Hon TREVOR MALLARD (Acting Minister for Climate Change Issues): I move, That the Climate Change (Emissions Trading and Renewable Preference) Bill be now read a first time. This is a debate about a landmark piece of legislation—the Climate Change (Emissions Trading and Renewable Preference) Bill—and at the appropriate time I will move that this bill be referred to the Finance and Expenditure Committee.

The bill establishes two new tools in delivering climate change solutions—an emissions trading scheme, and a preference for renewable energy generation by implementing a 10-year restriction on new fossil fuel thermal-energy generation, with exceptions that ensure the security of New Zealand’s electricity supply. This will assist in meeting the Government’s goal of 90 percent of our electricity generation being from renewable sources by 2025.

Reducing greenhouse gas emissions below “business as usual” levels is the objective underlying the emissions trading scheme. The broad design of the policy has received considerable praise—both within New Zealand and internationally. I might say, having acted previously for the Minister at the United Nations, our approach caused considerable comment from a number of countries.

People have by and large accepted that climate change is real and that we must reduce emissions if we are to do our bit in helping the world deal with it. Most people agree that the emissions trading scheme needs to cover all gases and all sectors, and I think this is the difference between the approach New Zealand is taking and the approach of many countries so far. Overall, and generally, they agree with a gradual, staged introduction.

The Government’s approach is to maximise the scheme’s environmental integrity while minimising any costs and adverse effects. The Government will assist households and businesses to adapt, and will provide a smooth and gradual transition. The Government has relaxed the penalty regime and set up a consultative process to develop allocation plans.

Other key issues that arose during the previous engagement focused on three key aspects: how the Government should assist through the free allocation of units to sectors and within sectors; how the market will operate in terms of international linkages, liquidity, and the unit of trade; and the treatment of pre-1990 forest.

The legislation maintains a policy of free allocation of units, as was discussed in the framework document. It makes clear that the planned review of the emissions trading scheme must consider our allocation model in the context of the emissions pricing policies of major trading partners. Even in the last few weeks, the international competition issues for our economy have decreased as a result of the new Australian Government’s decision to ratify the Kyoto Protocol, and through it to take on a binding cap on its emissions.

Final considerations on the matter of the phase-out of allocations are not complete, and the ongoing views of stakeholders through the Climate Change Leadership Forum and other ongoing engagement are important. The legislation also contains the Government’s preferred approach around issues such as international linkages to other emission trading schemes, liquidity, and the unit of trade.

An important issue on which the Government has yet to make a decision at this point is the inclusion, or not, of the so-called hot air assigned amount units in the emissions trading scheme. Hot air units is the term given to certain Kyoto units issued to countries like Russia and the Ukraine under the Kyoto Protocol. These units represent real emissions reductions in Russia, whose ratification of the Kyoto Protocol was crucial to it coming into effect. The Government intends to analyse a series of options prior to making a final decision next year. The ongoing engagement with stakeholders will be highly relevant to this consideration.

The existing Climate Change Response Act provides a regulation-making power to impose restrictions on the units that may enter the New Zealand Emission Unit Register and what they can be used for. The bill re-enacts this power, making it possible to place restrictions on hot air units if the decision is to do so. Any changes to the rules on what units can be surrendered for compliance or held in the registry will not apply retrospectively, and the bill makes this clear.

In respect of pre-1990 forest, the Government’s proposal would see compensation for landowners on the basis of hectares of forest. The Government has not been able to identify any fairer method for targeting that assistance. The overall level of allocation to deforestation is generous, and it is equal to the full amount of deforestation emissions at historic rates of deforestation. Some forest owners purchased their forests after the cap on deforestation was announced. Some forest owners have deforested significantly in the period since the cap was announced, and others have been unable to.

The bill is silent on how units will be distributed to individual landowners, and provides a process for an allocation plan to provide for free allocation to landowners of pre-1990 forest. The allocation plan will be publicly released in draft form, and submissions will be considered before the final plan is agreed.

