Climate Change Response (Auction Price) Amendment Bill

Members, we now come to the debate on Part 2, which is the debate on clauses 6 to 17. This is the debate on amendments to the Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020. This also includes the debate on the Schedule. The question is that Part 2 stand part.

Thank you, Madam Chair. Well, it’s great to have an opportunity to speak to my amendment, which would, in clause 9, regulation 15A, after 15A(3)(a), insert “(3)(aa) the leader of each party that is not in Government or in coalition with the Government”—that is, to be consulted. In the spirit of the Climate Change Response (Zero Carbon) Amendment Act and all the climate legislation to date, we have had across-the-House support on these matters, and where there’s been disagreement, it’s been on minor issues, not on the principles of what it’s been trying to achieve. So this confidential auction reserve price is, as the Minister has said, they believe, integral to running a good and fair system. That may well be, but under this bill, it is the Minister for Climate Change, the Minister of Finance, and the auction monitor that set the methodology. That, effectively, sets the price below which it cannot go—so it sets the bottom price—and that is a major part of this legislation and a major part of the climate legislation. Therefore, in the spirit of all of the legislation that has preceded this on climate, it should be a cross-party consultation process.

Now, I’ve spoken to the Minister previously about this. Hopefully, he’s had a road to Damascus moment and really realised that this should be consulted on with those other party leaders, but it seems his view is that he’s concerned this is a market issue and he couldn’t really consult with anyone else. Well, he’s going to be consulting with the Minister of Finance. He’s going to be consulting with the auction monitor. He would be consulting with the leader of the National Party, with the leader of the ACT Party, and with the leader of Te Paati Māori. That is not a large number of people, and to say that that would be unsafe is to say that those people are dishonest, and I simply don’t accept that. The Leader of the Opposition is consulted on on matters to do with the Government Communications Security Bureau and the New Zealand Security Intelligence Service. They are far more sensitive issues that are being consulted on now, and to say that we can’t have this confidential reserve price methodology consulted on amongst the leaders of the parties—I simply don’t buy that; it’s a ridiculous argument.

This is really important: if the Minister believes that this is an important bill that we’re debating here tonight and he believes it’s essential that it survives through different Governments going through time, then he needs to actually put his money where his mouth is, no pun intended—in fact, it was intended—and consult the leaders of the non-governing parties. It’s essential that they have full clarity on what is going on in this particular methodology. There’s probably nothing more important than that. They must know that this methodology is sound. They must have clarity on it. We, as members of Parliament, don’t need to know; we would have confidence in the process and the methodology should the leaders of our parties actually have been consulted on it.

So I can’t understand why the Minister would be against it. I know he will have had time to consult with the officials, particularly the ones who are here in the Chamber now, and I’m sure they will have given him sound advice. And that sound advice would be that you should support this, Minister, because it actually would run counter to all of your principles if you voted against it. It’s a very sound piece of advice, and there are far more people involved in other decisions that make really critical decisions, such as Cabinet. Cabinet discusses what’s market-sensitive information during Budget debates, and do they keep it quiet? Well, they do—unfortunately, when they give it to Treasury, they put it up on their website and we can look at it! But, notwithstanding that, that’s just a failure of process. How that person kept his job, I have no idea, but that’s another matter. But the Minister must tell us, if he’s not going to support this, why.

The member’s time has expired. The committee will rise for the dinner break, and we will resume at 7 o’clock.

Sitting suspended from 6.02 p.m. to 7 p.m.

Ka te rā, tēnā rā tātou katoa. Members, before the dinner break, we were debating the Climate Change Response (Auction Price) Amendment Bill. Stuart Smith had just finished, so I’ll take a call.

