Investment Fund that he’s been sitting on for three years and not done anything with. He had a promise to electrify the Government’s fleet. He hasn’t done that. Those are simple things he could have done to reduce New Zealand’s emissions and be a leader in climate change reduction, and he hasn’t done any of that stuff. So it would be very rich for him to get up today and tell us that it’s so very urgent, that we can’t put it off for a year, when we’re looking at, potentially, the worst economic crisis in living memory.

Sorry I get a bit het up, but I just find it very rich when the Green Party tell us about this climate change emergency, when they can’t even spend the $100 million that they got in the Green Investment Fund in the negotiations post-election. There’s been nothing on electrifying the Government fleet like they promised. We’ve got West Coast, small-scale hydroelectric dams that they’re turning down. These are things that can actually make a difference now that they’re not doing. So I don’t want to hear that it’s that urgent.

I want to know from the Minister why now—without any of the information that we could potentially have in 12 months about the scale of this disaster—and why he thinks now is the right time to impose new costs, new taxes on Kiwis who are going to be struggling after the potentially 300,000 of them lose their jobs, and, potentially, their homes, their businesses, their livelihoods.

At this point in time, I would argue that it is the worst possible time—without all of that information in front of us—to be making such enormous decisions about new taxes that will increase the cost of living for everybody in this country.

Thank you, Madam Chair. I am directing my questions now to the Minister for Climate Change. I wasn’t intending to take a call in this debate, but with the contribution of the Hon David Bennett—and, I would argue, my mistake in heckling him. I do feel as though I’ve poked the bear, and we may now be extending this debate well beyond the dinner break.

But I just wanted to ask the Minister about some of the thematics that have arisen particularly from the Opposition’s contributions in this committee of the whole House debate tonight, some of which I’ve just jotted down. The first is really that I intend to unpack what appears to be surfacing, which is this false binary of a choice between jobs or the environment.

On that point, I really want him to drill down, in particular, into this abstract notion of the economy, as is often bandied about, particularly with regard to GDP, which I note the Minister for Climate Change actually spoke about prior to becoming the Minister. I remember back in the mists of time—I think it was an op-ed authored for Stuff, potentially—about the fact that GDP, as a measure, is such a flawed measure of the success, the welfare, and the distribution inside of our society. The reason for that is the gross domestic product is literally just a measure of the amount of transactions that we are having inside of our economy. It is not a measure of the quality, of the contribution to, for example, the health of our environment, nor the distribution of them. The point therein is that our GDP can continue to go up, as it was so artificially inflated under that former National Government, as per really poor policy decisions that degrade our environment.

GDP goes up when there is an oil spill. GDP goes up when there is a car crash. GDP goes up when somebody gets cancer. GDP goes up when there is a natural disaster. That is because there have to be economic transactions in order to undo that social ill, and the point here—the question that I am putting to the Minister for Climate Change—fundamentally comes back to this false binary being presented by the Opposition tonight on the environment and the economy.

Well, I feel we are straying a wee bit away from the substance of the bill. I was going to start by complimenting Erica Stanford on her fine piece of political theatre that I think will do very well for her social media channels, but I feel that it’s equally distributed around the House.

So look, what I want to just address is this point about is it the right time or the wrong time and costs on households. So to start with Mr Bennett’s question: if prices were to double—right, so they’re currently floating at around $25. If the carbon price was to double to $50 a tonne, the impact on middle-income households would be about $3.40 a week. For households in the lowest 20 percent of income levels, the weekly costs would increase by about $2 a week, and that—like I was saying before to an earlier question—assumes no change. So that assumes that everything ticks along and nobody changes anything—so a return to the status quo.

Now, we have doubled the winter energy payment this year, we’ve increased the base benefits across all benefit classes by $25 a week, we’ve put out wage subsidy schemes, and so on. So it is possible to address those costs in a variety of ways, but they are at the margin. Now, I know for a low-income household, $2 a week, actually—given how low benefit rates are in New Zealand; below cost of living—that makes a difference. But what that says to me is that we need to do more to ensure that people have adequate income to cover their cost of living.

That leads me into some of the points that Erica Stanford was making about whether now is the right time or the wrong time. There is an economic downturn approximately every 10 years globally, which affects New Zealand to a greater or lesser extent. So if you went back to 2009, you had the global financial crisis (GFC), the Christchurch earthquake—obviously the Christchurch earthquake just affected New Zealand, but there was an impact of the GFC on New Zealand, obviously, as there was around the world. If you went back 10 years before that, there was the Asian bird flu which did affect New Zealand in terms of the economic impact here. You also had the bursting of the dotcom bubble in 2000—

💬 Hon Tim Macindoe: This is nothing like that.

I understand that this isn’t like that but I haven’t finished the point yet. My point is that every time that there is an economic downturn, when they’re in Government, the National Party says, “Great. Let’s defer action on climate change. Let’s put it off until things get better.” And then things get better and you kind of think, OK, well we probably need to review those settings, right? Roughly five years after the last economic crisis—2015 was the review. Then that whole process, because it’s so complicated, takes a few years to roll in, and then you say, “Look, great. Here’s some reforms that we need to do.”, and then, boom, there’s another economic downturn, “Let’s kick the can down the road.”

