Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill

I move, That the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill be now read a third time.

Thank you, Mr Speaker. I have described industrial allocation, as I’ve just said, as ugly policy. The way that it deals with international competitiveness is, essentially, by subsidising pollution, because a New Zealand Unit (NZU) inside the emissions trading scheme is, in essence, a licence to pollute a tonne of carbon dioxide into the atmosphere.

The scheme has been around for almost 15 years now, and the primary way that we have dealt with the differential carbon pricing between domestic production and competing imports from around the world is by, essentially, giving New Zealand businesses that are highly emissions-intensive free units in order to meet their obligations under the emissions trading scheme. Those units are equivalent, if they are highly emissions-intensive, to 90 percent of their total obligation, and if they’re moderately emissions-intensive, it’s 60 percent of their allocation.

Now, since 2008-09, when this scheme was up and running, it has, I believe, been allowed to drift, because there haven’t been any kinds of regular checks to see if the basis on which businesses are being given these units actually still stands. If it does, fine, but if it doesn’t, we need to take a look at that. So over the course of the last few years, we have found that, actually, some businesses have been receiving a number of licences to emit pollution into the atmosphere greater than 100 percent of the total pollution that they do put into the atmosphere. In other words, they’re receiving more permits to pollute than they pollute. Now, that’s nonsensical, and so we need a system to tighten that up and to ensure that there is an accurate basis on which companies are being allocated these units for free.

Now, it’s not an ideal solution. It’s not an ideal policy—you know, we live in a less than ideal world. In an ideal world, there would be a global carbon price, or—the second-best option—there would be adjustments at the border that could take account of the differential between what domestic production is and the price that’s allocated in the countries where those competing products come from. But we don’t have that system, although the European Union, Canada, Australia, the United States, and others are all looking at that, and so we might see something akin to that occurring over the course of the next few years, in which case this third-best option may come up for review at that time. But that is some way away from where we are today.

So, in the meantime, what we do is we do provide these units for free to act as a buffer for companies where they are producing things that—for example, steel, which is a necessary ingredient in modern civilisation. It currently has a very high emissions intensity to it for it to be able to produce that steel here in New Zealand for New Zealand consumption, even whilst we are also importing steel from countries that do not impose the same price—or, in some cases, any price—on steel production, although that is also changing over time.

This bill actually does have quite a narrow scope. It really just does deal with the issue of whether we are over-allocating units to those businesses. As I mentioned during the committee of the whole House stage, the most recent year for which we’ve got data shows that we allocated about 6.6 million pollution permits, or NZUs, in the system. If you think about that, that’s about 6.6 million tonnes of carbon dioxide, and our total pollution going into the atmosphere is about 75 million tonnes a year. So it’s an appreciable portion of the total.

Now, we estimate on a reasonably conservative basis that by tightening up the system in this way we will be handing out 800,000 tonnes fewer worth of pollution permits than we do today. So what that is saying is: well, we’ve been handing out these units and they’re unnecessary, right? They’re not required for international competitiveness matters, but they do create a slackness in the system. And so in that sense, what this bill does is to make the emissions trading scheme both more accurate and also more predictable for the participants in the system.

I know it has been an anxiety for some of the companies who currently receive allocation that there will be a regular schedule of reviews and of calling for data. But, actually, by being able to check in on a regular basis and to say, well, we know when that’s going to happen as opposed to the current system—which is entirely arbitrary and entirely up to the Minister to do that as and when the whim of the Minister requires—we’ve now got a system where businesses know that there will be these kinds of check-in points and that a check-in point, a call for data and for information, is not the same as changing the allocation. It’s simply saying: is the basis on which those were handed out and those allocations decided—is that basis the same now as it was when it was first allocated? And if there is a case that actually things have changed to a point where a business is again being over allocated, at that point you can review it and change it.

I do just again want to acknowledge the work of the select committee. I have to say this is one of those moments where I think that Parliament worked as it is intended to do, where there was some doubt about some parts of the bill and the select committee worked very hard on drilling into that, given that it is, you know, kind of technically challenging to get into and did require expert support—as I mentioned, the Climate Change Commission, the Parliamentary Commissioner for the Environment, and others, independent experts, particularly Dr Christina Hood, who came in I think two or three times into the select committee to support them. The select committee asked for additional time to grapple with this and get it right. Again, I just want to acknowledge the work that every member of the Environment Committee did to ensure that this bill landed in as good shape as it did. I really thank them for that. And I particularly want to acknowledge the chair of the Environment Committee, the Hon Eugenie Sage, who in my opinion is a superb chair of that committee and did a great job of dealing with this issue; also with many of the other very complex issues that the Environment Committee was dealing with simultaneously.