The bill provides for a self-assessment model, in which participants who do activities must monitor their activities, record their emissions, report them, and surrender units to cover the emissions. Provision is also made for participants undertaking removal activities, such as afforestation of post-1989 forest land, to earn units for every tonne of emissions they remove from the atmosphere. The administering agency will have the powers to audit participants’ compliance with their obligations, and to take enforcement action where there is failure to comply.

Important issues remain upon which the Government has yet to make decisions. We are determined to engage fully in these issues over the next year.

The legislation being introduced includes default provisions for all sectors, including activities on the dates upon which sectors assume obligations, which align with the announced dates of entry into the scheme. The bill also sets broad parameters that will govern the free allocation of units to the forestry, industrial, and agricultural sectors, although it does not state the total number of units available for allocation to the industrial or agricultural sector, or precisely which individuals and firms within the sectors will receive a free allocation of units. The inclusion of these default provisions in no way negates the Government’s commitment to ongoing engagement with stakeholders on implementation issues. The default provisions are included because an essential principle of the scheme’s design is that it applies fairly across all sectors and to all greenhouse gases.

It is important that there is certainty to all sectors, in the absence of further legislative action, that they will be covered by the scheme. It is important that the forestry and transport sectors, which are entering the scheme first, have the assurance that they will not be alone in having obligations under the scheme. The option of either a processor or a farm-level obligation in the agricultural sector is one example where the Government wishes to consult further before making a final decision and where the legislation allows either decision to be implemented.

One important element in the original framework of the emissions trading scheme elicited little debate, indicating a broad consensus. That was the overall objective of the scheme. The objective outlines the need to establish a new equilibrium between environmental impacts and economic growth. For too long there has been an imbalance.

There must be a concerted international response to climate change. Emissions trading is a crucial element of New Zealand’s response. It is especially pleasing that the framework we launched in September has received strong support in many quarters, including reviews by internationally respected organisations. I commend the bill to the House.

Hon Dr NICK SMITH (National—Nelson) : National supports the first reading of the Climate Change (Emissions Trading and Renewable Preference) Bill because we believe that an emissions trading system is the sensible approach for New Zealand to take in response to the huge challenge of climate change. In fact, back in 1999 the National Government did a large amount of policy work on this subject and it concluded that an emissions trading system was the right way forward. When the current Government proposed a carbon tax, National members said that an emissions trading system was a better option. Then 18 months ago, when we produced A Bluegreen Vision for New Zealand, we again said an emissions trading system was the right way forward. The irony is that at that time Labour heavily criticised the proposal. We now welcome the fact that there is consensus between the major parties that an emissions trading system, covering all sectors and all gases, is the right way forward.

The reason National believes that emissions trading systems are the foundation for a sensible climate change policy is that pricing signals are the best way in which to incentivise people in forestry, agriculture, energy, and transport to make better decisions in respect of the environment. We think that a little country like New Zealand needs to take into account the decisions that other countries are making, as we respond to the challenge of global climate change. We look at the United States, where 23 states are now part of emissions trading schemes. We look at Canada, we look at the European community, and we look at the decision of both the previous Government of Australia and the new Government, all of which have come to the same conclusion that an emissions trading system is the right way forward.

National believes there are a number of very important detailed issues in how emissions trading systems are put together, and believes also that this bill needs very heavy scrutiny. The Acting Minister Trevor Mallard noted the issue of whether we should accept into our market Kyoto-compliant units from those Eastern European countries. In truth that will probably make it less expensive. It will make it more unstable, and it may mean it has less environmental integrity. National members look forward to detailed work at the select committee to make the right choice around that important issue.

There is the big issue about allocation plans. New Zealand has major industries such as agriculture, forestry, steel, aluminium, and cement. National does not want to provide a bill that simply exports those industries and jobs offshore because of the costs that we impose on them in New Zealand. The proposition in the bill for an allocation plan of units to those industries that face competitive issues is the right way to address that. But National raises questions about the very rapid level of removing that assistance where, effectively, from 2012 to 2025 all of that assistance will be taken away. If that is broadly in line with where the international community moves, that would be appropriate. Having just returned from an international parliamentary conference in London and the United Nations conference in Bali, I think the Government is being overly optimistic about the level of international progress, and that is an issue that we will want to visit.