Now, when it comes to climate change—and she did say that she doesn’t want me to talk about urgency, but I’m afraid if she asks the question she’s going to need to tolerate my answer, which is that climate change does actually have a time frame on it. If you read the science, what it suggests is that globally carbon dioxide emissions need to fall by approximately 50 percent in the next 10 years in order for us to stay within the 1.5 degree threshold of global warming. Now, every year that we defer action—because carbon dioxide is a stop gas and stays up there and it accumulates—means that we’re imposing additional cost the following year, because you not only need to do that year’s action, you need to do this year’s that you’ve given up as well. We have been doing that for 30 years—we’ve been putting off action. What that means is we are now at the point when we’re out of time and the cost that previous Governments have imposed on us by kicking the can down the road is so much higher. It is much more expensive and much more difficult to do the longer you leave it. So that’s why we’re in the position that we are in of having to take action now because action wasn’t taken 10 or 20 or even 30 years ago.

So you compare that to the United Kingdom. Here is another part of the argument that is fallacious in my view, which is the idea that this only comes at cost and that there’s no such thing as a return on the investment. If you look at the country that has been most successful in reducing its greenhouse gas emissions, it’s the United Kingdom. The United Kingdom has reduced their emissions—

💬 Hon David Bennett: Because they’ve destroyed their economy over 20 years—went from an industrial economy to a service one.

Mr Bennett, hear me out. The United Kingdom have reduced their emissions by approximately 40 percent below their 1990 levels in 10 years, and, at the same time, prior to Brexit, they had the fastest growing economy in the G20 over the same period of time. So the notion that acting on climate change will somehow destroy the economy runs against the evidence of those countries that actually have reduced their emissions over the course of the last decade or so.

So intellectually, it would be a more honest position for the National Party to take to say, “Actually, we think that acting on climate change is only ever a cost and an impost, that there can be no benefit from it, and therefore let’s just give up on it, let’s forget about it. Let’s get rid of the emissions trading scheme, let’s get rid of the zero carbon Act, let’s take no action on climate change at all.” because the mentality that’s coming through is that it only has a cost, but it doesn’t. The evidence is actually that once you get started—and the hard part is getting started, and we’ve never really gotten started in this country—the transition is faster and cheaper than any of the modelling ever suggests. So I think that the basis of the argument that we need to defer only ever increases costs on future generations of taxpayers and households, and that’s why the situation that we’re in—we want to avoid that. And because prices are lower at the moment, the cost in the margins now simply won’t be felt.

So those are my points there. I can’t remember—I think I may have addressed most of Mr Bennett’s questions, but clearly he’s keen for some more.

Thank you, Madam Chair. I take offence at some of the comments that the Minister has made around the National Party and our approach to the emissions trading scheme. It’s just simply not the case that the National Party puts it off and just sees it as a cost. We are here in this House working with the Green Party on many environmental bills—in the past, when we were in Government and in Opposition. We don’t see it as a cost. We see that there is a lot of competitive advantage too, as our country transitions and that. So don’t get us wrong: we’re not just trying to put it in that cost element. That’s the deflection the left always puts on the right to say, “Well, that’s why you’re not interested in these things.” That’s not actually—

💬 Hon Member: That’s exactly her argument.

No, the point that my colleague made is that at this very point in time, people are going to have lower incomes. To think that just because they’ve got one lower expense, they can sustain that expense and it doesn’t matter to them when they’re actually in dire straits income-wise—is our point. It’s not that it’s just a cost.

We had an economics lesson, which was completely irrelevant and wrong, and then we heard the Minister for Climate Change talk about the UK. Well, the UK used to be the industrial belt of the world. They fought a war making planes and everything, and now they’re just into a service economy, effectively. Their industrial economy went out the door over the last 50 years, and they transitioned to a service economy. So of course their emissions are going to go down. Look at the Russian economy—very much the same thing. A historical basis is not a reason for him to say that suddenly they’ve made great strides in economic and environmental planning.

I want to go back to those numbers that he talked about. The Minister was very good earlier in this piece when he went and explained the numbers around what the Hon Jacqui Dean asked about. I want him to give us that clarity around those numbers now.

So you’re telling us that there’s $340 a week. Is that for the average family—the increase in costs at a $50 carbon price?

💬 Hon Member: $3.40.

$3.40. And for the lowest 20 percent, it’s $2.

💬 Hon Member: Yeah.

OK. That’s good for us to see, because it sounded like $340 when you said it, so we were a bit challenged by your numbers.

💬 Hon Member: Getting excited.

Yeah.

So when we came to Jacqui Dean’s economic analysis of the beef and lamb sector against forestry, you talked about the number of jobs there that are in the beef and lamb and agricultural sector. Do you want to expand on that 60,000 jobs, I think, you talked about there—what your breakdown of that is.

Also, it would be really interesting if you’ve done a breakdown on the revenue per hectare. The effective argument that was being made was that the forestry industry in New Zealand employs 25,000 people or something like that and is only a quarter of the land, and yet sheep and beef is 66,000 people for four times the area of land. Well, let’s have a look at the real economics of that. What’s the revenue per hectare from those bits of land? Is the sheep and beef farm providing a revenue per hectare of $1,000 a hectare and forestry $200 a hectare? What’s the revenue for New Zealand that comes from those blocks of land? Do you have those numbers?

CHAIRPERSON (Hon Ruth Dyson): I don’t.

Does the Minister?

Well, I would have thought that, as the National Party’s primary industries spokesperson, he would have those numbers, actually. So you have to remember that the bill is cross-sectoral. The emissions trading scheme covers all sectors, right? It’s not designed to deal with one sector over another; although there are pieces of legislation that deal with that. So I don’t have the red meat revenue per hectare, but maybe I can give you some proxies for some of that.

