Climate Change Response (Auction Price) Amendment Bill

Thank you, Mr Speaker. I present a legislative statement on the Climate Change Response (Auction Price) Amendment Bill.

💬 DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.

Thank you, Mr Speaker. I move, That the Climate Change Response (Auction Price) Amendment Bill be now read a second time.

E te Māngai, tēnā koe. Tēnā koutou e te Whare. A stable price signal is one of the most effective ways of driving investment in low-carbon technologies. This bill will help to provide that stability by amending the Climate Change Response Act 2002 and the Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020 to introduce a minimum acceptable price for emissions trading scheme units sold at auction. To put it simply, if the clearing price at the end of an auction were to fall below the confidential reserve price provided for by this bill, then the units that had been available for purchase will not be sold. Holding them back from sale will help to maintain a minimum unit price that reflects activity in the market up until the point of the auction, which will help to encourage polluters to change behaviour and reduce pollution in line with our domestic and international targets.

We have seen from examples around the world what can happen when a carbon price collapses: the market signal necessary to drive investment in clean technologies ceases to exist, pollution continues, and catastrophic climate change is further locked in. This bill, together with the price control measures that were put in place through the emissions trading scheme (ETS) reform bill last year, will manage the risk of that happening here and help to avoid emission prices falling for the wrong reasons and undermining much-needed low-emissions investments.

Later this month, New Zealand will, for the first time, auction a proportion of units available under the ETS. The exact number of units that will be auctioned in this and the other three auctions that will take place in 2021 has been determined based on the volume of emissions remaining in the emissions budget and after taking into account emissions that sit outside the ETS and emissions covered by units that are freely allocated. Where this has got to for us this year is the expectation that a total of 19 million New Zealand units will be auctioned. These 19 million units will be spread evenly across four scheduled auctions. In each of these auctions, two price-control mechanisms will be in operation: a price floor of $20 and a cost containment reserve. The latter will be triggered if the auction clearing price comes in at higher than $50, at which point an additional 7 million New Zealand units will be released into the auctioning system, helping to meet demand and bring the price down.

The purpose of these price-control measures is, in short, to stop the price of units available at auction getting either too low or too high. Exactly where the clearing price falls, within the parameters of the price floor and cost containment reserve, will be determined by a range of other factors, not least of which is the activity on the secondary market. The secondary market is where trades take place between various buyers and sellers, through which we get a sense of market opinion about the current value of a New Zealand unit. Secondary markets are crucial to the functioning of the emissions trading scheme, not least because they provide a means for participants to sell surplus units, which creates a powerful incentive to reduce emissions. Stability, then, like in any other market, is crucial. Its absence risks undermining confidence that the cost of population remains at a certain level, which could all but eliminate the price incentive to reduce emissions and make it much harder for participants to make long-term investment decisions. This bill will provide for that stability through the introduction of a reserve price to ETS auctions.

In any auction, a reserve price is the lowest price that the seller—in this case, the Government—is willing to accept for the auctioned product. It is a way of protecting the Government from selling units at a level significantly below the prevailing secondary market price, which, in the absence of this bill, could occur as a result of unexpectedly weak competition during the auction, or from bidders seeking to gain from a low clearing price by withholding bids or bidding in a coordinated way at prices significantly below the secondary market price. And so what this bill does is introduce a mechanism for New Zealand units to be held back from sale if, at the end of an auction, the clearing price for units is lower than the reserve price.

Now, it is necessary to note that this is different to a price floor. The price floor supports long-term investment decision-making by setting a level below which the price of a New Zealand unit will never fall. The confidential reserve price, on the other hand, is set for each auction to ensure units are sold at a price that reflects the prevailing market activity. Put simply, if the clearing price were to fall below the confidential reserve price, units would not be sold in that auction. The bill will ensure that this does not jeopardise the predictability of units to be auctioned, because if the reserve price is triggered, unsold units will be rolled over automatically into a later auction. Instead, the reserve price would simply restrict the supply of units at a particular auction and support the stability of the secondary market price, which is where the bulk of ETS trades take place and where market forces combine to help determine the cost of pollution.

The methodology for calculating the confidential reserve price will be set ahead of each auction by the Minister of Climate Change in consultation with the Minister of Finance and any auction monitor. So whilst the auction operator—which in this case will be the New Zealand Stock Exchange and the European Energy Exchange—will be required to use the methodology that Ministers agree, no Minister, now or in the future, will be able to set the actual price themselves. That will be influenced by the market itself.

It has been accepted for decades that a well-designed system for pricing emissions needs to be a central part of any Government’s climate change policy framework. Together with the changes that we introduced last year, this bill will help to ensure that we have a clear, transparent, and predictable set of rules for emissions pricing which will drive investment into low-carbon solutions and cut pollution.

Nō reira, tēnā koutou, tēnā koutou, tēnā tātou katoa.

The question is that the motion be agreed to.

Thank you, Mr Speaker. It is a pleasure to speak on the Climate Change Response (Auction Price) Amendment Bill in this second reading. I said at the time when we moved into urgency for the first reading that we on this side of the House don’t think this should have come to the House under urgency. The Minister was advised in plenty of time last year to put a bill up and get it through first reading prior to Christmas, allowing adequate time for industry and interested parties to put well-thought-out submissions together on the bill and give the select committee adequate time to consider those. Unfortunately, that hasn’t happened, and we’re here again under urgency going through the second reading and through to the end of this process.