💬 Hon Phil Twyford: You should keep her on.

I would love to keep her on. So, having said all of that, I do think that this bill has landed in very good shape. I think it has been improved significantly as a result of the parliamentary process. I would like to thank the National Party, Te Paati Māori, and other parties for supporting this Government bill. I think having a level of parliamentary consensus—not complete consensus but a very high level of parliamentary consensus—on this sends a very reassuring signal to the industries that are participants in it, and they can rest assured that it has been thoroughly worked over by both sides of the House, through the select committee process.

I do think that this bill does help to futureproof the emissions trading scheme. There are other aspects of the emissions trading scheme which are up for review and which we need to get to, but this is a reasonably narrow but very important component of what it is that we need to do. And that is accurately determining the rates of industrial allocation and ensuring that there is a framework to upgrade them in the future, which we have not had for the last 15 years or so of that. So the changes that we make today will help us to meet our emissions budget by having a more accurate and a tighter system. It will help us to meet our international obligations. It will make it a little bit easier to meet our otherwise very challenging broader climate change goals. And it also will offer a bit of relief to those small foresters who I think were kind of unfairly or unreasonably exposed under the old penalties regime. So by updating the penalties regime, it does provide some more reassurance there.

I think it’s a very good bill. I thank the House for it. I commend the bill to the House.

Thank you very much, Mr Speaker. It’s a pleasure to rise on the third reading of the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill. As has been traversed already this evening, the National Party will be continuing to support this bill. As we have outlined in prior contributions, this bill does deal with two key aspects, which, in our view, are pragmatic adjustments in regards to issues that do exist and the resolution of them, particularly around the industrial allocations. It will strengthen the emissions trading scheme and provide greater certainty in regards to the market and the way in which we deal with those components.

The certainty is important in regards to the signals that this sends to the broader market—I think, as the Minister of Climate Change has outlined, in areas such as this, in an area of public policy that is so critical to our country and our economy, the ability that we can, in effect, work together around ensuring that these changes are consistent and put in place, I think, stands us in good stead as we head towards dealing with what will be a very difficult and challenging objective around reducing the emissions, but one in which National are absolutely committed that we need to and will work towards meeting net zero by 2050.

We’ve talked at length around the industrial allocations portion, which I think is probably the most applicable component. We have acknowledged those people. And I also want to join with the Minister in acknowledging the chair of the Environment Committee, Hon Eugenie Sage, who, obviously, will be retiring at this point. But I do just wonder if you want to indulge a little bit—I just want to recognise that member’s contribution. The way in which this bill was navigated—it is a complex bill, and it was done so very professionally. I have had the ability, albeit a small amount of time, to work with that member and have always valued their council in regards to a number of elements and bills in this House. So I wish her very well.

In regards to that, I don’t think there’s anything further that we are really wanting to place on the record. We acknowledge that there are going to be a number of other needs, particularly in the coming years where modifications and further check-ins are required. This is an area that is evolving, and it is important that we continue to ensure that we are up to date. The reality of where we are seeing developments in more of the global space around new options that are coming on the table is both exciting but also they are ones which will need to be worked through appropriately to ensure that the specific needs of our country and our economy, and the needs which make us so unique and special, are taken into account as part of that process. But we will do so in a manner in which is collaborative and in a manner in which, as always, will enable us to achieve our net zero targets by 2050. We commend this bill to the House.

There were a number of proposals made and presented to the Environment Committee when we were scrutinising this bill, including things like overall phase-out rates, capping the overall allocation to make it consistent with the emissions trading scheme cap, and the use of international benchmarks—all of which were outside the scope of the bill.

But in a sort of post-script in the committee’s report, it noted that there is much to be done beyond the scope of the bill to tackle the broader design of industrial climate change policy—and I quote from the committee’s report—so that we can “move from a system that locks in [high]-emissions [industrial] activities, to one that [supports a rapid low-carbon transition].” The committee noted that the second emissions reductions plan, due to be developed next year, is an ideal opportunity to “set a new direction for industry policy”.

I just want to finish this brief contribution by saying to the House that it is surely time that we get more serious about reducing carbon emissions, that we try to find the policy settings that will genuinely incentivise rapid decarbonisation, and not provide free allocations that subsidise carbon pollution in perpetuity.

I commend this bill to the House.