So, as I said before, I didn’t actually have with me the breakdown of the locations or the sub-sectors within the red meat sector, because, frankly, they’re not terribly relevant to the bill. But, if you want to talk about the increased cost, which is the point that the National Party is making over and over again, my point that I was making was that we understand that this could have an effect on household prices if nothing changes and no one changes their behaviour, and that is one of the reasons why we’ve done that modelling. And, like I said, for a middle-income household, it comes out at about $3.40 a week, assuming no change. But, getting rid of the emissions trading scheme, or gutting the emissions trading scheme, or allowing it to remain busted, isn’t the solution to that problem, right? The solution to that problem is to make sure that people have adequate incomes, which is something that we are doing as a Government.

Let me give you a sense of—again assuming no change—what the effect of this bill would be in the rural sector. It would introduce—could introduce, depending on what happens in reality—an additional cost of 1c per kilo on milk solids in the year 2025—

💬 Hon Member: I’m listening to you.

Well, I mean, it was his question; so I want to make sure he’s making notes; so I want to make sure he gets all the details. It would introduce a cost of 1c per kilo on milk solids in the year 2025, right, compared with, say, changes in Fonterra payouts of between 40c and 60c per year, on average, since 2017. So, again, it’s really at the margins, and what Fonterra decides to do makes many orders of magnitude more difference than what this does.

But to draw the analogy to the previous conversation, we wouldn’t try and deal with changes in the Fonterra payout via the emissions trading scheme; it’s a separate thing and it itself has impacts, and we try to manage those impacts through a variety of Government policies. In terms of lamb, you’re talking about 3c per kilo in lamb in 2025, and if you compare that to the fluctuations in the farm-gate returns for lamb of about 100c per kilo over the course of the 2018-19 season alone, you’re talking about a 1 percent variance versus the kind of business as usual variances. So the costs really are absolutely minimal.

The other thing that I wanted to say is that there are drystock farmers who will directly benefit from the changes that we’re introducing here, because one of the issues that the emissions trading scheme has is that it is, frankly, mind-bogglingly complicated, and for someone who wants to be a forestry participant in it, it’s tended to favour large, complex businesses that are able to navigate the complex system that’s been created. One of the things that we wanted to do was to simplify it so that a farmer who’s got plenty to deal with on their plate but does have a small patch of their land that they wouldn’t mind getting more value out of is able to participate much more easily. So what that means is that there will be farmers who will be able to get more revenue per hectare for some parts of their farms than they currently can.

So one of my concerns is that, if we were to defer this—particularly at this moment in time—what that would mean is that we would be limiting the ability of those farmers to earn additional revenue that they currently can’t easily access, and I think that’s pretty significant.

Before I call the Hon David Bennett, could I ask him to do two things? First of all, don’t bring me into the debate; it’s the sort of Mark Mitchell syndrome that’s spread across to you. So if you could try—I know it’s quite hard when you’re having a conversation too, but if you could try. But, also, for the last three or four speakers, we have had a lot of repetition on a very narrow point. It’s a big bill and there’s lots to talk about, so if you could expand the conversation?

I just wanted to go on to another point at this stage. One of the key themes the Minister has used in his answers tonight has been that there will be a positive impact, not just a negative impact, from the changes, and “Let’s not forget that when we are making our calculations and we’re looking at the legislation.” That’s true, and we understand and accept that as well. But there is one bit which I feel is very difficult to understand, and that is that—and this is the second point that the Minister has had as a theme, and in his second reading speech it was very clear—there’s a degree of trust between the Government and the primary sector. They’ve come to an agreement, and he’s very clear that that agreement is something that they and the primary sector feel they can meet, and the Minister is very privileged and happy to have that agreement and sees it as a great combination—and I think anybody in New Zealand will see that as well.

The question then is: if there is an agreement, if there is that trust, and if there is that positive impact from what can happen, why then do we need a hammer over the industry in 2022, where the Minister can just say, “They haven’t done enough, but I decide that I want more and I require that this happens in 2025.”? How can there be, really, a trust in an agreement when the agreement can be overridden by one party at a later date, without any negotiation, without a sense of fair play? And, for farmers, that is the crucial thing: they have uncertainty in their business every day. The Minister has talked about the fluctuation in prices that are reliant on international prices and exchange rates—all that—and more uncertainty over the weather. You know, droughts and all those things are all part of the uncertainty of farming. And here we add another uncertainty on, where their industry groups go and do a deal with Government in the best interests of their farmers and in the best interests of New Zealand, and yet the Minister isn’t really going to trust them. The Minister is holding back something—holding back the ability to override that agreement whenever he feels they haven’t met what they want, from the Government’s perspective.

I want him to take that out of the bill, because, if he really believed what he’s been telling us tonight—that there are positives that are going to come out of this legislation—if he really said and believed that that agreement is something that is standing and positive and shows the direction forward, which we all want, then why does he control in the end the ability to override it at his will, at any point in his time? And, as a Green Party that espouses the values of trust and negotiation and fairness and equity, how can somebody have an agreement that can be overridden by one party at a later date without giving the people that will be affected that certainty around their business—that certainty around what they’re doing for New Zealand at this point in time and what they’re going to be asked to do in the next couple of years to save the budget of this country?