This is probably one of the most complex things this Government or, in fact, any Government does is to run an emissions trading scheme (ETS). It has far-reaching consequences, it’s complex in nature, and there are lots of opportunities for mistakes—mistakes that we will do our best to try and rectify before they happen through the legislative process, but, given the short period of time, we can’t fully be confident that we have ironed all of those potential errors out. Actually, I’m sure that we will find there’s an error in this bill somewhere along the line, but that doesn’t mean we shouldn’t necessarily support it. But it is an issue, and it’s something that this Government must stop doing. You’ve got to get your act together and line your ducks up and get this legislation going through proper processes. These processes have been set out for a very long time for a very good reason: because mistakes happen. It even happens when we’ve got a really good process, but this is incredibly complex and we’ve opened ourselves up to all sorts of problems.

The other thing I think that’s important to note here is that, actually, the Labour Party and the Green Party have always been keen on a carbon tax. And actually what we have is an ETS—they’re quite different beasts—and my concern, and, in fact, the National Party’s concern with this bill and other amendments that are being snuck into the process is we are moving the ETS more and more towards a carbon tax. And just to explore that a bit further, a carbon tax puts a price on carbon, and it’s obviously aimed at changing behaviour by that price. In contrast, an emissions trading scheme puts a cap on emissions and the price will be found by the market. They’re quite different approaches, but what we’re ending up with, with all these changes, is, I fear, some sort of hybrid which is going to end up in the middle and not doing much. We support an ETS, and, in fact, we have done for 20 years. It’s a very important and, I think, very good tool. In fact, the climate commission’s work in the report that’s just been released recently shows that we can get to 85 percent to net zero by having a carbon price of $35 a tonne—we’re at $40 now. At $50 a tonne, we get all the way to net zero. That’s really important, but what we don’t want is policies coming in over the top of the ETS which will blow the cost out needlessly. In fact, the Climate Change Commission’s own work shows that they believe the New Zealand unit price will be $250 at the end of it—five times what it needs to be because of the expensive policies they are recommending.

So it’s important we get this auction system right; it’s important that it works well. But policies like the oil and gas ban, for example, have simply caused a constraint on the ETS’ operation, because now we’re burning—well, we imported a million tonnes of coal last year because we don’t have the gas resources. In other countries, emissions trading schemes have led a swap-out from coal or a substitution with gas—half the emissions; that’s what the ETS actually does. It works really well, but we have to think about all these policies that we bring in and ensure that they don’t work against the ETS and foist needless costs on New Zealanders. And if anyone’s been checking the spot prices recently in the electricity market, it’s up to $500 a megawatt hour. That is the market working, but it’s being pushed that way because of needless policies that have very little basis in fact—it’s virtue signalling with an A+, which is something the Government’s very good at. What we want is real, positive policies that achieve what they set out to do.

The process—limited as it was—was useful. We had some good submissions on the bill. In fact, I think the committee worked very constructively to try and get to the best place with this bill. And the changes that were made were minor but important changes, I think, like requiring the Minister to not only consult with the Minister of Finance, but also to consult with the auction operator.

I’m going to introduce a Supplementary Order Paper (SOP) which will require the Minister to consult with the leaders of the parties not in Government. In the spirit of how the zero carbon bill came into being, in that it was a cross-party, united approach to what is a very long-term problem, and it is a very long-term issue that should not be one Government’s baby; it should be owned by everyone. This is an attempt to do that, because I believe, actually, this is pretty close to setting a tax. And going right back to our bill of rights, it’s Parliament that sets taxes, not Ministers. It should therefore be that the Minister should consult with the leaders of the parties not in Government, and that would maintain the confidentiality of the reserve price, and it would also maintain the spirit in which the zero carbon bill was originally passed and all of the climate legislation that has been supported across the House.

And I know that the Minister—his raison d’etre, really, is to make sure that this endures. I’m appealing to the Minister to support my SOP, which will ensure that that does endure past a single Government, because this is going to get tough. Make no mistake about it, we will be putting prices and costs on Kiwis that they don’t expect that will be coming as a result of this. We have to lower emissions—I accept that—but to do that, we have to be sure that we are doing the best by them. We’re not forcing costs on them that they don’t need. We’re not forcing costs on them that are unnecessary. And we have to have the confidence across this House that the Minister is doing that and that this Parliament is right behind him, not divided behind him. And that is the purpose of my SOP. So I’m sure that you’ll give that very good consideration, Minister.

Unfortunately, I didn’t have the opportunity prior to speaking on this bill to run that past you. It’s been quite—we are in urgency after all. And so I thought I would raise it now, but I will come and discuss it with you shortly, but I would be very surprised if other parties actually opposed that SOP. And if they do, I’d be very interested to hear what their arguments are, because I can’t see a sound one from where I’m standing. Anyway, maybe I would say that.

