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

I present to the House a legislative statement on the Climate Change Response (Late Payment Penalties and Industrial Allocation) 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 (Late Payment Penalties and Industrial Allocation) Amendment Bill be now read a second time.

New Zealand has committed to a net zero target for 2050, and the emissions trading scheme (ETS) is a critical tool for achieving this by putting a price on the pollution that causes climate change. This bill will make the New Zealand emissions trading scheme more accurate and reduce an unnecessary cost to the Crown. It will also more equitably treat other sectors and reduce the pressure on our emissions budgets.

Currently, industries that are emissions intensive and which compete with foreign companies that are not exposed to a carbon price receive what we call “industrial allocation”, or free New Zealand emissions units, up to a certain percentage of their expected emissions costs, but some industries are receiving more free emissions units than they need. This bill improves the way that the ETS functions by updating the decade-old baselines used to calculate industrial allocation. The bill also tightens the eligibility criteria for new industrial activities wanting to receive free emissions units.

Addressing over-allocation is long overdue. Over-allocation is a significant cost to the Government of almost $50 million every year. The bill also reduces the risk of over-allocation in the future by introducing five- to 10-year review and update window periods for updating baselines in eligible industries—in other words, no sooner than five years and no later than 10 years. This window aims to balance the risk of additional cost to Government due to over-allocation whilst also providing businesses and investors the certainty that they need to invest in new ways of working that will lead to emissions reductions.

The bill also includes three technical improvements to industrial allocation policy. These are, first, enabling updates to allocative baselines if technical settings change; second, easier access to data from industrial allocation applications; and, third, a new methodology for resetting the electricity allocation factor.

The bill also makes changes to penalties for late payments by small forestry participants to reduce the risk of serious financial hardship. Small foresters are forestry participants with liabilities of less than 25,000 units on average per year. The revised penalty will take effect from 1 January 2025 to allow for sufficient time to educate participants on how the penalty will work.

I do want to thank the Environment Committee for its diligent consideration of this important piece of work. I also want to acknowledge everyone who has submitted on the bill during the select committee stage. The bill received over 100 submissions, including submissions from the Climate Change Commission, not-for-profit organisations, individuals, industries, and climate experts. Your input has proven invaluable in this process.

I now want to focus on the changes that the select committee has made to this bill, which all relate to industrial allocation. In my first reading speech, I asked the select committee to look into proposed changes that may increase eligibility for industrial allocation. The select committee examined these settings closely and has recommended some changes. Again, I do want to thank the submitters, and particularly independent experts such as Dr Christina Hood, for their work with the select committee and with the Ministry for the Environment officials to get to where we did on this.

The first change is to retain, rather than to change, the current thresholds used to test whether an industry or activity should be eligible for industrial allocation. In addition, the bill will require that eligibility for existing activities not be retested as part of the upcoming allocative baseline update. I welcome this change. It addresses concerns from many submitters that updating the eligibility thresholds using a recent carbon price would have made it easier for some businesses to receive industrial allocation. The bill will keep the current classifications and maintain the high bar for eligibility, supporting the broader emissions reductions goals.

The second change concerns eligibility for new industrial activities. The select committee recommended changing the additional test for eligibility for new industrial activities, and I also endorse this change. The test requires the Minister of Climate Change to consider additional matters. Under this new test, it will be difficult for new activities to gain eligibility for industrial allocation. As well as being consistent with our broader climate change commitments, this will help the Government to manage the scheme’s fiscal costs.

The third change that the select committee recommended relates to the over-allocation test for future updates to allocative baselines. The bill proposes that the Government can update baselines when allocation is more than 60 percent of the emissions costs associated with moderately emissions-intensive activities, such as the production of ethanol or of tissue paper. For highly emissions-intensive activities, the baselines can be updated when allocation is more than 90 percent of the emissions costs. Highly intensive activities include cement production and aluminium smelting. This is an important change. The revised test will deal more effectively with any significant over-allocation that occurs as companies decarbonise. Having two different trigger levels for moderately intensive and highly intensive activities will treat companies more equitably.