Thank you, Mr Speaker. Look, I’m not going to take a long call this time, because we’ve largely traversed what has been in this bill over the stage of the readings and the committee stage. But I think what I really would like to say is that it’s good to see again the recalibration of something that is a constantly moving. We need to have the emissions trading scheme dynamic, we need to have it constantly adjusting and changing, and we need to have the ability to review things often as technology and research development and science move us forward.

I think it’s very important, particularly as we don’t have cross-border regimes and we are competing with other parts of the world and this gives our own businesses a chance to compete on a level playing field at this point in time. I mean, at some point the world may catch up, but we’ve always said that it’s important that it’s not up to us to lead the world, but to actually move with the world and do our bit, and these adjustments help us to do that with our businesses. So with that, I would like to commend this bill to the House. Thank you.

Thank you, Mr Speaker—final speech for me for the night, speaking on the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill. I really think we probably could’ve done better with the name—I really do. Look, this is a good bill. We’ve traversed the issues quite thoroughly, I think. I’m going to make a very short contribution, but I do want to acknowledge the Minister, the Hon James Shaw. He has always worked really well with our Environment Committee and came and briefed us and spoke with us, was open to changes, and was absolutely useful in terms of the process of getting the legislation across. We had good conversations, and I want to just acknowledge you, sir, for your work. I’m not going to call you a deity, however, but I do want to acknowledge the way that you worked with us.

I also want to acknowledge the technical detail of this legislation, and I want to just particularly acknowledge one of our clerks who did some extraordinary work getting this piece of legislation into a really readable format. So, Jacob, our clerk who did this work: I’d like to acknowledge you for the work that you did pulling this very technical piece of legislation together and helping us draft a report that’s really readable and accessible.

With that, I commend this bill to the House.

Thank you, Mr Speaker. I do want to thank the Minister for his forthright responses to the questions that the ACT Party wanted answers to during the committee of the whole House stage, but, unfortunately, we’re not satisfied and we won’t be able to support this bill proceeding any further.

The Minister himself described this piece of legislation—in fact, the bill of the Act that this legislation seeks to amend—as representing ugly policy. The ACT Party would contend that this Government’s climate policy is being played on a playing field that’s so messy, no one can see where the lines are marked anymore. This Minister—this Labour Government, supported by a Green climate Minister—has made so many announcements about the emissions trading scheme, about the role of forestry, whether pine trees are in or out, whether pine trees or trees at all get the same amount of recognition for storing carbon as any other type of carbon storage, that it’s created confusion.

It’s created enormous uncertainty, to the extent that the last two auctions under the emissions trading scheme, where the Government tried to release carbon credits into the market to raise some revenue to fund all their other green boondoggles, failed. Which means that instead of collecting the $1.4 billion that this Government relies on—that Labour relies on in order to fund its climate hogwash policies and boondoggles and handouts to big business—they don’t have the money.

Now, the Minister responded in the Environment Committee when I asked him this question: considering this legislation, what are you going to do if we don’t have the money, Minister? How is the Government going to fulfil its obligations, all the promises it’s making? He said, “Oh, there’s two more auctions to go. We’ll cross that bridge when we come to it.” Again, the Minister repeated it in the House tonight.

The ACT Party does not believe that is the way to establish enduring climate policy that leads to enduring reductions in greenhouse gas emissions; that provides certainty to New Zealand businesses and those who might wish to come and invest in New Zealand; that if they come to New Zealand and buy a business or establish a new business or process and they invest in decarbonising or efficiency or reducing greenhouse gas emissions, that it will be worth it. None of that is clear. This bill has not made it any clearer.

Worse than that, New Zealand businesses that manufacture here, that employ tens of thousands of people—whether it’s in Taranaki or Tangiwai in the central North Island; or remanufacturing glass from recycled glass in Penrose; or making methanol from New Zealand’s rich natural gas resource; or making urea fertiliser, again from New Zealand’s rich natural gas resource—don’t know whether the costs imposed by Government under this legislation will mean that they’re paying the same carbon price—or a fair carbon price—as their competitors. It is still unknown.

The Minister did provide this information, which was helpful, that, at the moment, around 6.6 million carbon units are allocated to industry, which means they don’t have to pay the full price of their emissions—around about $60 a tonne at the moment. So it is a significant level of assistance to New Zealand industry. The downside of that is, of course, that that reduces the incentives on these businesses to decarbonise.

But what we don’t know is whatever the price these businesses are paying overall for carbon, is it more or less than their competitors overseas? Does it put New Zealand jobs at risk? Does it risk de-industrialising New Zealand? Does it put our strategic position at risk? It’s especially important at this time, where the Government’s own defence review has indicated that this Government is concerned about the risks of instability in the North Pacific—the risk to our supply lines, the risk to logistics—and keeping big industries here that make things like pulp and paper and methanol and fertiliser means that we are less exposed to the risk of conflict in other countries.