But the bill, I think, is in pretty good shape, but we also have an SOP coming from my colleague Erica Stanford, which is a very good one as well. We have been constructive on this all the way through the process, and I’d also like to thank Eugenie Sage, the chair of the select committee, who I think did a very good job chairing and shepherding that through under what was a lot of time pressure, actually, and a good demonstration of why we should not do this unless we absolutely have to. So I appeal to the Minister for future reference, because I’m sure we will have more climate-related bills in the future, that we have far more warning and that we can work collaboratively ahead of time, rather than things being foisted on us as we are today. So with that, we support this bill through the second reading and look forward to the committee of the whole House stage. Thank you.

Thank you, Madam Speaker. It is with great pleasure that I rise to speak—my first time speaking on a bill—and it’s to do with climate change, something that I care very deeply about. Of course, the broader emissions trading scheme is all through the Climate Change Response Act, and we’re here today talking about the Climate Change Response (Auction Price) Amendment Bill and the setting of a reserve price that is confidential.

I’m on the Environment Committee and agree that Eugenie Sage did a great job in chairing us, hearing submissions, and having some very good conversations about this bill and making the amendments that my colleague just referred to. I think the most important thing about this is to note, as was mentioned by the Minister, that we want the primary market, this auction process, and the secondary market to match up. So there is some wording in the bill about how prices should not be significantly below the prices of New Zealand units sold at the time in other ways on the secondary markets, so that the sales by auction do not unduly affect secondary markets. That is the point of the bill, and that is why I am happy to support it. Thank you.

Thank you, Madam Speaker. It’s ironic—deeply ironic—that we are here under urgency just a week or two away from the first auction to take place under the principal Act, and we’re amending that principal Act under urgency. I find it somewhat bizarre that this amendment legislation will come into effect on 15 March, just two days ahead of the first scheduled auction on 17 March. I can remember in my first reading speech advising the Minister to beware of the ides of March—beware of the ides of March—because, actually, we shouldn’t be here doing this under urgency in the way that we have been. In a largely uncharacteristic way, this Minister, who is usually across the detail of his portfolio area, has let this relatively minor but quite important stopgap safety-net measure slip through his scrutiny.

This legislation, the primary legislation, first was debated by this House a year or more ago, and then back in March of 2020, a full year ago, the Minister took a paper to a Cabinet committee and advised his Cabinet colleagues that the risk was minimal—a risk did exist; it was minimal—and that no action need be taken at this stage. That Cabinet committee actually approved the prospect and the process for making an amendment, but only when the primary Act is to be next fully amended. They didn’t anticipate an under-urgency piece of sticking-plaster legislation like this that would have to be rammed through the House, under urgency, literally a few days before the first auction.

Then something changed, because, that recommendation having been made—the Minister having said that there was a risk but it was a low risk and they had identified it and nothing urgent needed to be done—we find ourselves, in the first sitting weeks of this calendar year, suddenly thrust into urgency, and now the risk is sufficiently high that a change needs to be made. So a truncated, shortened select committee process occurred. There were only 10 submissions. A couple of them were—and I don’t mean to be insulting to the submitters, but a couple of them were quite wide of the mark in terms of the scope of the bill. They were interesting submissions, but they didn’t really go to the heart of the bill. The other eight or so submissions were well considered, and they came from businesses and players in the market place who have an interest in seeing the system operate properly and freely and openly, in the way that it is designed to do.

The problem that really came before the select committee was that there was, I think, a general consensus that the legislation was required. Nobody could really understand why it hadn’t been attended to previously. There was some consideration—and, in fact, the Minister made it clear in a media comment to Newsroom that it arose because of some kind of drafting error. He said that Cabinet agreed to the confidential reserve price, but for some reason—and he says “I wouldn’t want to put anyone wrong with the specifics but I think there was an omission in the way that the drafting instructions got to the Parliamentary Counsel Office (PCO). I don’t think PCO made an error in drafting it because they were drafting according to the instructions that they had received, but there was something missing there.”

So the problem that really arose was something slipped through the process, the scrutiny process, in terms of giving instructions to Parliamentary Counsel Office. We know, as members of this House, that the good people in Parliamentary Counsel Office do a superb job, a remarkable job, but they only do the job that they are instructed to do. If a Minister gives them instructions that are not full and complete and detailed, well, they don’t have extra-sensory perception, they don’t know what’s in the Minister’s mind, and they draft that legislation according to the instructions that have been presented and given to them. In this case, it’s very clear now that a Minister who is normally across the detail of his portfolio, in this case, let something slip through, and that’s why we are in urgency this afternoon and have had a truncated, shortened, and well-chaired select committee process but still a difficult one in terms of trying to get everything all in place.

One of the issues that became clear as this legislation was going through its first reading—there was a section when the Minister gave instructions to the select committee in terms of what they were to consider and their timetable and all those sorts of things. Then he let something slip which worried me greatly, and I made mention of it at the time, but I want to raise it again, having had the select committee process, because I think it’s important that it be acknowledged and recorded in the House. In his instruction to the committee, the Minister, James Shaw, said, amongst other things, this. He said that, and I quote, “These changes were first signalled to market participants more than seven weeks ago.”