Lastly, each eligible activity has at least one associated product. For example, a product from the production of cementitious products is cement clinker. The select committee made a change to the bill so that new products within an existing eligible activity could use projected data to set its allocative baselines when actual data is not yet available. Without the ability to do this, a firm could be better off continuing with its current method of operation and receiving free allocation rather than decarbonising. I support this change as it would encourage firms to pursue decarbonisation investments, which is crucial for our transition to a more resilient low-emissions economy.

This bill as reported back by the select committee supports the review and the update of industrial allocation settings that are long overdue. This bill futureproofs the emissions trading scheme by ensuring that we more accurately determine the rates of allocation and that there is a framework to update them in the future. The changes that we make today will help us to meet our emissions budgets, our international obligations, and our broader climate change goals. Thank you, Mr Speaker. I commend this bill to the House.

Thank you very much, Mr Speaker. It is a pleasure to make comment in relation to the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill in its second reading. I wish to acknowledge the Minister in regards to this bill. While I’ve attended a limited number of the select committee deliberations in regards to this bill, it has been a process, I think, led by the Hon Eugenie Sage, that has taken into account a wide-ranging amount of feedback from a number of stakeholders, and I think has ended up in a place in which National will be supporting in its second reading.

As the Minister has outlined, the bill makes two key adjustments and provisions: one in regards to the changes in terms of the allocation baselines around industrial allocations, the other one in regards to the penalty regime, in particular for small forestry participants when they fail to surrender or repay emissions trading scheme (ETS) units. Both amendments within this bill are, from National’s perspective, reasonable and pragmatic changes and we continue to support this bill through all remaining stages.

It is a pleasure to speak as National’s climate change spokesperson. National are committed to achieving our net zero commitments by 2050. We also strongly support and endorse the role in which the ETS plays in order to assist us to achieve those goals. These changes within this legislation enable us to strengthen elements of that mechanism, which will, no doubt, ensure that we can meet those obligations in the future, which is so critically important.

It is good to see that the Government has taken on board the concerns and feedback, particularly from small forestry participants, in regards to this. We heard a number of those submissions through the select committee process. Equally, it is good to see that the Government has taken on board the feedback in regards to some of the industrial emitters, because this is—and we do share with them some of the concerns that were raised in regards to the implications that this bill is changed. Of course, it is positive that in this instance we are seeing the Government work constructively with the sector and not against them as we proceed through this basis.

As we noted, the Environment Committee had 107 submissions, of which 27 submissions were heard. I wish to thank all of those submitters in regards to the comprehensive nature of feedback that they provided. It is heartening to see that a number of those submitters whose feedback was provided have been taken into consideration and adopted in regards to changes in this bill. That is how our democracy should operate in regards to that select committee process, and it is good to see that.

There were a number of changes made and, by and large, they were made unanimously across the committee. That is important recognition in terms of those changes. But we do recognise that there still remains a number of key aspects that need to be improved if you consider the broader Government’s climate change policies, and in particular the actions required by the Government in order to support emission reduction within our economy and get us on a glide path in order to meet those 2030 and 2050 obligations. It is the desire of National, and into the future the opportunity that arises with us as a National-led Government, to see a step change, and a step change in the pace in which those actions are implemented to reduce emissions in order to meet our obligations.

In regards to the industrial allocations elements, as has been noted by the Minister, the select committee did make a number of changes in regards to that. That is important. It is interesting to note in the regulatory impact statement at sections 119 to 121 that there were issues raised in regards to the implications on both the regional economy and economic activity of adverse consequences on a number of these industrial emitters, particularly where we’ve got industrial emitters such as in the fertiliser space—in particular one in New Zealand—and the implications around that business. If that business shuts down, then New Zealand would potentially lose around 30 percent of its ability to produce nitrogen and that would then have to be imported, primarily from overseas and primarily from China.

So there are considerations around ensuring that we get the balance right in terms of protecting the elements of industry within this country, but also acknowledging the fact that they also need to, in effect, for many of those industries, undertake a transformational reduction in regards to the way in which they reduce their emissions profile. For many of those businesses, they do face significant challenges, quite simply because the solution, the technology, and the options to actually achieve that at the pace which is required do not currently exist in all instances. So we need to acknowledge that for some of those industries they are at a different phase versus others, and that is just the reality of where we are. But we are confident with the challenges in front of us and that, with the appropriate research and development and technology and focus, solutions will be found to those problems as we proceed in the future. In the interim, we should focus on the opportunities that are available for us immediately.