So if the Minister took that out, took that override provision out, it wouldn’t make any difference. We’re looking at two or three years where everybody has to work together anyway. He’s got plenty of time to always come back and negotiate with those parties. He’s got plenty of time to come back to this House—or whoever the Minister may be—but, no, he’s going to retain a power to enforce something that isn’t needed at this time, and that would take a lot of uncertainty out of farmers’ interests at the moment if they knew they were working in an industry agreement, they knew that they were working under those agreements to get the best options. But, now, they don’t have that, because all they know is that, in two years’ time, the Minister, at a whim, could decide that they haven’t performed and then create a new level of regulation. So I implore the Minister, in his good nature and the way he treats issues, to actually do that in practice as well and not have a bill that actually does the opposite from good faith, because I’ve never heard of a negotiation where you come to an agreement and then, two years later, one party can override it.

That may be because the member, David Bennett, is not a lawyer. It may not surprise the member to learn that I am not going to take that out of the bill. The reason why that provision is there—

💬 Hon Member: He’s got confidence you’ll be here in two years’ time, anyway.

I would like to reassure the member that, actually, his nightmare scenario that he’s painting of me—who, clearly, according to his projections will still be the climate change Minister in two years’ time, and I thank him for his confidence—that I will be able to, at a whim, simply override and bring them into the emissions trading scheme (ETS) at the process level regardless of anything. Actually, if he reads the bill, what he’ll see is that the Minister cannot do that. It’s actually outlined that there is a process by which the Climate Change Commission monitors progress. The Climate Change Commission then makes recommendations to the Government, and then the Government must respond within a period of time. So the Government cannot on a whim do anything, actually. The Government can only respond to the advice that it is given, and it cannot act without the advice of the commission.

Second of all, what the member is suggesting is a voluntary agreement. Whilst the zero carbon bill was going through the House and before we had a Climate Change Commission, we set up something called the Interim Climate Change Committee, which had a number of people on it who had had some experience over the last 30 years with agricultural greenhouse gas research and various attempts, over the course of the last three decades, to make progress on this issue. There have been voluntary agreements between Governments and the sector before, which haven’t resulted in anything. We also got advice from the United Kingdom, because they also have a voluntary agreement in the United Kingdom. The advice is they said it’s not going anywhere. So it’s an issue of incentives.

I also just want to correct the member on something. He suggested that we came to an agreement and then introduced this provision. This provision is part of the agreement. It was negotiated between us and the sector at the time. When we stood up in the Legislative Council Chamber and we launched the partnership with the agricultural sector, we did so on the basis that this was the provision.

Now, I understand it wasn’t comfortable, but it also wasn’t comfortable for those who would like to see agriculture introduced into the emissions trading scheme immediately. Remember, Mr Bennett, that it is the only sector of the economy that is not currently covered, so they have preferential treatment at the moment because other sectors are included in the emissions trading scheme.

💬 Hon David Bennett: So—

Just let me finish.

This is part of the agreement. There were safeguards that were built into it. We heard the concerns of the sector at the time. We also heard the concerns of—

CHAIRPERSON (Hon Ruth Dyson): I’m sorry to interrupt the member, but the time has come for the House to adjourn for the dinner break.

Sitting suspended from 6 p.m. to 7.30 p.m.

Thank you, Madam Chair. I’ll be brief. I understand, from memory, that the question that I was asked was about the ability of the climate change Minister to simply call in the agricultural emissions work programme and dump them into the ETS. I was just reassuring the member that that is actually not possible in the legislation, that there is a process that has to be gone through, and that there is, essentially, an independent audit, which leads to advice which the Minister can then respond to. That would be consistent with the principle that his colleague Scott Simpson was talking about: the principle of ministerial oversight. But we do want to make sure that the Ministers cannot act by themselves. So there is that.

The other thing that I think I was just starting to talk about was how the experience in New Zealand and overseas of voluntary agreements hasn’t yielded results over the course of the last 20 years or so. The advice that we received from the Interim Climate Change Committee was that we needed another mechanism.

I just wanted to talk a wee bit about how the incentives are set up. So in a purely voluntary agreement, you can imagine that the incentive—not through any malicious intent—is to go slowly, right? If you’re on to a winning wicket, why would you want to change? In a voluntary agreement, there’s no particular reason to achieve any particular outcome by any time, right? You can just continue doing R & D and so on, because there is no point where you need to actually change behaviour, right, or to change any systems.

What we’ve set up here is a system which says there will be a pricing mechanism from 2025 and the sector will design that—obviously, in partnership with Government. But the intention is to say that if they don’t come up with that, then it will become part of the emissions trading scheme via the processes, which is the least-best outcome, right, because of how the sectors work. But that creates a deadline that says, actually, the incentive then flips on its head, and the incentive is to get that work done as fast as possible rather than to defer it, which has been the experience both in New Zealand and overseas.

That was, simply, why that mechanism is there. It’s not to do with a lack of trust at all; it’s just, really, to make sure that we’ve got the incentives aligned to get through that work programme. Like I said, that is part of the agreement that we have with the sector. So whilst some of them might not have been—you know, they might have been a bit grumpy about the design of it—ultimately, they said, “Look, if that’s the quid pro quo for us to be empowered to actually do the work and to demonstrate that we can do it, let’s go for it.” So I’m pretty happy with where that got to, and, frankly, given the fraught nature of the negotiations and what it took to get to that point, I wouldn’t want to unpick it at this time. I think that that would create yet more uncertainty.

Thank you, Madam Chair. Before I get to my questions, I’d just like to thank the Minister for the way he’s methodically stepped us all through this bill. This is an incredibly complex piece of legislation and is incredibly wide ranging with wide implications for how our economy and our society will be shaped over the next 30 years. So I think we all appreciate that, and I think, also, outside of this committee stage, I’m sure, not only for those of us on this side, but I’m sure you’ve been available to the other side as well.