What that means is that there were a group of people, organisations, businesses that were privy to this legislation coming to the House prior to the general public and prior to this House being aware of it. They were tipped off. They were given prior notice, they were given advance notice, in a way that I don’t think was appropriate. Then, at select committee, when I asked officials to provide a list of who the Minister may have been referring to in his speech when he said that these changes were first signalled to market participants more than seven weeks ago—and these, remember, would have been people who had time to prepare submissions, who had advance notice, time to get themselves ready, and notice that other, ordinary New Zealand citizens didn’t have. I don’t think that’s good enough.

What we found was that when officials were questioned and the Minister was questioned at select committee, we found, actually, that a list was not going to be made available. But somehow readers and subscribers to a very credible and worthy publication called Carbon News—but it is a niche publication and very much focused on the intricacies and the weeds of the day-to-day operation of our emissions trading scheme system, of climate change matters and what have you. As I say, it’s a credible and worthy publication but a niche publication none the less. The readers of that publication were the ones who were given notice. So if you weren’t a reader of Carbon News, you didn’t have notice that this legislation was coming to the House. For people who may have wanted to have a say and have a participatory role in this select committee process, they were excluded until the time that the legislation came to the House, under urgency. I simply don’t think that that, in terms of process, is good or right or correct. As I say, this is a black mark against a Minister who normally is much better than that in terms of process and respect for the process of this House and also for the process of select committees.

At select committee, there were a couple of changes made, and I think they were good changes. One of them was to do with the way that the methodology for setting the confidential reserve price is made. The National Party supports the changes that were made at select committee, and the Minister will be now required to—instead of just consulting with the Minister of Finance, the Minister will also have to consult with the auction monitor to provide a much greater level of independence when it comes to setting the confidential reserve price. Effectively, it is a secret price known only to the Minister. That is, I think, a good step. I think that enhances the legislation, and I think that is helpful.

My colleague Stuart Smith has already indicated that we are supporting this legislation through its second reading. We’ve got a couple of Supplementary Order Papers that we will want to debate and have discussed and, hopefully, supported when the committee of the whole House considers this legislation in the not-too-distant future. At that stage, we will have a think about where we’ve landed and what we’ve got and where we go from here. So thank you very much for the opportunity to participate so far, Madam Speaker.

It was Mark Twain who once said, “I didn’t have time to write a short letter, so I wrote a long one instead.” That’s what we’ve just had from the member whose resumed his seat, the Hon Scott Simpson, because it was a 10-minute speech in which he largely acknowledged that this is an uncontroversial, technical piece of legislation that pretty much everyone in the House agrees with. I think that is the nature of the debate that is ahead of us.

Pleasingly, there seems to be broad consensus that this is a sensible tweak to the legislation that’s needed. There is a broad consensus across the House that our climate change response legislation is an important part of our climate change response architecture, that setting a price through a market mechanism is important, that it aligns strongly with the processes that we have set up through the independent Climate Change Commission and the carbon budgeting processes, and that the ability to have a confidential reserve price is an important part of that process.

This piece of legislation simply enables the Minister concerned to ensure that that reserve price is in place. It does seem to have the broad acceptance of the House. I think it’s important that we proceed with it so that we can get on with the business of tackling climate change, one of the greatest challenges of our times. I commend the bill to the House.

Thank you, Madam Speaker. It’s a pleasure to take a call on the second reading of the Climate Change Response (Auction Price) Amendment Bill, and a pleasure also to sit on the Environment Committee that heard from submitters. There were 21 submissions on this particular bill, and we heard oral evidence from four. I agree with colleagues thus far in that the Hon Eugenie Sage chaired that process extremely well, and agree with other colleagues in that colleagues were very constructive in terms of progressing this piece of legislation. Can I also just note my thanks to the offices that were involved, given the time frames, as well.

My colleague who has just spoken, the Hon Michael Wood, is quite right. This is a technical bill, but it is an extremely important one in ensuring that the process around auction for the sale of units within our country’s emissions trading scheme system has value, has currency, but also, actually, that the process itself has absolute integrity.

The bill, from its introduction, remains in two parts. The first is around permitting the provision of regulations to achieve what it’s set out to do, and the second part, essentially, creates or makes the regulations by amending the regulations with immediate effect. I want to, just very briefly, acknowledge the Regulations Review Committee, as well, for the work that it had done in bringing to the committee’s attention some work that has resulted in what’s currently before the House.

This bill, as has been said, enables the Minister to set a methodology that will, effectively, calculate the confidential reserve price. But in doing so, there is a level of accountability with the Minister as well, and the provisions within the bill as it’s reported identify that. So it is a good piece of legislation and I commend it to the House.

Thank you, Madam Speaker. The ACT Party was opposed to this bill at select committee because we believe that, essentially, the emissions trading scheme (ETS) as it’s written is broken. A market system like the ETS can establish controls on price or the quantity of units, but what the Government has set out to do through the legislative system is to do both. That is why it is broken, and that is why ACT would not support this at select committee.

There were a number of issues discussed at the Environment Committee that were raised by submitters, some of whom may have had more warning than others, but which were very real concerns and risks. They were concerned, firstly, that the bill was brought to the House with urgency and so close to the initial auction date, on 17 March. That itself caused uncertainty from market participants who had been prepared to engage in the market based on the original legislation, and now there was this new mechanism, a confidential reserve price, being introduced.

Some of the submitters said that it may well be appropriate to have a confidential reserve price, but in that case why do you need a floor price, because you really only need one. If the Government has a mechanism to set out its price intentions or the cost of a New Zealand Unit, why have both?