In regards to the changes on the industrial allocations, it is important to say that a number of the changes have been made in order to make it clearer within the legislation, and making sure that the changes that were fed through by the select committee actually do work appropriately for industrial allocations. As a result, I think the changes ensure that we’ve actually made the ETS able to perform better than what was previously the case, which is important. It also deals with the reality that things have moved on over the past 10 years, and we are using this opportunity to rebalance or level up that aspect which provides a much more solid footing, going forward.

I think the reality is that, again, in regards to the industrial allocations and those large emitters, this is going to continue to be a conversation—a dialogue. And I commit to those industries within our country that a National-led Government will work with you, not against you, in order to work through those challenges, because we need to find a position in which we all are able to achieve the outcomes that we need to. We need to work with each other, not against each other. That is the expectation on this side of the House.

That’s pretty much all that I wish to cover this evening. As is outlined, National will be supporting this bill and through all stages this evening. I acknowledge again the work of the Minister and the work of the select committee who I think, all in all, worked very constructively in regards to putting in place this legislation. We commend this bill to the House.

The question is that the motion be agreed to.

Thank you, Mr Speaker. I’m just going to make a few brief comments about the bill; in particular, one of the two aspects of the bill, which is this question of industrial allocation, which, for the folks at home wondering what “industrial allocation” is, it’s the giving of free emissions units to emission-intensive trade-exposed industries. If we didn’t do this as part of the emissions trading scheme (ETS), the risk would be that the ETS would add cost to New Zealand firms, causing them to either shut down or move their operations offshore with loss of jobs for New Zealand but no reduction in net global emissions.

One of the things that the bill does is amend the eligibility criteria for industrial allocation by updating the emissions intensity thresholds to reflect a more recent carbon price. The problem that we’re trying to solve is over-allocation. The eligibility criteria and the rules on allocation are over a decade old and are simply too generous. Some firms have been receiving more free units than they need, costing the taxpayer unnecessarily and somewhat reducing the incentive to decarbonise.

This is a rather technical bill. It’s a tweaking of a couple of aspects relating to the ETS, and I want to, really, just acknowledge the work of the select committee, which, as the previous speaker commented, I think worked together in a pretty collegial way. We benefited greatly from a number of submissions, including, I would say, particularly the Climate Change Commission, but especially Dr Christina Hood, an expert in carbon markets. With Dr Hood’s assistance, the committee worked quite hard to toughen up some of the rules around industrial allocation, and I take from the Minister’s earlier comments that he’s satisfied that the committee significantly improved the bill. On that note, I will commend this bill to the House.

Thank you, Mr Speaker. It’s also a pleasure to take a call on the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill tonight in the House. The title of the bill is almost longer than the bill, and some bills that we’ve been discussing today took hours and hours and days and days of work. This one was actually rather small in comparison but, none the less, thorough by the select committee, and it was a pleasure to be involved for a large proportion of it.

I also would like to thank the Minister for the ability for the Environment Committee to make changes. I always think legislation works at its best where submitters come in and Ministers have an open mind, and this is one that worked extremely successfully. As has been explained, the bill does allow our businesses to compete internationally on a fair playing field by giving some free allocations to those businesses who need it, and the other part of that is the rules relating to the penalties around small forestry participants; those who have less than 25,000 units. And at the time that this was developed, it was deferred for small forestry participants until 2023, due to concerns that applying it would cause serious financial hardship, potentially putting their personal assets such as home or farm at risk.

So this is a good continuation, and I think it’s really important for those small foresters. I won’t have a lot more to say in my small speech tonight about that one, but I do think the update on the allocated baselines in determining industrial allocation of free emission units has to be updated—obviously, now that the reviews are set in place, somewhere between five and 10 years. It’s been quite a while, and, as we know, technology research and development should be moving us forward at a fast pace and so, at that rate, business will be able to use science to make changes faster. Therefore, to keep the regime relevant, we need to be watching it and monitoring it much more often, and it is positive to see the Government working in this regard.