Thank you, Mr Chair. So, just to the point that Mr Smith was making before the dinner break, about whether or not I’d taken advice on consulting with the Opposition, again, I just want to draw the analogy back to the electricity market, or, in fact, any of the other regulated markets that the Government has a hand in where that would be, essentially, an historical practice. The Government of the day sets regulations, and in his comments, Mr Smith suggested that we’d be consulting with the leader of the National Party, the leader of Te Paati Māori, and the leader of the ACT Party. Of course, that is only true in this parliamentary term. It could well change and, in fact, it is likely to change in future parliamentary terms. So I don’t think that you would say to any Government that having a mechanism where one small part of one market would be a function of consultation between political parties, as opposed to any of the other parts of that market or any other market that the Government is responsible for regulating.

Thank you, Mr Chair. Is the Minister aware of section 20 of the Intelligence and Security Act 2017, where it states “Director-General of an intelligence and security agency to consult Leader of the Opposition: The Director-General of an intelligence and security agency must regularly consult the Leader of the Opposition for the purpose of keeping the Leader of the Opposition informed about matters relating to the agency’s functions.” Now, I see this in a very similar light, and the point that the Minister raised about it only being for one Parliament—well, it would only be consulted with the other parties when the methodology changed, if it changed.

I think it’s absolutely outrageous not to consider talking to the leaders of the parties that are non-Government parties in this House, because it’s, effectively, saying, “We don’t trust you. We don’t trust you with that information. We think it’s too secret. It’s too sensitive. But, hang on, we’re going to talk about it to the auction monitor. We are going to talk to the Minister of Finance.” And by the way, when you have a Budget before the Cabinet, Cabinet Ministers are aware of things that are market sensitive. As I said before, why shouldn’t it be a cross-party, cross-Parliament cooperation on a bill, given that all the legislation to date has been largely supported right across this Parliament?

This is Parliament legislation rather than Government legislation, essentially, and I think you’re missing the point, Minister, with respect, and I think you’re actually trampling over that good cooperation that has grown across this House with this legislation. I think—in fact, I know—that the population out there generally, people in the street, men and women in the street, won’t have a great grasp of how the emissions trading scheme works, most of them, and judging by the speeches tonight, a lot of people here don’t either. They do, however, understand that the Minister, with the greatest of respect, does, and that members on this side of the House in particular have taken a lot of time—some of it with great history, like the Hon Scott Simpson, who has been involved in these sorts of matters since you’ve been in Parliament, I’d suggest, Mr Simpson. So I think it’s a great disservice that you’re doing to us.

We’re not asking—Mr Simpson and myself are not asking—to know what the methodology is, but we do think that our leader should know, we do think that the leader of the ACT Party should know, and we do think that the leader of Te Paati Māori should know. Of course, the Green Party are going to know, because you’re the Minister and you are the leader of that, but you are a non-governing party. Should that change and the methodology change, then it would be right and proper that the Green Party leader would be consulted on this. They won’t be going out and trying to game the market. They won’t be going out and leaking important information. That’s just not the case. I’m sure the officials, in their heart of hearts, will know that what I’m saying is correct. It’s the right thing to do. It’s quite insulting to not do it, and I’m sure we’ll hear from other parties involved in this that they will support this amendment.

So I really want you to reconsider, Minister. You don’t need to take to your feet now; I’ll give you enough time. It won’t be any loss of face on your part. You’ll gain great respect on this side of the House. You’ll gain great respect on the streets of New Zealand, because it is important that they back this as much as we do. So I appeal to you, Minister, to reconsider. We will give you a moment out in the lobby there, with the officials. I’m sure that they—they really should be thumbing through their statute book now and looking up section 20 of the Intelligence and Security Act 2017. It’s very easy to find, and I’m sure they won’t have too much difficulty. I can help you if you wish. I can see the nodding in the ACT quarter of the Chamber, and I’m sure that they will be supporting that, and I’m sure my colleagues will be getting to their feet in support of this amendment, and we look forward to you changing your mind, Minister, in the very immediate future. Thank you.