Furthermore, New Zealand needs to understand that in respect of the areas of forestry and agriculture this emissions trading system is unique. To date, no other country has attempted to put land use and the issue of agricultural emissions into an emissions trading scheme. We in National will want to scrutinise those provisions of the bill very closely at the select committee, because New Zealand will pay a high price if we get those provisions wrong. In National’s proposal for an emissions trading system we felt that we should put the electricity sector first rather than the transport sector. The argument is over 1 year. We will not argue heavily about that, although I raise the question of timing. Why has the Government decided to put our landfills that emit emissions at the very last point—in 2013—when all of the evidence is that that is some of the lowest-hanging fruit, of which we can, for the least cost, make the most gains? National’s preference would be to see that sector come in earlier.

I must make comment on the proposition in this bill to put a ban on new thermal generation. We have seen a real hotchpotch of Government policy in this respect. Let me recite the history. The Government intervened in the electricity market in 2002 in levying all New Zealand electricity consumers to build the new Whirinaki oil-fired power plant. It then came along in 2003 and rejected the Dobson hydro scheme, which would have produced renewable energy. The Government intervened and stopped it. It then came along in 2004 and through legislation blocked Project Aqua, the biggest renewable energy project this country has seen in a long time. The next year the Government provided a guarantee for the massive new E3P gas-fired generator at Huntly. And now it will put a ban on new thermal. I simply ask the Government: where is the consistency? One moment it is intervening to stop renewables and to provide Government guarantees for thermal—as for the oil-fired power station and the gas-fired station—and the next minute it does a massive U-turn and wants to completely reject and ban them. Albeit, I have to say I think the ban in the bill is something of a Clayton’s ban in that there are some gigantic outs.

I think what is really going on with those provisions is that under this Government we have seen a trebling of the amount of electricity produced from coal. The Government is deeply embarrassed by that. It knows that will be an albatross around its neck as it goes into the next election, and it is trying to cover its base with this Clayton’s ban on thermal generation to save it from its appalling record in that regard. National says that we want to heavily scrutinise all of those issues in the select committee.

I will also comment on the wider debate around climate change. I am somewhat amused by the debate around climate change in New Zealand as to whether we are going to be a world leader or a fast follower. I have to say, that is like arguing over whether we want the gold medal or the silver medal when we are last in the heats. If we look at this Government’s actual record on emissions we see that it is pretty appalling. If we look at the United Nations and its report on emissions, we see that of the 36 countries that have commitments under the Kyoto Protocol, New Zealand’s record is the fourth worst. Our emissions have gone up by 25 percent. I compare that with our near neighbour Australia. Australia is on track to actually meet its Kyoto Protocol requirements with a growth of 4 percent in its net emissions.

The truth is that because of the shenanigans we have seen in public policy in New Zealand, despite ratifying the Kyoto Protocol in 2002, it is now 2007 and we have lost 5 years. The loss of those 5 years, in which there has not been any substantive policy on climate change, has seen us now with this bill only 2 weeks prior to the Kyoto Protocol coming into effect. We must be honest and say that this bill includes retrospective controls on industries like forestry. The Government has had 5 years to do its work and it let us down.

I draw Parliament’s attention also to the international council on integrity around climate change, which, when it takes into account record and policy, again ranks New Zealand at the very bottom end. Labour promised when it came to Government that it would reduce emissions by 20 percent by 2005. It has not. Emissions have gone up by 12 percent. National wants to play a constructive role in getting the right sort of emissions trading system for New Zealand, because climate change is an issue that is bigger than any party in this Parliament or than any single country. We want to take a responsible approach to it.