This legislation, the impacts of this legislation are material for New Zealand’s economic and social stability as well as our security in an increasingly unstable world. We have to see this bill, which appears to some as impenetrable climate economics, as something that, if we don’t get it right, could lead New Zealand to lose industries. Now, if the fertiliser manufacturer at Kapuni closes down—they’re currently making fertiliser in a really, really cool process where they turn natural gas out of the ground into ammonia gas and then into ammonia urea fertiliser. This is a plant built in the 1980s in New Zealand, actually funded by Government at the time, but now having been sold off—Minister Henare, I know you’re concerned about selling assets—sold off to the private sector. Guess what! Still manufactures fertiliser, that fertiliser still goes on Kiwi farms.

The alternative is—and this is where we get back to this issue of national security and resilience; supply chain resilience—fertiliser would have to be imported from other countries, potentially Canada, potentially China, potentially Africa, potentially Europe, Turkey. The supply lines are a lot longer. The costs of transporting are a lot greater. And, of course, New Zealand has no control over the emissions in those countries and what they pay.

This bill tries to solve a wicked problem. The problem is wicked. It’s difficult. It’s ugly, as Minister Shaw said, and the ACT Party would agree. But it doesn’t mean that we shouldn’t try very, very hard to solve it in a way that provides transparency for New Zealand businesses. Certainty for those wishing to invest in New Zealand, confidence to those workers in places like Tangiwai in the Central North Island, who work in Taranaki, South Auckland, that the manufacturing businesses will continue and won’t be subject to cost penalties that their competitors overseas don’t face, and which means that their jobs will be lost. That’s called carbon leakage, where businesses that produce carbon face a higher carbon price than they can contend with and they shut down and move to another country where the carbon price isn’t so high. It’s a wicked problem. But this policy is more than ugly, the Minister was gilding the lily, he was painting the face of this policy with some late night lipstick. It’s still a pig. It’s an ugly pig.

So what would ACT do? Because it’s important to consider what the options are. We need to consider the opportunity cost. We take one path—it seems like there’s some benefits down that path—but the other path might have benefits as well. We have to weigh up the opportunity costs of every decision we make. And it’s quite clear from the regulatory impact statement—that apparently triggered the feelings of some in the House—that while the officials said they’re confident in the analysis, they immediately go on to describe how unconfident they are. How unconfident they are, how unconfident. This is a wicked problem to solve.

What would ACT do? Well, it’s quite simple. Here’s what looks like a policy that might work: we propose a realistic, no-nonsense climate change policy that ties our emissions price to that of our top-five trading partners. How do you do that, you say? Well, it’s possible. I got a report from the Parliamentary Library just yesterday updating the price of all of New Zealand’s competitors who manufacture the same products that this bill will apply cost to. It’s possible that if New Zealand sets a cap on our emissions at the same level as our competitors are managing to cap their emissions and reduce them year on year, then it’s possible—in fact, likely, based on the analysis that ACT has seen—that the carbon price New Zealand businesses will face will on average be equivalent to the carbon price manufacturers in other countries face. That will provide a transparent and obvious pathway with much greater certainty for those willing to invest in New Zealand. It will allow New Zealand to meet its climate commitments to fulfil our international obligations and allow consumers to choose how they pay for their emissions and how they choose to reduce them or offset them in some way. If you emit less, under ACT’s policy, you keep more of your own money. How easy is that, how cool is that? That’s ACT’s offer to New Zealand. It’s not ugly; it’s beautiful.

Thank you, Mr Speaker, for allowing me to take just a short call on the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill. While I do not sit on the Environment Committee, I do chair Labour’s Infrastructure, Environment and Transport caucus, and I do receive updates from the Labour Environment Committee. I’ve also sat on just a couple of the Environment Committee hui while they were working through this bill. The work was immense; I see that, and I want to acknowledge the Environment Committee but also add to those other accolades for the chair—the very knowledgeable and extremely capable Eugenie Sage.

This bill modernises the decades-old industrial allocation settings. This bill ensures businesses will receive an appropriate amount of NZ Units. It addresses over-allocation, reduces costs to Government, and aligns Aotearoa New Zealand’s climate respond targets. Again, I mihi to the select committee, but also to the Minister, James Shaw, to make sure that they’re doing the mahi that protects Papatūānuku and Te Taiao. I commend this bill to the House.