Thank you, Mr Chair. Now, I also want to take an opportunity to speak in support of the tabled amendment in the name of my colleague Stuart Smith. In doing so, I’m reminded of the very good work that was done in, I think it was, the 51st Parliament and led to a large degree by the former Green MP Dr Kennedy Graham. It was Kennedy Graham who—

💬 Hon Member: Fine man.

—was a very good and decent member of this Parliament.

💬 Hon Member: What happened to him?

Well, unfortunately, he left under sad circumstances, because he was let down by his party. But that’s not the reason that I want to talk about Dr Kennedy Graham. I want to talk about Dr Kennedy Graham because he was actually the person who I think was pivotal in terms of bringing a sense of cross-partisanship on climate issues to this House. The amendment that my colleague Stuart Smith is proposing to clause 9 would actually advance and further set in place that general consensus of the direction of travel in terms of climate issues. I think that Stuart Smith makes very good points when he talks about the degree of collegiality that has been present on almost all climate matters in this House since the work done by GLOBE, the Vivid report, the path to net zero—that very good report that I and others were involved with. I would hate to see that sense of collegiality, that sense of cross-party support, bipartisan support, would be evaporated for lack of support on what I think is a very practical, very sensible proposal by Stuart Smith.

Stuart Smith makes the point that, in reply to the Minister—who said, well, oh, you know, that might apply to the current Government, the current Parliament, because the Labour Party currently has an absolute majority that we all know won’t last for ever. If there is one thing that is certain it is that all Governments, sooner or later, are temporary, and it’s just a question of how long that temporary nature is. So the make-up of this Parliament will, in future times, change. I’m convinced it’ll be in 2023. There’ll be a complete reversal, and the new Prime Minister, the new National-led Prime Minister, will, of course, be a regular guest on the Mike Hosking show. But this piece of drafting that Stuart Smith’s put together actually accounts for a situation where the make-up of this Parliament will be different, and it doesn’t name parties; it just says “the leader of each party that is not in Government or in coalition with the Government”. So that leaves a high degree of flexibility about who would be—it’ll be, clearly, in an MMP environment. It will be the leaders of the parties that do not make up and are not part of the current Government in power. I think that’s a very astute, very wise option, because what it does is it gives a sense of inclusion of the whole Parliament to this process.

Like it or not, there are people outside this Chamber—probably there are some inside this Chamber—who remain incredibly sceptical about the whole climate change issue, the whole emissions trading scheme system. They are sceptical about the motives, the rationale, the reason, the cost, the implications for them and their families and their businesses. This is a small step that, in my view, would help alleviate some of those concerns, because it would, again, be a pointer to an action of good faith, an action of openness and transparency, which is often—well, actually, no; these days, it’s not often cited by the Government at all. It used to be. It was for a brief period of time, for about three weeks, and then suddenly it went out the door, and openness and transparency has gone. So here is an opportunity—here is an opportunity, Minister, for you to reconsider your initial rejection of Stuart Smith’s proposal. Like him, I urge you to reconsider it. I urge you to think about the perception that would be conveyed not only across this Parliament and the people who sit in it but also to the wider audience and public of New Zealand, to business, to commercial operators, to individuals, to families, communities, councils, and the like.

So, Minister, you, for better or for worse, have a reputation of being a Minister that listens. You have a reputation for being a Minister that considers carefully a whole range of issues, and on this matter, I would like to think that you might reconsider and give Stuart’s amendment some consideration.

Thank you, Mr Chair. I rise in support of the amendment tabled by my colleague. It’s really important that the emissions trading scheme—which is currently not fully functioning. It’s malformed. It’s a bit twisted, but it has potential—well, maybe with a bit of genetic engineering, an injection, a vaccine of some kind. The enduring solution needs to have the confidence not just of different parties in the House but of all New Zealanders. By offering the other leaders an opportunity to review the methodology, to review the process by which the Government, the Minister responsible, sets the criteria for the auction, that’s how you do build confidence, and it does take time. To some extent, the confidence that participants in the market have about the emissions trading scheme and the auction process has been undermined by these late amendments and by the rush to achieve this regulatory change in the days—well, potentially just a few days—before the first auction, on 17 March.