Just a comment for a start around the He Waka Eke Noa initiative. I think that is a brilliant initiative. It does give farmers a chance to design a scheme that is suitable, because it is a different—we’re talking about a flow gas and also, of course, a pastoral sector and horticultural sector that’s incredibly important to our economy. That we have got a bit of time to design a system that’s fit for purpose is, I think, appreciated by the industry.

My particular question is around, there has been some commentary around the—I guess you could say they’re the carbon farmers, or those looking for permanent forest sinks, and when we’re talking about forestry, we’re talking about plantation forestry most of the time in our own minds when we’re discussing this, but there is also a place for permanent carbon sinks, particularly in the more erosion-prone land. I think we’ve seen a good example up Gisborne way on the East Coast two or three years ago where we had a significant environmental impact from, perhaps, forestry in areas that may not have been suited to it. So I think part of the mix will be, in some areas, some permanent forest sinks. And it may open us up to some diversification of income around, say, mānuka honey and the like, so it’s a different way to skin the cat, I guess. But those investors that are looking to get into that space have expressed some concern that there’s a wee bit of lack of flexibility where they’ve, maybe, taken out existing plantation forestry, that they’re looking to maybe not incur the liability there if they can plant somewhere else, and I’d be just interested in the Minister’s thinking around that. Is there merit in that suggestion, and getting a bit more of his thinking. Thank you.

Thank you, Madam Chair. Well, look, the previous member who was just speaking must have been reading my mind, because that’s, essentially, the subject that I wanted to raise with the Minister, and that’s the general principle of forestry offsets. Mark Patterson has raised, I think, a reasonable point in that at select committee, when we were discussing offsets and forestry offsets more generally—and there’s quite a lot in this bill relating to what’s affectionately referred to as P90 offsetting land—there was some very genuine concern raised by some of the carbon farming organisations, as Mark Patterson has raised.

So I’m keen to tease out from the Minister just why he’s taken a policy position not to explore, at this point in time, the proposal put to the select committee, for instance, by New Zealand Carbon Farming Group, who made some pretty generous offers in terms of being able to use finance that had been generated through offset funding, for instance, when a company—just for an example, maybe Air New Zealand. If the Minister was to tick the right box when he purchases his Air New Zealand ticket, he can claim or pay an offset fee. Those offset fees get collected somewhere and eventually get used to plant a tree somewhere. That’s, essentially, where organisations, such as Mark Patterson has been talking about, derive their income stream.

So they’re not interested in a plantation forest. They’re interested in using that offset money that has been raised. One could argue about the merits of raising funds like that and the potential for, essentially, trying to buy your way out of sin in terms of carbon emissions, but the situation exists where those funds are available, and companies like the New Zealand Carbon Farming group and others have funds to invest, they want to plant native trees, primarily, on land that is not productive pastoral land—on, frankly, what we would call pretty scrubby, maybe stewardship-type land; non-productive land. I think that just on the face of it, if nothing else, there is some merit in the proposals that they have put forward. Yet, in this bill, there is no provision for that type of modelling to occur.

The second point I just want to raise while I’m on my feet at this point relates to the general principle of offsetting. Really, if there’s a matter in this legislation that is not comprehensively addressed, it is that matter. I’d like to have an indication of how the Minister sees that debate and that policy discussion being brought to light, particularly in terms of what I thought was a very thoughtful and good and well-considered report released in March of last year by the Parliamentary Commissioner for the Environment, the Hon—I think he might be even the Rt Hon Simon Upton. He argues in that document at some length that, essentially, the current approach of reducing climate change for countries like New Zealand relies very heavily on the planting of trees. But if you follow that logic to its natural conclusion, without change to emissions creations, sooner or later you run out of land to plant trees on no matter how big the landmass is. So that’s not a long-term, sustainable proposition in terms of, eventually, sending the right messages about a transition to a low-carbon economy over a time frame.

In fact, Simon Upton argues that by allowing offsets in the way that we do in this legislation, arguably we are actually delaying the kind of change that the Minister’s looking for. When we were talking before the dinner break about the high-emitting industries and the industrial allocations, that argument can be extended to other emitters who find by simply offering their customers or paying themselves for offsets, they don’t make a change but go to bed at night feeling they’ve done good because a nice native tree has been planted somewhere in New Zealand. So I’m interested to hear the Minister’s views on that in relation to this bill.

Thank you, Madam Chair. There’s a lot between those two questions, and so I’ll just try to unpick it as best I can.

Firstly, just to complicate matters even further, there are two types of offsetting. One is where you—which is I think what the Hon Scott Simpson was referring to—buy an offset in the form of forestry. There’s also something called offset forestry, which is where you have an existing forest in one part of the country, and you plant up another, and then you cut down the other forest. So it’s about flexibility in land use. The idea is that if I want to cut down this forest over here permanently and convert it to, say, dairy, or some other land use, then in order to avoid the liability of losing that forest I have to plant up another. So the new forest is the offset against the one that I’ve cut down.

NZ Carbon Farming’s proposal was actually related to that second type. One of the features of this bill is that we’re changing the nature of how we account for forestry. So the member will be familiar during the select committee that historically we’ve used a sort of sawtooth accounting. So you acquire units up to a certain point, you cut your forest down, you surrender the obligation, and then repeat.

What we’re moving towards is an averaging system. So you accumulate up to the average life of the forest and then you, basically, stick with that average over time, even if you cut down and replant that forest over time. That’s one of the ways of making the system simpler for smallhold forests to participate in the scheme, because they don’t have to worry about this constant acquisition and obligation system there.