Other submitters pointed out that if you’re going to have a confidential reserve price and you’re going to have an auction process where people bid, then those bidders who bid above the confidential reserve price—as you would expect—should be able to take the units away that they had bid for above the reserve price. They pointed out that there’s actually a design flaw with the legislation. It may be designed that way on purpose, but they considered it a design flaw, none the less. That flaw is that if the number of auctions that are put up—and, in this case, it’s going to be 4.75 million units every three months. If the prices bid for those units are above that price but one bidder bids for a fraction of those units remaining below the reserve price, then no one will get to take any units home.

Submitters raised that at select committee and we raised that with officials, and they came back with a completely unsatisfactory response. So the bill we see here today at second reading includes some of the amendments proposed by officials, which include to refer a failed auction—because that is a real risk—back to the Minister and to the auction manager for review, to review the methodology. But that doesn’t address the real risk that the submitters raised, and that risk was that in a constrained market—and the secondary market is constrained—we heard that, typically, a few hundred thousand units are traded at a time.

The Government is proposing to release 4.75 million units at a time. Because the secondary market is constrained, if the Government’s primary auction fails, there could be a rush to the secondary market by those businesses which have obligations, because what the emissions trading scheme does and the zero carbon Act does is it puts obligations on businesses that emit carbon as part of their business to have New Zealand Units—carbon credits—and then to hand them in. That’s their obligation: to pay for their emissions, and then to hand those certificates over to the Government at the end of the financial year. If they can’t get the units that they need, then there’s a risk that they could have to scramble to the secondary market. There could be price spikes, or there simply won’t be enough units available for a business to meet its obligations. You might say, “Well, this is something that they should plan for.” Well, they have been planning for it. They have been planning since the original bill was passed, and now what we see is this amendment bill—the auction price amendment bill—being brought to the House under urgency to add in this new control, this confidential reserve price.

So submitters said that the confidential reserve price wasn’t necessary. Others said, “If you’re going to have it, for goodness’ sake, let us take the New Zealand Units that we bid for”—that are above the reserve—“and let us take them home at the end of the auction. But please, please avoid the risk of having an auction tank and all of those units drop back into the Government’s bucket, because that is a risk that would introduce a significant amount of uncertainty into the market place system.”

The ACT Party believes that an emissions trading scheme with a market-based system is the right system to manage our emissions. It’s a system that allows New Zealand businesses who have emissions to offset their emissions by buying New Zealand Units within the New Zealand local context from those businesses which store carbon and capture carbon, like foresters.

There is still a flaw to the New Zealand ETS. It is a flaw that even the Climate Change Commission has identified in their report, and that is that New Zealand businesses cannot possibly, because of our current emissions path—and that includes the massive increase in the amount of coal being burnt to generate electricity in New Zealand, which is up 40 percent in the past two years—access enough New Zealand Units within the New Zealand market to satisfy their obligations. So even the Climate Change Commission recognises this. It has suggested in one of its policy options for the Government to allow New Zealand businesses to buy emissions units from overseas, because it’s quite likely that it’s much cheaper for New Zealand businesses to manage their climate obligations and to offset their emissions in other jurisdictions, because, after all, climate change is a global problem. Carbon dioxide emitted in New Zealand is no different to carbon dioxide emitted in South America or Europe or North America.

So for that reason the ACT Party believes that New Zealand businesses should have access to credits that are available on international markets from other emissions trading schemes, whether that’s California or Europe or anywhere that businesses are sequestering carbon and capturing carbon, and can then offer those units to the market. If that was the case, it’s quite likely that the price would be much less than what we’re currently seeing on the New Zealand market. We’re seeing prices of $38 or $39 on the secondary market. The Government has a fixed-price offer for businesses, currently, at $35 per New Zealand Unit so that they can buy credits for last year’s obligations, and yet what we see in other markets is that it’s actually possible to mitigate their emissions for much lower costs. It may be even $5 or $10 per tonne, as opposed to the $40 to $50 that we’re hearing about in New Zealand.

If New Zealand businesses were able to mitigate their emissions at much lower cost, then that would also reduce the risk that these businesses would have to leave New Zealand. We’re talking about cement, we’re talking about steel, we’re talking about manufacturing businesses, and even businesses that refine chemicals and other products here that we do in an environmentally friendly way that we then export to the rest of the world, because I would trust New Zealand scientists and engineers to manage our environmental effects here more than I would some of those less-developed countries where we know these industries—these petrochemical and manufacturing industries—will simply relocate to if the cost of compliance in New Zealand is too high.

But the ACT Party recognises that if we’re to have a fully functioning ETS, we must, when the opportunity arises, propose some mechanisms that actually make it better, so we have tabled an amendment—which we’re looking forward to debating at the committee stage—which actually means that when an auction takes place, any bids above the confidential reserve price for New Zealand Units will be successful. So we want to address the risk that submitters raised, which is that in good faith, they might bid above the reserve, and yet not be able to secure the credits that they’re seeking to fulfil their obligations. So the ACT Party has proposed an amendment on Supplementary Order Paper 15, which, effectively, determines that should any units be bid for above the clearing price, they should be available to the bidders.