The Regulations Review Committee also looked at the safeguards on power to make regulations, such as the methodology, and they expressed concern that there was insufficient safeguard on that power to make regulations. Their recommendation to the Environment Committee was that we consider whether the Minister’s decision should be subject to greater safeguards or independence, and the ACT Party view is that Stuart Smith’s amendment to new regulation 15A, proposing a new subclause (3)(aa), that “the leader of each party that is not in Government or in coalition with the Government” should have full scrutiny over the methodology—we think that is an appropriate mechanism to address the risks that have been brought to the attention of the committee and that were not adequately addressed by the officials and in subsequent amendments. So, for that reason, the ACT Party supports that position, and we’d like to hear more of an explanation as to why this fundamentally sound amendment cannot be incorporated and accepted by the House as this Part 2 passes through committee stage towards final stages.

The problem we’re trying to solve here through an emissions trading scheme is not just a problem for this House or this Parliament to solve; it’s an environmental problem that is a global problem, and our obligations as a nation, while we might disagree on the volume or the timing or the cost of those obligations—we must have a nationally agreed approach. Thinking about the type of coalition that would be ideal in that nationally agreed approach, it would have to involve the businesses who are most exposed to the price of carbon, and those businesses are doing a social good. They are providing fuel. They’re providing energy. They’re providing jobs in the regions, and those jobs support communities, which in some regions of New Zealand have very few other opportunities for employment and for social mobility. So it’s really, really important that any mechanism that the Government uses to set a price for carbon or establish a confidential reserve price at auction has the buy-in of not just political party leaders but those communities and those sectors of the economy which are most impacted by it and which would have the most to lose, as well as potentially some gain.

So what the ACT Party would like to hear from the Minister is an explanation as to how the risks identified by the Regulations Review Committee have been addressed, because we don’t believe they have, and whether the tabled amendment to new regulation 15A, inserting new subclause (3)(aa), is an appropriate way to do that, and if it’s not, what other mechanism would the Minister suggest is appropriate? Thank you.

Thank you, Mr Chair. I rise to speak in support of Stuart Smith’s tabled amendment. I note, earlier, that the Minister whipped out his Merriam-Webster—or perhaps, even hopefully, his small Collins dictionary that he carries around in his pocket—to give us the definition of tax, in that its sole purpose is to raise revenue, which is not the intent of this bill. That may be true, but it’s still hundreds of millions of dollars of revenue that we will be raising, that will flow through into our electricity prices and gas prices, and hit the back pockets of Kiwis.

The amendments that this Government have been making to the emissions trading scheme (ETS) in the setting of a floor, and a ceiling, and now a secret reserve price, in our view are moving a pure emissions trading scheme far more close to a carbon tax—maybe not 100 percent there, but it is certainly moving in that direction. The Minister has blurred the lines between the two. We’ve ended up with sort of a hybrid version: we don’t have a pure ETS, we don’t quite have a carbon tax, but we’re pretty close to a carbon tax, and as I say we’re talking about hundreds of millions of dollars that will flow through and hit Kiwis in the pocket.