However, in moving between those two systems, it creates a discrepancy which ends up with a liability on the Crown’s books, which we’ve got to settle up in the year 2022, between those two systems. So the issue that NZ Carbon Farming are saying is, “Well, we’ve got these pre-existing forests. We’d like to be able to move them to another part of the country, and in so doing we can take advantage of the sort of financial income that would enable us to then scale up even more.” which on the face of it, sounds good. However, there are some complications to that, one of which is it creates a significant liability on the Crown’s books and, in Treasury’s view, would result in a transfer of several hundred million dollars from Treasury to that company.

So whilst the—

💬 Hon Member: How much please?

Several hundred million dollars, from Treasury to that company. Whilst the issues that they’re pointing at are worth exploring, given the need to make sure that we consider all of the unintended consequences, we do need to drill into the issue of the liability on the Crown’s books.

We need to test some of the other issues that we were exploring earlier about what it would mean in terms of afforestation in areas where it may be inappropriate for that to occur. The view that we took was now is not the time to introduce that at this point in the legislation. As has been pointed out a number of times, this is five years’ work, with multiple rounds of consultation, huge amounts of analysis, and so on.

So this change that’s been proposed is simply too significant to introduce at this stage without a similar level of analysis and consideration. What we have said is that we will explore it. Actually, this was a policy decision that we made sort of right before we started drafting—that we would come back in 2021 looking at organisations like that and to explore that. So that’s on one side.

On the other side, of course, we’ve got—in particular beef and lamb and others in the drystock who are concerned that—about what I was saying, a significant move like that could lead to loss of productive land in areas where it’s inappropriate, or would have an untoward effect on rural economies and communities and so on.

There were some proposals there as well for limiting the ability of the other type of forestry offset, which is the ability to use offsets.

💬 Hon Member: That’s kicked to the commission though isn’t it?

Yes. Those two things are kind of countervailing forces, and both of them have significant sets of implications, some of which I’ve canvassed quite a lot already. So we do have a work programme. It is some regret to me that once we have passed this bill, it will not be the final chapter of the emissions trading scheme, that there is therefore further work to be done. And we will come back again, possibly with a future amendment based on exploration of those two sets of factors.

I just want to come back to—

💬 Hon Member: It’s the climate equivalent of RMA.

Yeah, a little bit! Ha, ha! God, I hope it’s not like the Resource Management Act. I do want to come back to the point that he made—this sort of high-level point, though, about the use of forestry emissions offsets to kind of buy your way out of sin. Now, part of the issue here, of course, is that the price has been artificially low. And one of the reasons why organisations choose to buy forestry offsets for their emissions, rather than invest in new technologies that have a lower emissions profile themselves, is because it’s been cheaper to buy forestry offsets than it has been to change the technologies and their manufacturing processes, for example.

So there is a point—and this is kind of counterintuitive—at which if the price is allowed to float and operate like a true market, it actually becomes cheaper to invest in the new technology than it does to buy a forestry offset. So, different technologies kick in at different prices.

One of the pieces of advice that we’ve received is that some of the low-grade industrial heat for things like milk drying units, for example, become quite feasible at about $40 a tonne. Whilst you might say, well, at 40 bucks a tonne, you’re talking about carpeting the country in trees. Actually, it becomes more feasible for Fonterra and other users of that kind of heat in their industrial process to swap out their existing technology for new technology. That is actually how the scheme is supposed to work. The problem is that because we’ve had this artificially low price cap, Fonterra’s never been allowed to get to that point, so they’ve gone for forestry offsets instead. I know that seems counterintuitive, but that is actually how the programme is supposed to work.

There’s another component to that as well, which is that organisations are already looking at—they’re starting to forward-price decisions. So even whilst the price is still comparatively low at $25 a tonne, they’re starting to make investment decisions on the basis that the price will be eventually $40 or $50 or higher. They’re not quite sure when that will occur but the point is, if you’re having to buy a new plant, that plant’s going to have 30 or 40 years in its asset life and at some point during that 30- or 40-year period, you know that the price will be above $40 a tonne—and probably sooner rather than later.

Therefore, if you buy, you know, a fossil fuel - powered replacement now, then you’re actually going to be stuck with a really expensive liability within, say, 10 or 15 years. And therefore, it makes more sense to invest in the new plant, even at $25, in the knowledge that, you know, that’s not always going to be the case. An example of this was Synlait, who invested in an electrode boiler in their plant down in Canterbury. At 25 bucks a tonne that makes no sense at all. But it was a new boiler and they know that that’s going to be in place for quite some time and so it makes very good economic sense within the life of that asset.

Similarly, Ports of Auckland made a choice. One of their tugboats had come to the end of its life. They have a commitment to be carbon neutral by 2030. So the next tugboat they buy, which will have a life of about 40 years, 30 years of its service will be after the point at which they’re supposed to be carbon neutral. Therefore, they had to buy a zero-emission tug. Now, it turns out that no one in the world makes zero-emission tugs in that weight class. So they had to go looking for a manufacturer. That drove the price up to twice what it would be for an off-the-shelf diesel-powered tug. But, you know, if you take the full life-cycle cost of it, it actually ends up saving them over $2 million, both in the operations and the capital expenditure.

So that is one of the unintended consequences of artificially holding the price low because there’s an economic crisis on that has really long-term consequences, which is that, you know, organisations don’t have that predictability to be able to make decisions on that basis.