The others have talked about the submissions—107 submissions, and 27 provided oral evidence. I think, really, the report of the committee acknowledged that the urgent work is still needed to improve the design of the climate change policy in relation to industrial emitters, and there is always more work to do. I think, really, some of the most important changes from the aspect of science and technology are the clarified eligible process for new industrial activities. We should always expect that there will be new industrial activities. As people change their processes in light of decarbonising, we shouldn’t keep assuming that what we knew 10 or 15 years ago is current to what we know now and what we will know in five years’ time. So it’s good that this bill allows the use of projected data for new products in existing eligible industrial activities when actual data is not available to set the relevant allocated baselines. It gives an opportunity for those businesses to get started to make sure that they’re competing with whatever the new product might be, and be able to compete on an apples for apples basis, if you like, if that’s an acceptable terminology for measuring climate change.

So I’m not going to speak for much longer on this bill tonight, because as I said, it’s a smallish bill and a lot of the detail has already been relayed by other speakers, but just to say that National is very pleased to commend this bill to the House. Thank you.

Thank you, Mr Speaker. Again, I am pleased to stand and speak on another bill—I think my fifth tonight—to speak on the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill.

The second reading is often an opportunity for us to talk about the submissions, of course, and we have heard that there are 107 of them and 27 of these submitted to us orally. I do want to acknowledge my colleague the Hon Phil Twyford, who talked about Dr Christina Hood’s contribution—outstanding and extremely helpful to support us in our understanding.

I want to acknowledge the Minister as well. I do recall working on the Climate Change Response Act amendment in the last term, and I feel like I have probably learnt much more about the emissions trading scheme than I thought I’d ever need to know. But nevertheless, I think is a good piece of legislation. It tidies up a couple of things, and one of them, I think, which is quite important, is providing and creating for us a formula of how penalties will be applied.

Now, the reason I think that this is really important is because when these small farm holders who have these blocks of land with pine trees on don’t do what they are supposed to do, there’s a massive penalty applied to them. As a consequence, by codifying for and extending out a year, and explaining to those small holdings owners what would happen, it essentially does give some clarity to what they’re up for. I think it’s a really fair thing to do.

I don’t usually enjoy legislation that has a formula in it, but I think this is well explained. With that, I’d like to commend the bill to the House.

Thank you, Mr Speaker. Two problems this bill tries to solve: the issue that for small foresters who have cut down their trees; trees that were in the emissions trading scheme, because at some point during that forest lifecycle, the landowner thought it was a good idea to enter the emissions trading scheme, offer their trees up as carbon soakage, only to discover many years later when they go to harvest the trees that the cost of harvest for a small wood lot often outweighs the price they get at the mill. By the time you get timber off a remote farm or remote property, sort it out on site and get it to the mill, it hardly covers their costs. So then they say, “Well, why would we replant, when it hardly covered our costs?” Now, for those people who entered the emissions trading scheme some years ago, if they don’t replant, they have to pay a penalty, and what this bill recognises is that while participants in the scheme should be required to honour their obligations to continue taking carbon out of the atmosphere, the penalties were excessive. So ACT supports that aspect of the bill.

But there’s a part we don’t support, and that is the way that carbon emissions from New Zealand’s major industrial facilities—and we don’t have many in New Zealand, because there’s only 5 million people. We’re not industrialised like Northern Europe or the United States or Japan or Korea is. We only have a few industries, but they employ tens of thousands of people in extremely high paid jobs in towns and regions where there are not a lot of well-paid jobs. You might think of Taranaki, for example. You might think of Ballance, Kapuni, which makes a nitrogen-based fertiliser from natural gas, one of New Zealand’s most valuable and precious resources. Or you might think of a big pulp mill making pulp for paper and all kinds of other packaging products in the central North Island. It also relies heavily on natural gas as a fuel in order to turn trees into pulp so they can export that pulp, earn really good export revenues, pay people well, and employ people in a place like Tangiwai in the central North Island, where there are very few high paid jobs as an alternative.