The Minister is, effectively, through these mechanisms, in our view, setting the price. I know that he’s splitting hairs and saying, “Oh, well, I just do the mechanism that then sets the price; it’s two different things”, but, effectively, the Minister is setting the price. We have made it very clear in round two of our speeches that we do consider that anything akin to setting a tax needs—the long-established principle of this place is that the Parliament alone has the power to tax, not the Government, not the Minister of Climate Change, but this Parliament. That is our view. We do understand that this Parliament can’t debate the mechanism, because then it would be public and that would defeat the whole purpose of having a secret mechanism to set a secret price—we understand that. But what we’re asking the Minister tonight, very clearly, is to consider a compromise whereby he involves the leaders of the Opposition parties when he is setting that mechanism. As per Stuart Smith’s tabled amendment, that’s the compromise that we’re asking for. As Scott Simpson said, in the words of Kennedy Graham, and the Minister has said this himself on many occasions, that this legislation needs to have the buy-in of all parties, that we want cross-party support, we want cross-party work. Well, this is the opportunity for the Minister to put his words into action by supporting our tabled amendment and allowing the Opposition leaders to be consulted over this particular part of the legislation.

So we are standing here tonight to implore you, Minister, to consider this. I don’t think that it’s any skin off your nose to have a conversation with the leaders of the Opposition parties over this, because it is a big deal to us. We do consider this to be more of a tax than a pure ETS, and we have said in many of our speeches tonight that there is a long established principle that goes all the way back to the Bill of Rights that this Parliament alone has the power to tax. Now, whether or not the Minister agrees that it is a tax or it isn’t a tax, we are firmly of the belief that it is moving, shifting away from a pure ETS far more into the territory of a tax. Our concern is that we can’t have this Parliament debate that. The very least that we are asking the Minister to do as a compromise is to support this tabled amendment in the name of Stuart Smith tonight and put his money where his mouth is, or turn those words into action when he talks about cross-party support for climate change legislation.

We support the ETS. We support the Minister and what he’s doing. We want to drive our emissions down as well. But this is a point of principle and, as I said, it’s no skin off the Minister’s nose to support this. If there is some huge impediment to supporting this amendment tonight, I would really implore the Minister to get up and tell us what it is, because this is something that we are very keen on.

Thank you, Mr Chair. I’ll just start with the question that Simon Court raised about the recommendations of the Regulations Review Committee. There was a concern there about whether there should be more safeguards. That was actually in the report, which was that they recommended that the Minister be required to consider independent advice from any auction monitor, once appointed, when setting the methodology, and that of course has made its way into the bill. So that concern was addressed through the select committee process.

Speakers from the National Party have repeatedly said that they consider this to be more of a tax than an emissions trading scheme, or that it is moving from being an emissions trading scheme towards becoming a tax. That is an assertion without any grounding, and no one has yet explained why it is a tax as opposed to an emissions trading scheme. The extent to which it is either a tax or an emissions trading scheme falls well outside the scope of this bill. This bill is extremely narrow and focuses on whether or not there should be a confidential reserve price inside the auction mechanism.

It’s also a false equivalence to use national security legislation for the purposes of market regulation. I am aware of the clause in that regulation. I sit on the Intelligence and Security Committee that’s chaired by the Prime Minister, so I am aware of it, and I’m aware of the long tradition of how that’s managed, but security intelligence is not market functioning. The two are not even close. If the member could find a piece of market regulation anywhere in which leaders of political parties are consulted on the nature of that regulation, I will be very impressed. I know there’s not a lot of time left, but you could always ask the library to see if there is anywhere a piece of market regulation that requires consultation with other political parties about the nature of that regulation.

Going further, the question is: why would you do it over just this? If you were to have political party consultation on the regulations, why would you confine it to just the confidential reserve price? Why wouldn’t you do it for the many dozens of other components of the regulatory environment, and then why would you stop at the emissions trading scheme? Why wouldn’t you also do it for the electricity market, upon which much of the design of this is based? It is really outside the boundaries of what’s appropriate in terms of how Governments set regulation. So I have considered it and reconsidered it, and I will not be supporting the amendment.

Thank you, Mr Chair. We’ve heard the Minister’s response to this tabled amendment, and, to some extent, the Environment Committee addressed some of those concerns, but not adequately.

