Climate Change Response (Auction Price) Amendment Bill

For the Climate Change Response (Auction Price) Amendment Bill, Simon Court has the floor and has three minutes should he wish to use it.

Thank you, Madam Speaker, and thank you, Minister Shaw. ACT opposes this bill because it’s a needless complication to a hugely complicated system devised by the climate Minister and this Government, and it won’t help New Zealand reach a target of net zero emissions by 2050, which is what New Zealand has signed up to at Paris. It’s so complicated it sounds like an excuse for a failed policy.

Now, I’ve been in the principal’s office. It sounds like Mr Shaw has too, because the explanation we heard last night sounded like “The dogs ate my homework, Sir.” I haven’t heard an explanation so complicated since one of my boys had to explain why he hadn’t done his homework.

Look, ACT opposes this bill for the same reason we opposed the regulations that this bill seeks to amend, because we believe the best way to mitigate carbon dioxide emissions is to actually allow business and individuals to choose how they mitigate their climate risks. We believe that if we’re going to have a trading market we must allow willing buyers and willing sellers, and the bill amending the climate change regulations does nothing to establish a credible and enduring market-based system to mitigate carbon dioxide emissions.

ACT supports an emissions trading scheme which allows for trade-offs between businesses which emit carbon dioxide and those which capture it. Some businesses like a steel mill, a pulp and paper mill, a cement plant, a dairy factory can only reduce emissions and become more efficient to a certain level, because their industrial and trade processes will always produce a certain level of emissions no matter how efficient they become. New Zealand depends on locally made steel and cement, packaging and food products, and those businesses should be able to use a carbon trading market to find the lowest-cost way to mitigate their emissions.

Last night we heard the Minister give a detailed explanation. It sounded more like an excuse than a reason why more Government interference in this market is needed. That law is not even 12 months old. It’s not road tested. It doesn’t even come into effect until 15 March this year and yet it’s already been deemed a failure.

ACT’s position is this. New Zealand business should have the ability to purchase high-quality credits from any willing seller anywhere in the world. And New Zealand business should not be subject to the invisible hand of Government—a Minister who will have the power to set a confidential reserve price at auction, even though the emissions trading scheme apparently is the best way for New Zealand to meet its Paris targets. For that reason, ACT opposes this bill. Thank you, Madam Speaker.

Kia ora e te Mana Whakawā. I stand to take a brief call to support the Climate Change Response (Auction Price) Amendment Bill. I want to acknowledge the Minister, the Hon James Shaw, for his leadership in this area, climate change, and in bringing this bill to the House in the House’s first sitting of the year. As a Government we’ve started to tackle Aotearoa New Zealand’s long-term challenges, and climate change is one of the biggest.

The bill introduces a process to set a confidential reserve for auctions in the New Zealand emissions trading scheme. Last night the Minister went into detail to explain to us what that is. So really this bill amends the Climate Change Response Act of 2002 and the Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020. Its purpose is to ensure that when the emissions trading scheme units are auctioned for the first time next month, in March, they are sold at a price that reflects our activity in the secondary market. It is a technical—as the Minister stated last night—but necessary amendment which will effectively prevent sales and prices significantly below the prices of New Zealand units sold on secondary markets, so the auction sales do not unduly—unduly, I said, Madam Speaker—affect secondary markets.

Late last month—not long ago—on 31 January, He Pou a Rangi, the Climate Change Commission has laid out an achievable and affordable road map for meeting our emission reduction targets that will create new economic opportunities and reduce most household bills. The Prime Minister, the Rt Hon Jacinda Ardern’s response to He Pou A Rangi, the Climate Change Commission report, was, and I quote, “The report demonstrates we have the tools we need to achieve our target, but calls on us to accelerate our work. As a Government we are committed to picking up the pace and focusing much more on decarbonisation and reducing emissions”.

The New Zealand emissions trading scheme is one of our main tools for helping to meet our climate targets. As a member of the Environment Committee I look forward to discussions on this matter further, and on that note I commend the Climate Change Response (Auction Price) Amendment Bill to the House. Malo.

This is a split call. I call Erica Stanford.

Thank you, Madam Speaker. Well, different year, same old Government. So much for “New year, new you”, because here we are, back again, doing the same old things that we did all of last year: a bill raced through under urgency completely unnecessarily, because we find ourselves in quite a curious spot.

Thanks to the super-sleuth work of Mr Scott Simpson, we have been able to uncover that this is not just a simple case of “Oh dear! Oopsie, we made a mistake and we’ve got to fix it up very quickly because we’ve got an auction coming up.” This is an issue that the Government and the Minister knew about a year ago—in March last year—and despite what Minister Wood said last night about it being some kind of conspiracy theory, which is what we all know is the word du jour to bat away uncomfortable truths, the fact of the matter is it’s in black and white. There was a Cabinet paper taken to committee which outlined the need for a mechanism—a secret mechanism—that was worked out secretly to set a secret reserve price so that the secondary market wouldn’t be compromised, and that’s perfectly fine. But the point is that the Minister knew about it at this point, but he refused to take the advice, or he refused to acknowledge that advice, that actually—and a Cabinet paper says that he recommended proposing regulations be set without providing a technical price at this time.