What this bill attempts to do is to look back in time and say, “In 2008, 2009, 2010, these industries were emitting carbon dioxide in a way that created a baseline.”—fine; I accept that. Now, 2023, a lot of them have decarbonised. They’ve invested in more efficient plant and equipment. They might have decided, “Hey, instead of a gas-powered compressor, we’ll have an electrical-powered compressor, even though we still use natural gas in our industrial process to create very high heat to turn those very stiff lignin fibres into wood pulp, or to turn natural gas into, literally, urea fertiliser—an amazing piece of scientific technology right there in Taranaki, at Ballance, Kapuni.

These businesses came to select committee and said, “We have decarbonised. We will accept a rebaselining opportunity, where we get to submit our data to the Ministry for the Environment, whatever agency you like, and we will accept the rebaselining now in 2023 or 2024.” But what this bill proposes to do is to give the Minister of Climate Change, that all-powerful deity, the opportunity to call in their business and have their emissions rebaseline reassessed every five years. And what these businesses told us was “Look, we’re happy to embark on a deep carbonisation pathway out to 2050. No problem. A lot of the kit we’re going to replace our existing plant and equipment with is very, very expensive, though.” For example, a $200 million piece of equipment that was described as being able to deliver 20 percent reduction in emissions at Ballance, Kapuni, in other words, reducing by 20 percent the emissions produced to make that urea fertiliser that goes on our farms all around New Zealand, a 20 percent reduction in emissions—that’s phenomenal.

I mean, that should be celebrated. But what they said was that if we make that investment at a cost of hundreds of millions of dollars on the basis that our industrial allocation is, essentially, fixed between now and—you know, give us a good 15 years’ payback period. I mean no one is going to go to their board and say, “Hey, Mr Chair, can I have $200 million for a piece of equipment? But, by the way, I don’t know if, actually, we’re not ever going to get the payback period on it. We might have the rug pulled out from us from some climate deity, otherwise known as a climate Minister, five years from now.” They said we would never get permission to make that investment in decarbonisation.

ACT listened to these submitters, which is why, unfortunately—despite the good things in this bill—overall, we have to oppose it, because it does not address that fundamental issue. How do we retain New Zealand industries here which employ highly paid people in regions like Taranaki and the central North Island, who are people who didn’t necessarily have to complete high school, who may not have had a perfect past, and who may not have university degrees, but they get to go to work and work in industries which pay them as well, if not better, than if they did. That is something that we used to call the Kiwi Dream. But if this bill passes as written, part of that Kiwi Dream is not just at risk but it may well be on life support until a future Green Minister pulls out the plug.

This bill risks the de-industrialisation of New Zealand and the extinguishing of high-paid jobs in the provinces and regions, and it will set New Zealand’s decarbonisation efforts back by a decade or more. Why would businesses domiciled in countries like Japan or Korea or the United States continue to invest in New Zealand when this bill proposes to pull the rug out on their long-term decarbonisation investments?

Now, the purpose of the primary legislation is not just to create a test for industrial allocation—in other words, how many credits should an industry give, based on its emissions intensity. The other part of this bill is the trade-exposed part—emissions-intensive, trade-exposed industries that compete with either goods manufactured overseas or that want to manufacture goods in New Zealand and export to overseas markets. Either way, New Zealand wins if our businesses here are competitive and are paying people well to make manufactured products here in New Zealand.

Whether it’s methanol, whether it’s fertiliser, whether it’s wood pulp, whether it’s turn recycled glass bottles back into glass, like O-I Glass do in Penrose, using natural gas—all of those industries are at risk if we get this wrong. If this Minister of Climate Change, James Shaw, gets this wrong, if Labour gets this wrong, if National gets this wrong, all these industries are at risk, and yet it appears that this Government and those supporting the bill are quite happy to put the ship “New Zealand” on autopilot and let the zero carbon Act guide us to an uncertain, impoverished, and a highly unlikely to be low-carbon future.

What has the Minister done to make the case that these amendments in this legislation are necessary and that they’re going to work? Well, what he’s done in the past few months is completely undermine the premise of this bill by going around the country and handing out green bucks—sorry, money taken from consumers under the emissions trading scheme. He’s been taking that money, which could go back to consumers in the form of a carbon dividend—I mean, that’s what ACT says would be the most effective way to establish the credibility of the emissions trading scheme as an enduring way to put a price incentive on emissions.