So on that basis, we oppose this second reading, but we look forward to debating this further at committee stage. Thank you.

Madam Speaker, thank you for allowing me to take a short call on this bill, the Climate Change Response (Auction Price) Amendment Bill. We have sat through it as the Environment Committee, we’ve taken the submission hearings, we’ve digested it—we’ve had some good, robust debate in our committee about some of the issues that were brought forward. Of the people that made submissions, we got 20 submissions in, half of them were from individuals, the remainder of submissions were from the business sector, from NGOs, and one from a family trust. But one thing that I’d like to point out was that we didn’t get huge engagement from iwi or Māori organisations in this, and yet iwi and Māori organisations are going to be affected by this in the long run. The big picture of climate change is still the overarching goal that we’re looking to tackle with this particular bill, it does have a role to play, and it has an urgent role to play as well, which is why we’re dealing with this in urgency through the House.

One of the previous members from the committee also raised the point that, actually, there is a commencement date, it is very imminent, it’s not too far away—it’s just two days before the first New Zealand emissions trading scheme (ETS) auction is scheduled on 17 March. So that is the pressing need for this urgency. It’s why we’re dealing with it as a committee and we’ve moved very quickly through this process. But, actually, time is of the essence on this. We want to bring credibility to New Zealand’s participation in the ETS scheme, and for that reason, I commend this bill to the House.

Thank you, Madam Speaker. Well, the brevity and the repetitiveness of the Government’s backbenchers’, and even Ministers’, speeches do indicate that while they may have read their debate notes, they do not understand the complexities of this bill. It is not straightforward and it is not simple. It’s evidenced by the fact that the Minister of Climate Change knew about this potential problem a year ago and thought for the best part of last year that, actually, it wasn’t a problem. And here we find ourselves, a week or so out from the very first auction, tinkering around with the rules of that auction. In fact, it looks like this bill will be potentially passed two days before that first auction. It is a highly complex bill. There are a number of things that we need to traverse, which we haven’t had time for, given the urgent nature of this debate.

The Minister would have been told—he would have been told—by his advisers, or maybe even Treasury, that any time you interfere with an auction, he will increase the risk more than he will take risk away. The more that we play with the rules of an auction, the more we will find ourselves in serious difficulty. That’s why I have tabled an amendment in my name that we will debate later to review this confidential price mechanism, to ensure that it is actually working, because we haven’t had enough time in the very short period of time that we’ve had to debate this bill to make sure that we properly consider the risk. It is my great concern that there will be errors, there will be mistakes, and we actually need to come back and make sure that this has been dealt with properly.

It has long been the National Party’s position for many years that the primary policy tool for dealing with climate change should be a well-designed, pure emissions trading scheme (ETS). It was the National Government in 2010 that introduced the emissions trading scheme. We knew it was the most effective and efficient tool for reducing our emissions and for fulfilling our climate change obligations. It was this ETS that enabled the National Party to lift our renewable energy production from 65 percent to 85 percent during our time in office, a trend that I would note has stalled and probably actually gone backwards under this, you know, greenest Government ever. But it is our view that the emissions trading scheme is the most effective tool.

It is important to make a distinction between the emissions trading scheme, a pure emissions trading scheme, and a carbon tax. An emissions trading scheme sets the amount of carbon that can be released and lets the market decide the price; whereas, a simple carbon tax just sets the price and doesn’t worry about how many emissions we’re emitting. Now, it’s really important to make this distinction, because over time with this Government, while we’ve been tinkering around, we’ve been moving closer and closer from a pure ETS to a carbon tax. With the setting of a price floor, a price ceiling, and now a secret reserve at auction, we are moving further and further away from this pure emissions trading scheme, where the price is left to the market, and closer and closer to a tax—which, let’s face it, is what the Greens and Labour actually always wanted. So they can’t help themselves at every possible moment to tinker with the ETS to make it look more and more like a tax. The reason that is significant is because there is a long-established principle that goes all the way back to the Bill of Rights Act, that this Parliament has the power to tax—not the Government and not the climate change Minister.

The scale of this ETS revenue that we’re talking about is in the hundreds of millions of dollars. It’s not chunk change; this is a lot of money that we’re talking about. If you change the ETS to make it look more like a tax that is involving such a massive amount of revenue, then it is our view that there must be more checks and balances on those pricing tools—in this case, the formula that the Minister uses to, effectively, set the price at auction. So we’ll introduce a tabled amendment to flesh this out and to have a look at this, and we will debate it later on.

The truth is that the emissions trading scheme will put people’s power bills up, it will put the price of fuel up, it involves hundreds of millions of dollars in revenue, and it is no different than an excise tax which requires the validation of this Parliament—or, at the very least, some more checks and balances across the House. So while we commend the bill to the House at the moment, we look forward to debating those tabled amendments.

Thank you, Madam Speaker. It’s an honour and a privilege to stand here to contribute to the second reading of the Climate Change Response (Auction Price) Amendment Bill. It would be remiss of me not to address the hot air coming from the other side, because didn’t National sign us up to the Paris Agreement but had no plan? They signed us up—“Yep, we’ll do that; New Zealand will do that.”—but there was no plan. So it is my privilege to make a very brief contribution to this Climate Change Response (Auction Price) Amendment Bill, because, as one of the speakers from the other side said, this should be owned by everybody. It should be owned by everybody because what it does is bring in fairness into this piece of legislation. It gives the Minister the authority to set a methodology for this confidential reserve price—it gives the Minister that. And, on that note, I want the House to hurry up and do that, and I commend the bill to the House. Malo.