So that was a year ago. Now, I went back over his speech last night and had a good look to see exactly what Minister James Shaw said, and whether or not he acknowledged that this is the kind of thing that’s been kicked around for some time and thought about, but nowhere does he say that at all. In fact, the only thing he says is that “Following the passage of the subsequent reform bill, there was agreement … that a confidential reserve price was necessary”. Well, even if that is the case, that was in September last year. Here we are in February, racing something through urgency, giving ourselves only three weeks to have a look at this very complicated piece of legislation, and we all know how mind-numbingly—

💬 Simon Court: Boring.

It’s a really tough piece of legislation. It melts your brain—it really does—and this is an issue that we need to kick around in select committee properly and properly consider.

The National Party are all, obviously, in favour of the emissions trading scheme (ETS). After 25 years of debate, it was the National Party who introduced the emissions trading scheme, in 2010. We are in favour of that, and, to be fair to the Minister, we’re also in favour of any technical fix-ups that need to happen along the way, and we’re open to that—as we are today—and we will vote this bill through to select committee. But the point is that we shouldn’t be doing this now. We could have been doing this in March last year, if the Minister had actually understood the scale of the problem properly, or even in September last year, when he realised that, actually, this needed to happen.

We have left this till the very last minute to tackle what is, as I said, a brain-melting bill. I sat on the select committee last year and I feel for new members of that committee this year, who have to grapple with the technicalities of this, because it is really difficult to comprehend, and there are some questions that we want to be able to ask and have time to properly digest. Some of those questions are around: is the Minister the correct person to come up with this mechanism—this secret mechanism—which, effectively, sets the price. Is he the right person to do that? Is this even the right mechanism to fix the problem? Maybe there are other things that we could be looking at. But what it looks like is that the Minister has decided that this is what he wants to do, and we’re going to be rubber-stamping it through the select committee.

But there are questions, like I say, that need to be asked, because, effectively, the Minister is setting a price that will then flow through into our gas prices. Is he the right person to be doing that? I don’t know the answer to that question right now; I’m just posing it.

It’s one of the things that we should be looking at in a proper select committee process and, if we’d had the time, we could be doing that, and, indeed, we had the time. We had the time all of last year to be doing this in a proper manner, giving us a proper six-month select committee. Even if we did it in September last year, we could have had a number of weeks last year, and, into this, you could properly have kicked this around. It is a difficult bill to get your head around. There are lots of complications. It needs to be looked at properly.

While we support this bill and we support the ETS, this has been a horrible process, and the Minister really should have owned up to that when he got up to speak last night. Thank you, Madam Speaker.

Thank you, Assistant Speaker Dean. The Māori Party has decided not to take the call. This is my first time speaking in the House so I want to start by, first of all, congratulating you on your new position.

I want to add to the support for the Climate Change Response (Auction Price) Amendment Bill. Two weeks ago, I stood on the footsteps of Parliament with School Strike 4 Climate action. These are groups of eight- to 18-year-olds who are fighting for climate action. On the stairs there were my parliamentary colleagues from the Labour Party, including my friend here Angela Roberts, but there was also Minister James Shaw, and I want to acknowledge his contribution to the climate change discussion, as well as bringing this bill forward. It shows his commitment to the cause and to the next generation. So thank you for bringing this forward. I really support it.

Yes, that was a bit of a rush, wasn’t it? I was expecting the new member to take the full opportunity to talk about this topic, because it is obviously a vitally important thing for the Government and for Minister Shaw, who I see in the chair, and also for New Zealand to make sure we get this right.

I’m sure most people have covered off this issue, but it is a case of commercial naivety. This is a case of commercial naivety, and I’m surprised, given the background of the Minister, that we’ve arrived at this situation, because we all know that we have an existing trading scheme—the emissions trading scheme (ETS)—where you can buy units freely. Obviously you have to pay for them, but you can freely exchange them over the system by bidding, and that’s fine. But this is about setting a new primary market for when the Government decides to issue new units into the market, and this is the system. What’s staggering is the mechanism for pricing this. The primary market is like every other Government bond that is issued into the market. There’s no difference. There’s no mystique about the trading system being proposed. Mr Shaw, I’m sure his advisers, no doubt, just had to go down to the trading floor and say what happens with Government bonds at the moment? The simple situation is, if you are bidding for a Government bond, a new issue of Government bonds, you as the bidder bid the quantum, how many units you want to buy, and the price you’re prepared to pay. Of course, it’s a cascade down to the level where the amount of bond is totally extinguished, and that is the bottom price.