He’s gone around the country, the Minister of Climate Change, and his comrades in the Labour Party. They’ve gone to visit a whole lot of businesses, handing out green bucks: $140 million to BlueScope Steel at Glenbrook to decarbonise and to buy an electric arc furnace, as if a $2.7 billion profit - making Australian company couldn’t afford to buy its own furnace. That’s right, silence—you’ve got no answer for it.

What this Minister has done and what Labour have done through the Government Investment in Decarbonising Industry Fund and all these other interventions is undermine the rationale behind this bill. They risk introducing a corruption of the spirit into New Zealand business, which will become dependent on a future Minister here, green bucks here, and red bucks here.

ACT has a different approach. We say that we should cap our emissions at the same level as our top five trading partners managed to reduce theirs by last year. That would allow the emissions trading scheme to discover the price. That price will be the world price, and that’s what our industries should pay. That’ll keep jobs here, and that’ll keep New Zealand going.

While the previous speaker takes a little moment to sit down and calm down a wee bit, may I just take a very short call on this sensible bill, which essentially is updating a 22-year-old Act—the Climate Change Response Act 2002—which set the allocation of New Zealand emission units, which recognised—

💬 Hon Member: Do not ask this person to be your lawyer.

Which recognised the cost to businesses who are trying to decarbonise and do the right thing—

💬 Hon Member: You will lose.

ASSISTANT SPEAKER (Hon Jenny Salesa): Order!

The Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill updates these decades-old industrial allocations settings, which have unfortunately resulted in some emitting firms receiving more units than they needed at an estimated cost to the Government and thus the New Zealand people of $60 million a year.

It is a sensible bill, it is overdue at 22 years old, and I commend it to the House and thank the committee for the hard and detailed work they have done upon it.

I’d like to join my colleague Dr Emily Henderson in making a short call in support of this bill. I’m not on the Environment Committee and I’m always impressed by the level of knowledge and care that they take over bills like this that are actually going to make a real change to New Zealand society.

This was a bill that tried to make sure that our industries that were not carbon-friendly were able to continue to operate in a way which sustained them and sustained their employees but that also allowed them to move into a new world—and so is the Government Investment in Decarbonising Industry Fund, and I’m incredibly proud of some of the things that it’s done; so was, obviously, the move that Mr Court seemed to object to, to actually go in and work with businesses like BlueScope to change the way they make steel in this country.

I was a lawyer at the Engineering, Printing and Manufacturing Union at the time I first went to the steel mill, and it’s this incredible place which is making steel from our sand, and one of the greatest parts of job has got to be going and seeing raw material turned into product. But wouldn’t it be good, and isn’t it going to be good, when those kinds of industries and these kinds of measures become something we can do without destroying our environment and our climate. Thank you. I commend the bill to the House.

The next call is a split call. I call on Ian McKelvie for five minutes.

Thank you, Madam Speaker. This bill, I suppose—to steal a phrase from Sean Fitzpatrick—is like a bill of two halves. The first half’s pretty easy to understand and probably logical, and will probably save—and I’ll explain who it’s going to save in a minute—some people from, I guess, not breaking the law but from some pretty serious penalties. The reason for needing that is, I guess, the awareness of the emissions trading scheme (ETS), and certainly the rules around it have been pretty vague in New Zealand—not because they’re vague but because people don’t necessarily think they need to understand them. So you could easily get people—probably, the majority of them would be farmers—who’ve had pine trees planted on their farms for years and years, who’ve cut them down quite innocently. And off they go with the cash, only to find that they were either pre-1990 or had been registered by a previous owner in the ETS.

So that’s what the first part of this is about. It’s, effectively, rationalising those penalties, because it’s a pretty serious issue and I think there will be a number of MPs in this House who’ve had constituents come to them on this very issue with this bill. It’s not overcoming it, because it still needs some penalty in place, but, certainly, making it much less onerous. And with good reason, because I don’t think anyone deliberately undermines the law or deliberately sets out to break the law, but, none the less, it is easy to do, and you can see how it could easily happen. So it restricts the penalties on those, I suppose, forest owners—for want of a better word—and makes the whole system less intimidating for them.