💬 Dr Deborah Russell: Madam Speaker?

💬 Hon Dr Nick Smith: Madam Speaker?

ASSISTANT SPEAKER (Hon Jenny Salesa): I call Dr Deborah—

💬 Hon Members: Russell.

ASSISTANT SPEAKER (Hon Jenny Salesa): Sorry. I call the Hon Nick Smith.

Thank you, Madam Speaker. It’s a pleasure—

💬 Dr Deborah Russell: No, no. Point of order, Madam Speaker. I do believe it was the Labour Party call.

I’m sorry, the Hon Dr Nick Smith, Deborah Russell is right. I call Dr Deborah Russell.

Point of order. Madam Speaker. It is entirely your prerogative to select who to speak to it, but the previous speaker appeared to take the second five-minute slot of call No. 9, which is normally reserved for the Māori Party. The clock was set at five minutes for that purpose. Naturally, she didn’t need it all. But I just want clarification of whether we are now on call No. 9 or call No. 10, by your reckoning.

We’re now on call No. 10. The Hon Dr Deborah Russell.

Thank you, Madam Speaker. Thank you for the opportunity to take this call. I just want to address something that was raised by one of the previous speakers around what would happen if the initial auction failed. Now, this is a concern that was raised by various submitters to the bill. They felt that if insufficient bids were made at a price above this secret reserve price, then the entire auction would fail, and it would create a number of problems. One of the problems was that if people were pretty keen to get hold of some emissions units, they might not be able to succeed, and then they would be driven to the secondary market in order to perhaps pay an even higher price set there. I would like to suggest that if people are very aware that they need some units and are, as it were, desperate to get some, they might already have been participating in the secondary market anyway, and in that case, in ordinary market conditions, they would be perhaps putting in a higher bid at the first auction to ensure that they do get hold of the credits they need. That’s the first protection there—just an ordinary functioning of the market.

The second protection is that after this discussion at the Environment Committee, there was an agreement that perhaps it was a theoretical concern around the operating of the market, and that in particular this could be exposed during the first auction process, which is happening quite soon. So clause 15AA has been inserted into the bill, and what it does is it says that the Minister must review the methodology. So if that auction or if certain auctions fail, then the methodology must be reviewed to have a look at the way the methodology could be improved. So that is the second protection against a particular auction failing.

The third protection for those people who—and this has happened in the event that the people have not gone to the secondary market in the first place to acquire these units which they allegedly desperately need, and the emissions trading scheme auction has failed. Then the third protection is that for that first auction, there is still a capacity to buy units at a fixed price of $35 a unit. So it can be done. There is a protection in there as well for those people.

So there is a series of protections available, should this theoretical concern that an auction fail due to the reserve price being set at the wrong level. The select committee has done its job and has come up with an effective way to ensure that the auctions ought to succeed; that if they don’t, there is a process by which they can be reviewed. All in all, it should work very effectively. As the previous speaker said, this is a necessary process. It needs to be done. We’re getting it under way. There are protections built into the bill, built into the auction process. With that, I commend the bill to the House.

This climate change amendment bill, dealing with a very complex detail of the emissions trading scheme being dealt with in urgency, actually does show a pretty ramshackle process around the most important policy instrument for dealing with the challenge of climate change. We need to be reminded that this bill was only introduced a month ago and is being rammed through the Parliament tonight under urgency for an auction involving hundreds of millions of dollars to take place next week. I don’t think there’s a single member of this House that can pretend that is competent and good government.

Now, there was going to be an emissions trading bill that went through, introduced in 2019 and passed in 2020. And when that bill was introduced, we were told it was for the purpose of being able to establish the rules around which New Zealand emissions trading scheme (ETS) units would be able to be auctioned. So the question has got to be asked: why is Parliament today, under urgency, rewriting the rules that were written more than a year ago? And the answer is simple: there was a stuff up, there was a mistake. I wouldn’t have heard it from any of the members opposite, but actually this is just another one of—whether you are talking KiwiBuild or light rail or whether it’s other issues like mental health, this is another area in which there has been a gulf between the Government’s rhetoric and its actions.

Now, I’m a little bit cautious in this area around urgency and amendments to the emissions trading scheme, because I’ve seen it all go to custard before. Helen Clark, during the last Labour Government, declared that climate change was the “nuclear moment” of her generation; and by the time we got to 2008 and emissions had increased by 12 percent, they decided to rush—in a period of three weeks—400 pages of law for the emissions trading scheme. We were assured, as a Parliament, that that law—

💬 Hon Dr David Clark: I thought it was 2010? That’s what Erica said.