I’d like to move on to Supplementary Order Paper 15, which tables an amendment to the Climate Change Response (Auction Price) Amendment Bill, and which address the real risk and, as yet, the unaddressed risk that should an auction with a confidential reserve price fail to clear, bidders who bid in good faith and who submit bids above the confidential reserve price will find that they’re not able to take New Zealand Units away from the primary auction. It’s been offered that those bidders could then go to the secondary market and secure the units that they need. It’s also been suggested that they’ve had a long time to prepare for this. It’s been suggested that there is a large bank of New Zealand Units or carbon credits out there.

I’d like to talk about a number of those matters because they all add up to a scenario which is not shared by the submitters. Those are the submitters who will be bidding for millions and millions of units which they must secure in order to then fulfil their obligations under the emissions trading scheme. They want the emissions trading scheme to succeed, and the reason they want it to succeed is because, if it doesn’t, they fear—and this is a genuine fear—that the Government will simply move to policy mechanisms to direct interventions in the market. They doubt whether this Government actually believes in markets. They’re not entirely confident that this Government wants a market place solution to succeed. So perhaps if an auction did fail and then businesses were scrambling to secure units from the secondary market, there were price spikes and then commentary around that in the media and in markets, then that could be a legitimate justification for the Government to say, “Look, markets don’t work.” But, again, any market that has a floor, a ceiling, and a confidential reserve price—which is what we’re here to discuss at this stage of the committee—is already if not rigged then extremely tightly controlled by those running the market.

So what this Supplementary Order Paper proposes to do—and ACT feels that this is—is a genuine amendment that will take risk out of the emissions trading scheme and make the emissions trading scheme more durable, more enduring, and more accepted not just by the businesses that participate in it but by those communities who hear the acronym—the ETS—hear about the concept of a marketplace system and wonder what on earth that has got to do with the climate. If we wish to establish an enduring, durable market that has the confidence of its participants and also the communities that are affected by this, then ACT believes that allowing bidders who bid for units in the market and whose bids are above the confidential reserve price—that they should be able to take those units away.

I’ve heard some of the concerns raised by the Minister and by officials that if the auction clears and those bidders take only part of the units away, then the reserve price would be easily discovered. We know that reserve price will be close to the secondary market price, so it’s not like the discovery will be, “Gosh, it was $10 lower or $10 higher.”—that’s not a likely outcome. It’s important that the bidders have confidence that when they place a bid and their bid is above the reserve price, they know not just that the auction failed and the Minister will review it but they actually have an opportunity to secure the units that they bid on and to be able to, if they are, for example, traders or buying on behalf of others, go back to their clients and tell them, “Yes, we put in a bid at the price that you agreed we’d bid, and it was above the reserve and we secured the units you need.”

Now, if for some reason the 4.75 million units don’t all sell at one auction, then they will indeed carry over to the next auction, but if it’s a fraction, if it’s a few hundred thousand, or if it’s a few tens of thousands that fail to clear, that should not be a reason for millions and millions of tons equivalent of carbon and those units failing to be available to the market participants to fulfil their obligations. So that’s why ACT believes that this amendment, inserting new clause 11A, “In regulation 32, replace ‘zero’ with ‘or equal to the confidential reserve price’.” and to delete some of those other clauses that if the entire block of 4.75 million units is not all sold above the reserve, then the entire block will fail to sell, will be enduring and will give confidence in the emissions trading scheme. In fact, it gives us some small hope, if this amendment was to be taken up by the Government and accepted, that there is an opportunity for an enduring, cross-party approach to a nationally agreed way to mitigate emissions, and that’s how New Zealand will retain its standing in the world.

We could well become an example of how emissions trading schemes and a market-based approach to mitigating the risks of climate change can be a shining light, a guiding light to some of our competitors, particularly in Europe, where they have a hash of an emissions trading scheme themselves. It doesn’t include transport, and a host of other subsidies and levers that they pull in their economy, both with transport—I mean, they still subsidise diesel for their fishing fleets. They subsidise French farmers to grow hedges, apparently, for biodiversity. We want to avoid any of those false, I guess, mechanisms that don’t actually address climate change, that don’t mitigate emissions, but that give the impression that Governments are seen to be doing something. That is true virtue signalling, and the ACT Party doesn’t agree with that.