I listened to Simon Court with interest—some of which I didn’t understand; some of which I did. But the second part of the bill is much more complicated, and whilst it might be fine today, it won’t be fine in a year’s time. The reason for that is the environment in which we operate in—in any country in the world—changes very quickly, and business changes very quickly, and product changes very quickly. The reason for this piece of legislation, in my view, running the risk of being outdated quite quickly is that those will change so quickly that we’ll then need to account for a whole different regime in two or three years’ time.

That leads me to the issue that concerns me most about this, and I spoke about it in the first reading: this is an extremely complex business, the Climate Change Response Act, and what’s happened to it in the time it’s been operating and the changes we’ve made to it. And we’re seeing that quite clearly with the ETS right now, where we’ve got, I suppose, significant uncertainty in the way it’s going to operate in the future. I’m a supporter of the ETS. I think it needs to work, from a New Zealand perspective. At what level it works—that’s another issue, because, when you look around the world and actually look around New Zealand, the cost that these types of schemes can impose, particularly on our lower-income communities, is significant.

Some of us had the opportunity to tour to South America last year and see the extraordinary poverty in some cities, particularly in places like Santiago, Buenos Aires, and Mexico City. The biggest concern they had was what, I guess, regimes like this are going to put on the future cost of food and the future cost of servicing those communities—electricity is a particularly harsh one. So all those things get significantly lifted in cost by what we’re trying to address in the second part of this bill.

Now, to some extent, it sets out to address that—and that’s where I do agree with Simon Court. It sets out to address it, but, actually, it’s very difficult to address it in law. And so I think we’ve made this whole situation, over a number of years, extremely complicated. So this bill will have to come back—or the second part of this bill will undoubtedly come back. It will be reviewed next year anyway, and it would undoubtedly come back for further change. I’m not criticising the bill, because I think that, given the circumstances we’re in right now, it needs to be pushed on with.

So the first part of the bill, I think, is great. The second part of the bill, I think, will be back—long after I’m gone, but will be back—and will need alteration. So the whole thing needs more consideration. I commend the bill to build the House.

Thank you, Madam Speaker. I rise to speak on the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill and happy to make a short contribution. I support the second reading of this bill. It is a technical bill and I do want to acknowledge the Environment Committee as a member—my fellow colleagues, members—the officials and submitters, in particular Dr Christina Hood.

The emergency action that is demanded is ambitious, urgent, and requires a coordinated response across Government to meet the scale and complex challenges. It enables just transition and low emissions, as the Government has a priority of a climate-resilient future. We’ve seen, quite recently this year, the effects of climate change and those are being felt in our community.

The bill reforms industrial allocation policy and revises the late payment penalty for small forestry participants, and we heard the Minister of Climate Change talk about those changes that this bill proposes with the New Zealand emissions trading scheme. We know that this bill will ensure businesses receive appropriate amounts. It will address over-allocation and reduce the significant costs to Government to align with Aotearoa’s climate response targets, and the changes will also make it also easier for emissions budgets to be met.

Just very quickly, the allocation of baselines will be updated with new data. It allows reassessment of eligibility of current industries and also has technical improvements to industrial allocation policy. The select committee made a number of recommendations for the bill to be considered and, on that, also a revised penalty for small forestry participants. I commend this bill to the House.

💬 Harete Hipango: Madam Speaker. No? Am I too soon?

ASSISTANT SPEAKER (Hon Jenny Salesa): The next call is a Labour call. I call on the Hon Michael Wood.

Madam Speaker, thank you. I’m pleased to take a brief call before the member opposite makes her contribution to the debate. I’m pleased to take a call on this bill because it goes to an enormously important area of public policy. In some respects, this debate has been quite instructive about what’s been achieved and also what is, in fact, at risk.

The good news in this space is that what we’re doing is working. Over the last few years, we are beginning to win the battle of reducing New Zealand’s emissions. The figures that came through at the end of 2022 identified that our emissions are, as of that point, at the lowest certainly since 2014 and possibly since the early 2000s. That has happened because Government policy has driven change. The successive reform and making our emissions trading scheme (ETS) framework more robust, under the Hon James Shaw as Minister, and direct policies to work with industry, specifically in emissions-intensive areas like transport, energy, and electricity generation are working; the numbers don’t lie. The key thing that we have to do is to make sure that we continue to have the right policies and an ETS framework that actually sends the right signals into the market and to emitters.