I’ll come to that very point, because it’s critical, and I would like to educate the Minister, Dr Clark, as to what took place. Because what happened was that Labour felt so naked after being in Government for nine years, and emissions were continuing to grow, that in the last dying moments of the Clark Government they rushed through botched legislation on the emissions trading scheme. And one of the key flaws that were made in that legislation was quite loose provisions around international units that were able to flow into the ETS that resulted in hundreds of millions of dollars of mistakes in the way in which that ETS was operated, and a mistake that National had to fix in Government. And, for Dr Clark’s benefit, the New Zealand emissions trading scheme came into effect on 1 July 2010. And for a matter of historic record, that was when there was a John Key Government.

💬 Hon Dr David Clark: Labour did the work. National took the cap off.

Well, Mr Clark says that “Labour did the work”; let me remind him of the actual results. During the Clark Government, emissions went up by 12 percent. During the nine years of the Key Government, it’s the first Government in the history of New Zealand to actually see emissions reduce—not by as much as we would like, but actually it was a stunning achievement that the economy grew by 25 percent, and emissions went marginally down. I would love the Minister of Climate Change, maybe one of the Green MPs, or maybe one of the Labour MPs to be up front with New Zealand and say, 3½ years after being the Government, how much have New Zealand’s greenhouse gases reduced in that 3½ years. Is there any member that would be able to answer that? Maybe the Minister? How much, since you’ve declared New Zealand as being in a climate change emergency, have New Zealand’s emissions gone down?

The silence is deafening. Because it’s easy to declare an emergency, it’s easy to give big, bold speeches all around the world; the hard yards is getting emissions down. The hard yards is doing things like what National did—500,000 Kiwi homes insulated; good growth in incentives for electric vehicles; programmes like the Kigali agreement and the Paris Agreement, of which we worked very hard internationally to achieve. That’s where I do challenge members like Dr Clark, who will stand in this House and say, “Where was National’s programme? Where was National’s actions?” They were there and we were making progress.

So the question I would love a member of this House to answer is this: why was this issue not dealt with in the ETS amendment bill that was passed for auctioning in 2020? Now, the Minister can blame his officials, he can blame parliamentary counsel. But let me remind him of something: responsibility rests with the Minister. The reason that we are under urgency, ramming through very complex legislation around this issue of a confidential base price for emissions units in the emissions trading scheme, is because the Government stuffed up. Can’t dress it up any other way—the Government got it wrong.

I note the statement was that the legislation that was passed last year had made an error in the drafting process and not carried through the Cabinet decisions into the legislation. What does it say about the degree to which the Government is on top of its legislative programme, that it passes laws for an auction and the legislation does not contain what was in the Cabinet minute? Having done over 100 bills in my time as a Minister, I would be embarrassed if the legislation did not match the decisions that were made in Cabinet, and we do deserve an explanation on that point. I fear that the auction next week—only to be conducted a few days after we pass this law, has got a high level of risk to both the effectiveness of climate change policy as well as to the Government’s financial position.

I do share the colleagues’—both Stuart Smith and Erica Stanford’s—concerns that the Government is confused around its climate change policy and around its financial instrument as to whether it really is committed to an emissions trading scheme, or whether it continues to amend the scheme to make it more and more like a carbon tax. The reason members on our side of the House are cautious of amendments of that sort is we want real progress on climate change, but we do not want to create a legislative framework which makes the ETS a backdoor tax.

We all know on this side of the House that this Government is heading for extreme fiscal pressures—that is, that they are doing very large levels of spending, that the deficits are growing, and that the potential for them to use the auctioning scheme of the ETS as a backdoor method for getting funds out of both business and households is not what National supports. National supports a genuine emissions trading scheme that is set with the parameters of ensuring that New Zealand meets its Paris and other international agreements and obligations around climate change. We want that done efficiently, we want that done in a way that minimises the cost, we want that done in a way that maximises the use of markets, and we worry that with every complex tinker that is done to the emissions trading scheme—particularly those that drift it more towards looking like a carbon tax—that we actually are compromising its effectiveness.

So I’ll again say: this bill is a product of mistakes by the Government. If it was not, it would have been dealt with properly, when we set up the auctioning scheme in the amendments with the climate change legislation that were passed in June of last year. It is being done in a rushed process, and on three previous occasions when we have seen Labour Governments rush climate change legislation, it has had expensive mistakes. That is why National says that we should not be rushing legislation of this sort. There is no area of public policy that is as complicated as climate change, added with the complexity of the emissions trading scheme; it is an area where real care is needed. We are not satisfied that the Government has all of the details right; there are risks for the integrity of climate policy, as well as to the Treasury, as a consequence of this bill.

Thank you, Mr Speaker. I have the pleasure to rise to take a very short call on the Climate Change Response (Auction Price) Amendment Bill, and the reason that I am going to take a short call on this is because my colleagues on this side of the House have articulated extremely clearly the importance of this bill and the reason for bringing it to the House today.

We’ve startled to tackle the long-term challenges that Aotearoa New Zealand faces, and we know that climate change is one of the biggest challenges that we face right now. The emissions trading scheme (ETS) is a key tool to tackle climate change. So, basically, this bill is just technical, and it simply enacts the original policy intent for the ETS auctioning rules. And, for that purpose, I commend this bill to the House.

The question is, That the amendments recommended by the Environment Committee by majority be agreed to.

This bill is set down for committee stage forthwith. I declare the House in committee for consideration of the Climate Change Response (Auction Price) Amendment Bill.

In Committee

Part 1 Amendments to principal Act