Thank you, Mr Speaker. It’s a pleasure to take a short call on this bill tonight. I just want to acknowledge that we do have near-unanimous support for the bill. It’s an excellent bill. It’s a straightforward bill. It basically sorts out the issue, which is that the current industrial allocation settings in the emissions trading scheme haven’t been updated in over a decade, and that means that there are extra costs to Government, in that some emitting firms are receiving more emission units than they should be.

It’s a pretty straightforward bill. We’ve got good support across the House for it. I thank the Minister and select committee and, of course, most importantly, officials for their work. I commend it to the House.

This a split call. Five minutes—Ian McKelvie.

Thank goodness, for that, Mr Speaker. I don’t often agree with Rachel Boyack—I’ve never really wanted to disagree with her, but I’ve got to disagree with her on one point: this is not a straightforward bill. Ha, ha! Some bits of it are straightforward, but some bits of it are immensely complicated. But while they’re complicated and I did cover this in my second reading speech; I don’t need to cover it again now. I think this bill will be back in the House—well, not this bill, but there will certainly be further amendments to this bill made in the near future, as a result of the second half of this bill.

The second speech I made in this House would have lasted about 30 seconds—this one’s lasted about 50, and it’s my second-last. Thank you, Mr Speaker.

You’ll be missed, Mr McKelvie.

Thank you, Mr Speaker, and I too will take a short call tonight on the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill.

💬 Hon Member: Just repeat this a couple of times and you’ll—

Ha, ha! I did feel like repeating it. I would like to start by acknowledging the Environment Committee and in particular the chair, the Hon Eugenie Sage, being a constituent of mine who also lives in Banks Peninsula and a very valued member of this House, and someone who has made an enormous contribution across many different portfolios over a period of time. We will miss her greatly.

This bill allows allocative baselines to be updated with new data, it allows reassessment of the eligibility of current industries, and it comprises four technical improvements to industrial allocation policy. So, on the basis of that, I commend this bill to the House.

Thank you, Mr Speaker. This is a bill that recalibrates the system. It provides access and equity, and—as the previous speaker said—most importantly, I believe, it updates the baseline use for measurement, because when the baseline is accurate, everything else follows from that, but if it’s not quite calibrated, it can be a house of cards. Therefore, it also reduces the risk going into the future for this sophisticated, complicated, yet also very worthwhile sector, which is the carbon emissions sector. I commend the bill to the House.

Thank you. I rise to take the last call for the National Party this evening. The Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill—I agree with my colleague Angie Warren-Clark, it’s a bit of a mouthful, and it has been tonight. It’s been interesting listening to this debate, particularly the position that’s been taken by the ACT Party and that Simon Court has been courting controversy again on behalf of the ACT Party, acting up in relation to this.

So the National Party supports this bill and that there seems to be recognition across the House that this climate change, in this day and age, and the responsiveness to late payment penalties and industrial allocation, particularly around the industrial allocations and small forestry participants—that this bill, in summary, introduces a revised penalty for small forestry participants in the New Zealand emissions trading scheme (ETS) who failed to pay units on time, mitigating their risk of facing serious financial hardship, and that it’s good to see the Government taking the concerns of small forestry participants seriously, and that the bill also amends the New Zealand ETS industrial or free allocation provisions in the Climate Change Response Act 2002 to reduce the risk of over-allocation of units to emissions-intensive and trade-exposed industries, which currently cost the Crown approximately $60 million a year.

So it’s positive to see the Government working to improve alignment with New Zealand’s national and global climate change commitments. On that basis, the National Party commends this bill to the House at its third reading.

Thank you, Mr Speaker. As the last speaker for this side of the House, I wish to support the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill at its third reading.

There have been many contributions tonight on this bill. I want to acknowledge the Environment Committee members; I am a member of that committee. In particular, I also want to acknowledge the chair who has done a stellar job, in terms of collegiality in working across; thank the officials and especially submitters and, in particular, Dr Christina Hood.

The Government policy wants to really look at climate change. There have been a number of proposals to the select committee. In my short contribution, there were proposals made outside the scope of the bill. We want to move to a system that supports low-carbon transition. We traversed the bill in the committee stage, and the ability to move forward—it is important that the system is tightened up and it is complex, and we’ve heard those contributions, in terms of the emissions trading scheme.

We need to have accuracy and make it easier to meet the climate change goals. In particular, just as I finish, the small forestry participants require the repayment of units by the due date or those that fail to surrender that. It is a good bill, and, in its complexity, has technical changes. I want to thank the Minister James Shaw. I commend this bill to the House.

Bill read a third time.