Obviously, this is the way that has been proposed for this primary market. Of course, we know we’ve got our first auction on 15 March.

💬 Stuart Smith: No, 15 March is the commencement date.

Sorry, commencement date, but the trading system is going to happen very quickly. That’s why we have to have this bill completed by the 4th.

So the issue is, anyone following any market in the world, whether it’s Government stock in New Zealand, whether it’s shares on the New Zealand Stock Exchange, whether it’s trading oil or any other grain around the world—all the markets operate under certain principles. The thing that strikes me is why the Government—and I understand it went through the Cabinet, went right through the Cabinet, and no one seemed to pick up on the fact that this system, without a floor to it, without the person, in this case the Government, being able to set a minimum floor, then you are totally at the vagaries of a market. So it’s like offering your house without setting a reserve. So if you get one bid for a dollar and you never set a reserve, then, hey presto, you sell for a dollar.

So, for a Cabinet to go right through all the processes, committees, and to get to that stage—they have a sign-off—and then realise subsequently that there was an issue that they may end up being in a situation where the Government issues a whole lot of units, and it could be millions of units, to find that the strike price, which is the term, is below the current market. It could in fact be below ETS, the secondary trading market, right now. I just think it’s an indictment, actually, on commerciality of members of the Government, and particularly the Cabinet, who allowed this to go through, and not one person must have stood there and gone, “That’s not how markets work.” So here we are, rushing through a piece of legislation under urgency, or just about, I understand—under a real strict time frame—and we’re here to deal with an issue that had been flagged but deemed not sufficiently robust or important enough to be dealt with.

So I don’t think I need to say any more, but here we are. We’re wasting Parliament’s time, and we know the cost of that. This should have been dealt with some time ago.

Thank you very much, previous speaker—Andrew Bayly—for agreeing that we need a reserve price, which is exactly our point. May I commend this bill and even get excited about it. This is not a mind-numbing bill. This actually goes to the heart of our climate change response. For the people in my electorate in Taieri, who have been affected by climate change, who have experienced trauma and financial damage through flooding, this is actually a very important piece of legislation. In fact, on 2 January, I was back in the electorate helping people in Middlemarch to clean up because they are constantly facing these more frequent challenges of climate change.

Thank you to the previous speaker for also pointing out the urgency which is required, which is that we have an emissions trading scheme auction in March. We know that the world will be watching and we have a platform to enhance the confidence both in our auction process and in New Zealand’s wider climate change reform package. There are good reasons for urgency. This is an anomaly. It incentivises behaviours. It mitigates against the potential for collusion. There was cross-party support for this, and as the Minister quite rightly pointed out last night, there was five years of careful consideration of the technicalities. It is technical. It is not mind-numbing. It’s an important piece of legislation. And I commend this legislation to the House on behalf of myself and the people of my climate change - affected electorate. Thank you, Madam Speaker.

Thank you, Madam Speaker. I rise to take the final call on the Climate Change Response (Auction Price) Amendment Bill. I just wish to summarise the arguments that are being presented.

As the Minister of Climate Change has said, this is a technical change which enables us to set a confidential reserve price in the auctions of credits, and it’s really important to have that confidential price in order for the secondary market to work well. I acknowledge that this is exactly what our colleagues from the National Party have been saying, that this change is needed, so I look forward to their votes in support of this bill in order to help our markets to operate properly.

I would also just like to address something that was raised by the speaker from the ACT Party, Simon Court. So the speaker from the ACT Party said that they will be opposing this bill, on the grounds—and I think these were their words that were used—that it was an unjustified Government intervention in the market. An unjustified Government intervention in the market. That does ignore that the market set up by the emissions trading scheme is a very peculiar kind of market. It is a market that is set up entirely by law, by Government fiat, in order for us to deal with a critical issue. In fact, this particular market exists because of Government intervention. In fact, all markets in our modern economy exist in a state of Government intervention that not then taking another action to correct what’s going wrong in a market leaves the existing interventions in place. I think the ACT Party need to have a little think about what not adjusting the status quo does: it leaves existing interventions in place.

And this is a much-needed intervention to ensure that the market—created by intervention in the first place—continues to work effectively and well. I thank Mr Andrew Bayly for the way he talked about the necessity for this amendment, the necessity for it, because we do need that secondary market to be an effective market. Now, of course, when those auctions go ahead, people bidding in the auctions will have a very good idea of what a reserve price will be set around about—they’ll know, they’re business people, they will understand it—but we nevertheless still need that confidential reserve price to make it all work in the best way possible. That is exactly what this very, very technical piece of legislation does. On this side of the House we of course support this bill because we know how much we need an effective emissions trading scheme in order to help us to deal with the challenges of climate change. So, Madam Speaker, I commend this bill to the House.