I raise a point of order, Madam Chairperson. The Minister mentioned a document that explained—and it seemed an official document—the couple of hundred million dollars that it was going to cost the Crown and be transferred to another party, and I’d just like him, if he could, to table that document.

If the Minister was quoting from an official document, then he will table it. He may wish to voluntarily do that at some time. He’s not required to—

💬 Hon James Shaw: Yeah.

CHAIRPERSON (Hon Ruth Dyson): —unless he was quoting from it.

No, I wasn’t quoting from a specific document. But I’d be happy to go hunting for any advice that we’ve received.

I move, That the question be now put.

Before I call Hamish Walker, could I just remind the committee of the new rules that we’re trialling: the removal of the four five-minute-limit speeches in order to try and have more of a conversation with the Minister. So the five-minute speaking time is not a target. You’re more than entitled to make your point or your question, and resume your seat.

Thank you very much—I’ll make it nice and succinct. I just want to ask the Minister—he made some comments in his previous speech around the removal of the cap and in terms of New Zealand Carbon Farming. So, Minister, my question is: you remove the cap, the carbon price will rise, this will result in more conversions of farms into forestry—there’s obviously that incentive there. It will be more profitable land use because of the stilted price mechanism—when you’ve got all the analysis which indicates that, because of that cap, because of that price rising, the fossil fuel emitters would rather offset their emissions rather than reduce them because of that. So, Minister, if you could please answer this. What protection have you got in place for those rural communities with the incentive of that increased carbon price? What protection have you got in place?

I’ll be repeating something I said at the first part of the committee stage, but just to correct you, what I’m saying is, actually, that if you allow the market to operate as it is supposed to do and the price does rise, then it is counterintuitive that, yes, there will be some more afforestation, but also it becomes more economic for polluting firms to change the technology than it does to do offset forestry, right? So let’s, hypothetically, say that the carbon price rose to $50, which is the complete upper limit that we’re putting in, and that if it went up to there, what that is saying is that it would cost you $50 to plant forests but only $40 to change your technology if you’re an industrial process heat user, right? So it’s $10 cheaper per tonne to swap out your technology than it is to plant forests. So then, of course, what happens is people change their technology, demand for units then falls, and so the price comes down a bit. So you get a sort of equilibrium. That is what I meant by that.

But in response to the second part of his question, you’re asking about protections around, I guess, aggressive afforestation. This was a debate that was had last year when we passed the zero carbon bill, when the Opposition got a provision included in the zero carbon bill that there is a mandatory consideration that the commission must include—and then the Government must also include in their response to the commission’s advice about the effects of afforestation on rural communities and economies. It’s one of several things that they have to consider, and, obviously, they need to come to a balance of those considerations, but that is written into the legislation and the zero carbon bill. Because it is an amendment to the primary Act, and this is also an amendment to the primary Act, that consideration applies to everything in this bill. There are also other protections, but that is written in here.

Just following on from that, and I noted in your speech yesterday, Minister Shaw, you said the same thing about the commission having to consider. What tests or thresholds would that consideration entail? You know, at what point would the commission consider that the potential implications of land use change are significant enough for it to act? Have you set any guidelines for them, and how would you set those guidelines? And, you know, is it 10 percent of a region or is it going to be 10 percent of the income from a region? Can you give us some clarity around that, because just saying “Consider the implications.” doesn’t really give us much comfort? We need to know what the tests they will be applying would be and the threshold they would use.

The other thing is it would be good to get some clarity around that independent audit process you’re talking about with the primary sector deal. My understanding is that it goes to the commission, and the commission then makes a recommendation to the Minister. So you seem to be implying that there is an independent audit process in there. Now, whether that’s because you consider the commission to be an independent body, and their decision, you’re saying, is an independent audit, or what normally would be considered an independent audit would be a third-party organisation, other than the commission or the Minister, that would be then independently auditing what has happened—so I need clarity around that because I feel your definition of the commission’s interpretation will be an independent audit. That’s the way I’m taking it, and I’m not sure if that’s quite what people would consider an independent audit.

The third thing is that you made a couple of comments just before the dinner break around farmers haven’t been having to pay and having preferential treatment up to now. I just wanted you to give some clarity around the industrial allocations. My understanding was that the dairy industry didn’t get any industrial allocation, unlike other big industries in New Zealand—so like New Zealand Steel and all those who’ve had an industrial allocation for 10 or 15 years, or whatever the time period has been, whereas the dairy industry, in its processing side, has actually been paying during that period of time. So it’s unfair now to say, “Well, hey, they’ve had preferential treatment, they haven’t actually been involved.”, when, in fact, the only major manufacturing industry in New Zealand to have been paying for the last decade is the New Zealand dairy industry. That’s my understanding of it. Now, if they were getting those industrial allocations, that’s news to me, but I’m pretty sure that they were excluded from that.

So it’d be great to get the Minister to explain those three questions.

Thank you. Just while the Minister for Climate Change is talking to his officials to seek some advice, I thought it’s worth taking a call. Can I acknowledge the Minister in the chair this evening—normally a little bit closer, on the front table there, but I understand the situation that we find ourselves in. The Parliament is sitting under COVID-19 response conditions.

I also want to acknowledge the Minister and the way that he’s been open in answering our questions. Madam Chair, you covered that off nicely before, saying that we’re using this opportunity to glean some information, and those that are—

💬 Hon Scott Simpson: It’s very useful.

—it has been useful, Mr Simpson—listening will also be, I think, well engaged in the question and answer session that we’re having this evening.