The key problem that this bill is trying to overcome is the issue of overallocation for the relatively small number of firms in these sectors who are high emitters and are trade exposed. It’s a relatively small numbers of firms; I think, under 100 in total. It is accepted by the Government and by this legislative framework that there is the case for there to be an industrial allocation into those sectors, but we need to get it right, because, if we overallocate, we will completely defeat the purpose of the ETS regime; there will not be sufficient tension within the system; the signals will not be sent to reduce emissions as much as those firms reasonably can under the circumstances. It’s positive to see that there is pretty broad support across the House for that.

The point I make in terms of what’s at risk is the attitude on display in this House by the ACT Party—this is a party which opposes every single direct measure and policy that the Government puts in place to reduce emissions and says that we should fall back on an efficient and effective ETS system. Yet when we try and do that through this piece of legislation by making sure that we don’t overallocate, by making sure that our decisions are based on good and up-to-date information, they oppose that as well. That really does show that party out to be true to form, to be the climate-denying party of this Parliament, as they have been for 20 years. That is the risk if that party is in Government after this election. This is a good bill. It will mean that we continue to make progress on climate change. I commend it to the House.

Thank you. I rise as the last speaker for the National Party, following on from my colleagues: our spokesperson for climate change, Simon Watts, who is by profession an accountant; and also my colleague Barbara Kuriger, who sat on the select committee with Simon and is our spokesperson for conservation and a farmer; and Ian McKelvie, also a farmer. So the contribution from the National Party: two farmers and an accountant, very much from a pragmatic point of view in support of this Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill—quite a mouthful.

So the position has been outlined by my colleagues. My contribution in this House this evening will be brief. But climate is something that we’re all experiencing throughout our nation and globally as being predictably unpredictable. So listening to some of the speakers this evening who have talked about the fact—and Ian McKelvie, saying that climate does rapidly change—and, as a result, the legislation will need to keep up with that.

In summary, for the benefit of members of the public who are listening into this debate, this bill is to amend provisions in the Climate Change Response Act 2002 relating to the New Zealand emissions trading scheme. It updates the penalty for participants with low volume liabilities of less than 25,000 units on average per year from forestry activities occurring from 1 January 2025. Now, this will be meaningful to those persons who are in the forestry sector and also those persons who do have an investment in vested interests in this sector—so occurring from 1 January 2025, who fail to surrender or repay units by the due date. The bill also updates industrial allocation settings.

So, in saying that, I’m keeping this contribution brief; it’s important that the National Party does support this bill. Both amendments are reasonable and pragmatic, like the contributions from my colleagues, and the respective professions and sectors that they come from. These pragmatic changes, we will continue to support them at all remaining stages.

Just to note that at select committee, this bill was thoroughly canvassed and considered by the Environment Committee: 107 submissions were received and 27 provided oral evidence. So the select committee has provided a comprehensive report which is available. It’s noted that those submitters were acknowledged and the contributions appreciated, particularly those impacted like those who currently receive industrial allocations.

So on that note, in keeping this brief, in saying that climate is predictably unpredictable; something that is predictable in terms of this bill, it does have the numbers and, at this second reading, going through to the committee of the whole House stage and hopefully this evening to the third reading, it will pass into law. The National Party commends this bill to the House.

Kia ora, Madam Speaker. It’s lovely to rise in the House this evening at this late hour and support this piece of legislation. As someone from Taranaki where climate change and the challenges that we face when we have an energy industry—and we have, of course, the dairy and agriculture industry—obviously we are working on things like Just Transition, like our Taranaki 2050 Roadmap which all people across this space are working together on. We’ve got challenges to face that we are going to work on together, but things like this legislation will help us, and that’s why we see across the House—except for, of course, the ACT Party who are denying many things and this being one of them; that is why we support this legislation.

I want to thank the Minister, the Hon James Shaw, for bringing this to the House, to the Environment Committee for the work they have done and for hearing submitters on what’s going on. It’s about Just Transition, it’s about finding a way forward, and it’s about not keeping your head in the sand but looking to our future and our future generations. I commend this bill to the House.

I declare the House in committee for consideration of the bill.

In Committee

Parts 1 to 3, the Schedule, and clauses 1 to 3