So this bill has been brought to the House under urgency. That in itself creates uncertainty—the submitters said so; a number of them did. They have said it takes time to get large businesses and their trading units and their clients used to the idea, and conditioned to the idea, of how a market will work, and they were asking for more time, but, of course, it’s not possible to have more time, because of the time frames that have already been set for the auction process—and that’s 17 March for the first auction. We believe that if the Government listened to ACT and to submitters and took up this amendment that we’ve proposed, we could achieve a fully functioning ETS in time. This one small amendment won’t achieve that on its own, but it will go some way towards mitigating the risks that submitters have raised and creating an enduring national process. For that reason, ACT commends this Supplementary Order Paper, this amendment, to the Climate Change Response (Auction Price) Amendment Bill to the committee. Thank you.

Thank you, Mr Chair. I rise to support Supplementary Order Paper (SOP) 15 in the name of Simon Court, who has just taken his seat. I think it’s a great Supplementary Order Paper that you put together, Mr Court. Actually this issue was raised by submitters in the select committee, and, actually, we were never really satisfied with a reasonable answer as to why we wouldn’t allow the auction to clear if it met the criteria but the highest bids didn’t take up all of the amount that was put up for auction. I think it’s good to allow those people to get the units that they’re after, so I think it’s a very sound SOP, and I think that the Minister should get to his feet and say why that isn’t being adopted, if it isn’t. He hasn’t said he is not going to support it; perhaps he is. I think it’s a very good piece of legislation.

This really comes down to a matter of opinion, and the matter of opinion is that of the officials, not of the Minister or the politicians. The politicians are the ones that actually have to answer for bad legislation, not the officials. I think this is a political decision, and it’s not the right one unless we actually support this SOP. So I’d really like to hear from the Minister whether he is going to support it, and, if he isn’t, why not, because I think we deserve a sound explanation as to his reasoning. Thank you.

First of all, I want to thank the member for taking the time to draft the amendment, and I do acknowledge that having a partial sale is a valid alternative in terms of how you might approach it, but it does introduce other risks into the functioning of the market and to the purpose of the emissions trading scheme (ETS).

We were talking before about the oversupply. So there’s about 120 million units sitting inside private accounts, right, and you compare that to the volume of trade that we’re looking at here, where each auction will put forward just over 4 million units. So you’ve got, essentially, that large supply of 120 million out there, and it’s really important to understand that one of the purposes of having an auction is to respond to demand signals that are provided by the market as a whole, and not to meet the individual needs of bidders. Of course, you will have—and we did have—a number of companies that made submissions from the perspective that they are coming from, which is their own individual needs, but if we were to design the market in that way, you wouldn’t necessarily get the level of functionality that you’re looking for. So there is, essentially, a different incentive for the market regulator than there is for the market participants. So that’s a fundamental difference.

Partial sales do risk promoting unnecessary supply into a market where there is, essentially, insufficient demand. So if you don’t get that clearance, what that is suggesting is that the market as a whole doesn’t have the level of demand that the market regulator says, “OK, well, we’ll release those units for sale in that case.” So that would be detrimental to the overall functioning and purpose of the emissions trading scheme. It’s worth noting that the European ETS has exactly the same functionality, so they have this sort of no-sale provision if the lowest price doesn’t clear. So if the market doesn’t clear, then that doesn’t go ahead. They’ve had 1,000 auctions, approximately, in the history of the European Union ETS, and only on three occasions out of 1,000 has the price failed to clear and no units get sold into the system. So we are mirroring a much more well-established, much larger market, and in a tiny fraction of a fraction of their auctions has there ever been a situation in which they’ve chosen not to sell those units into the market because the price hasn’t, essentially, been sufficient to demand it.