Just following on from the Hon David Bennett, who posed some very good questions, I’m quite keen to drill a little bit deeper into this impact that the commission’s going to have a look at, to do with afforestation in the future. We know that it is a live issue in certain rural provincial parts of New Zealand right now. We’re seeing large chunks of land, in fact, in Stuart Nash’s electorate, which he may visit, up into the Wairoa District, occasionally. Mayor Little has, no doubt, been on the phone to the local MP, saying how concerned he is about losing jobs in that community because of afforestation.

So I’m keen to understand what the parameters are that the Minister is going to set for the commission to delve into the detail to try and understand. Is it when the rugby clubs close down and the local primary school’s gone as a result of afforestation? That’s what we are most concerned about at the moment, so it’d be really good to try and set the record straight there.

Another question that I have is that the Minister indicated that we’re heading very quickly into a $35 a tonne carbon price for the next year or so, and we know that it’s been bouncing around at $20, $25. We know it’s softened a bit because of COVID-19, and I think everyone gets that point. I’m keen to understand from you—I think the fuel price at the moment as part of that is about 4c. I’m hearing that it could be 9c or 10c a litre as a result of going to $35 a tonne. [Interruption] Sorry?

💬 Hon James Shaw: Never mind.

OK. So I’d appreciate you putting my mind to rest that it is not going to be that high—that’s the indication I just got from you then. It’d be good to hear some detail on that.

The other point is the costs on food production as a result, potentially, of going to a processor levy. At the moment we’ve got the agreement between the primary sector leaders out there trying to sell that to rural communities, for farmers to get on board with technology, and the Government’s contribution to supporting farm plans and more technology in the lab and on farm and all of those sorts of things—so that’s a tick from me. But if, for some reason, in a couple of years the Minister for Climate Change and the Minister of Agriculture deem, when they get advice from the commission, that this isn’t going fast enough, then the fear that I have is that those Ministers can just say, “Well, we’re now heading to a processor level.”, and that will mean that all of the good work that’s currently happening on farm will just go down the drain, because a processor level emissions rate or tax—I’m going to call it—is not going to change behaviour. My farm here versus the neighbour’s farm—we could be doing things completely different in terms of managing emissions, and to have a blunt instrument as a processor tax is not going to change behaviour inside the farm gate.

So I’m very curious to know at that trigger point of I think it’s 2022, when the Ministers will be colluding, talking to the commission about it—at what point is it that Ministers are satisfied that the agriculture industry is heading in the right direction, and they’re not going to make a knee-jerk reaction and go to a processor levy/tax, which is ultimately going to mean we’re less competitive in the international market place? That is really important right now, when you think about farmers and agriculture processors really dragging the plough through this COVID response. They’re the big part of the New Zealand economy that doesn’t get well acknowledged. When tourism is on its knees, people look to the primary sector and say, “Thank you for what you’re doing.” I’d hate for the election to come and go, and for the Minister of Agriculture and the Minister for Climate Change from, potentially, a left-leaning Government to get together and say, “Well, farmers haven’t done enough. We’re now heading to the crude pricing mechanism.”

So I’d really appreciate the Minister answering my concerns and questions. Thank you.

Madam Chair, thanks very much, and I just thank the Minister for Climate Change for his previous answers. My question’s reasonably specific, and it’s to do with the Tīwai aluminium smelter. Anyone who hasn’t been there needs to go there for a visit. It’s a wonderful place. My question’s really around the industrial allocation phase-down, mainly from 2030, and what the Minister plans to do in terms of carbon leakage. So industries here that are taxed to the hilt—where they see it’s no longer feasible to continue, that industry will, basically, just go offshore, and someone offshore will produce it, often, the majority of times, through a much higher emission rate.

So my question’s really around the industrial allocation phase-down and what he’s going to do to stop that carbon leakage. Industries that produce, for example, the cleanest, purest form of aluminium in the world—that comes from Tīwai. It supports around about 1,000 direct jobs in Southland. It’s been in place for a number of years. It’s a wonderful organisation. So why would we want to risk that wonderful company going overseas—all those jobs down the drain? We already produce the cleanest, best aluminium in the world. It often goes into items like this phone here and an Apple iPhone. Not many people know that. So my question’s really around: what’s he going to do stopping industries like that going offshore, which will produce a lot more emissions in total?

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.

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.

I move, That the question be now put.

Motion agreed to.

The question was put that the following amendments in the name of the Hon James Shaw to the proposed amendments set out on Supplementary Order Paper 506 in his name be agreed to:

in clause 110(3) replace new section 127(2) with:

(2) However,—

(a) the EPA may amend an emissions return or assessment at any time to give effect to the correction of a unique emissions factor under section 91A; and

(b) if the EPA is satisfied that an emissions return was fraudulent, was wilfully misleading, or deliberately omitted mention of emissions or removals in respect of which an emissions return was required to be submitted, the EPA may amend the emissions return at any time, under section 120, so as to—

(i) increase the number of units required to be surrendered by the participant:

(ii) decrease the number of New Zealand units to which the participant is entitled in respect of removal activities.

in clause 110(3), new section 127(3), replace “subsection 2(c)” with “subsection (2)(b)”

after clause 223B, insert:

223BA Section 127 amended (Time bar for amendment of emissions returns)

after section 127(2)(b), insert:

(c) if a person submits an emissions return on receiving a notice from the EPA under section 134A(1), the period of 4 or 7 years in which the EPA may amend an emissions return under subsection (1)(a) or (b) starts from the date of submission of the emissions return.