Whilst a partial sale model is valid, and was considered, it was felt that, actually, ultimately we would fall on the side of where the evidence lay in terms of the European Union example, and given some of the other risks that it would have. So, on that basis—I know that this was canvassed in the select committee and didn’t make it through—we won’t be supporting this Supplementary Order Paper either.

I move, That the question be now put.

Thank you, Mr Chair. Thank you, Minister, and I do appreciate that for many members of the House and for those who may be watching today, wondering what all the debate is about—an emissions trading scheme and reserve price at auction—isn’t it just as simple as auctioning a house or going to Turners auctions and buying yourself a cheap second-hand internal combustion engine vehicle to take your family to and from church or to the beach or to work—that first tradie van that an apprentice might buy? But it’s actually more complicated than that.

Minister, you’ve spoken of the oversupply of credits, and I haven’t heard that term before except used by you in this House and by officials. Yet when we dug further into the oversupply issue, of that 120 million-odd New Zealand Units which are currently held by participants in the market, 66 million of them are in forestry. What that means is they’re, essentially, locked in trees, because if those foresters wish to take advantage of those units and sell them or trade them or lease them out, sooner or later, they’re going to have to, when they cut down their trees—assuming that they’re not just growing pines for a postcard or for some other reason—pay back those New Zealand Units, unless they replant. So 66 million of those credits are, essentially, locked. They’re in a vault. In fact, they’re buried deep underground. The carbon is locked. They can never come out.

So what we’re really talking about is about 55 million units, and a number of businesses have purchased New Zealand Units on the secondary market over time and when those units were much cheaper than they are now. They’ve done that because they recognised that the trajectory of New Zealand’s market-based system was that the price would increase for these units over time and that that would more correctly reflect the externalities that emitting carbon dioxide into the atmosphere in New Zealand causes.

There’s no simple way. We’ve heard about a carbon tax. We’ve heard about a whole lot of other policies. But there is no simple way to put a price on the tailpipe of your car, on the emissions from the steel mill, the emissions from the cement kiln at Portland in Whangārei, or the pulp and paper mills, or even the emissions from that wonderful Huntly power station, which generates a fantastic thermal baseload of energy and keeps the lights on in the North Island, particularly in winter when it’s dry—and, potentially, in summer in the future, where Aucklanders and those in Hamilton and other parts of the country will want to use their heat pumps as air conditioners. Because that’s what progress is: progress is using technology that we thought we might use for one thing—a heat pump to keep us warm in winter. It actually turns out we might like to keep the doors closed and run an air con unit in summer, because it’s much more comfortable watching the cricket and being nice and cool inside than having a blast of heat.

So it’s important that we recognise that these technologies like heat pumps and like the industries which produce carbon dioxide emissions in order to make products like pulp and paper, like cement and steel, and to refine the fuel that we absolutely depend on in New Zealand—because I know we’ve heard New Zealand Refining Company at Marsden Point is planning to mothball or shut down their refinery and to import fuel. That introduces a whole lot of new risks, and, potentially, this rapid increase in the price of New Zealand Units—

CHAIRPERSON (Adrian Rurawhe): The member’s done really well on his contribution. In his last 30 seconds, can he bring it to the actual Part 2 of this bill?

Thank you, Mr Chair. So we’ve got about 66 million credits locked up in forestry. Those businesses and industry—55 million, potentially—have hedged to protect their businesses against future price shocks, and if these auctions don’t clear, then they may not have sufficient credits to pay for their future emissions. It’s not up to a Government or an auction methodology or those who set the auction methodology to say when a business should sacrifice some or all of its credits. So that’s why—

CHAIRPERSON (Adrian Rurawhe): Order! The member’s time has expired. The question is that Stuart Smith’s tabled amendment to Part 2, amending clause 9 with new regulation 15A, be agreed to.