Hon JIM ANDERTON (Leader—Progressive) : I am glad National has joined the 21st century. Last year it was in climate change denial. Last year the National Party was taunting this Government and saying that New Zealand should follow the example of Australia and the United States and not sign up to the Kyoto Protocol. The interesting thing is that had we not signed up, we would now be following Australia to Bali to sign up. What would that make us? It would make us followers, like some other party in this House that I know. The truth is that if we had followed that advice, we would be a laughing stock now. It is a bit rich to be getting advice on the Kyoto Protocol and climate change from the National Party when it has been in denial all along.

New Zealand is exposed to climate change in multiple ways. We face a choice: we can strongly seize the benefits and reduce the liabilities, or we can sit on our hands as the Opposition would have had us do and be exposed to enormous risks. We are more dependent on climate and climate change than any other developed country, because more of our economy is based on climate-dependent production. In our export markets, consumers and regulators are already asking hard questions about the sustainability of our produce. Unless we can say that our exports are from the first truly sustainable country in the world, we will increasingly be shut out of markets upon which we rely. Fortunately for New Zealand, climate change is not only a risk but an opportunity. As consumers are turning away from environmentally damaging products, they are also turning towards environmentally responsible production and are prepared to pay a premium for it. If we can get our own house in order, New Zealand can take advantage of this opportunity.

The emissions trading scheme is a landmark in our efforts to address this crucial issue. It puts sustainability at the heart of our economy. The underlying principle behind the emissions trading scheme is that it should cover all sectors and all gases. It therefore has profound effects on the future of our primary industries. The nature of the effects on forestry and agriculture, in particular, deserves special attention. Agricultural sector emissions represent almost half of New Zealand’s total greenhouse gas emissions. These emissions are currently significant because they are a major source of emissions growth.

It was not plausible for New Zealand to leave our major industries out of the emissions trading scheme. It would have meant, at the very least, that the cost of the sector’s emissions would need to be paid elsewhere in the economy. So all sectors are in the scheme, but we have also had to design a trading scheme that allows for a smooth transition. Emissions trading allows flexibility in land use while ensuring that decision makers consider the true costs, including the environmental costs, of their choices.

We can particularly see the strength of the emissions trading scheme in the forestry sector. A couple of decades ago, the Government used to provide subsidies to farmers to farm marginal lands more intensively—in other words, to cut down their trees. We ended up with eroding hill country and inadequate protection for our soils, waterways, and communities. Emissions trading turns that around. In Gisborne there is a river on land where farmers were subsidised to cut down all the trees. The bed of the river rose 50 feet. The Government was then asked to pay to help with the flooding that resulted. Emissions trading makes for less erosion, because the scheme gives an economic incentive to plant more trees. Protecting against erosion helps the environment and protects communities. It is much better for farming business than over-intensification of marginal land. The emissions trading scheme allows forest owners to benefit from the value they provide to the rest of us when the forests store carbon.

The forest sector will enter the emissions trading scheme on 1 January next year. Forest land will be designated as either pre-1990 or post-1990 forest land. Owners, lessees, and rights holders of forests planted after 1989 can join the scheme if they choose to. They will then receive New Zealand units when their forests grow, and surrender units if their carbon stocks decrease. Depending on the price of carbon, it is likely to be worth at least several hundred million dollars to the forestry sector.

One advantage of the emissions trading scheme is that it allows the benefits and costs from the Kyoto Protocol to be devolved. In fact, the more that costs and benefits are devolved, the more effectively the trading scheme works. It puts the incentives closest to the contributors to the problem and to the solution. From 1 January, owners of exotic forests first planted before 1990 will be liable for emissions if they choose to convert their forest to another land use—for example, if they move from forestry to agriculture. If someone owns a small forest, such as a forest smaller than 50 hectares, and it was planted before 1990, then he or she can be exempted from the scheme. Naturally, if no liabilities are faced, no free allocations will be received.

Deforestation is the second largest source of greenhouse gas emissions globally. Therefore, we have to do something about it. Reducing deforestation is one of the lowest-cost options for reducing emissions. It is also important to address it immediately, as forestry is the one area where individuals can bring forward their emissions to beat any future measure. The Government is easing the transition for the sector. It will meet the cost of 21 million tonnes of deforestation emissions from exotic forests until 2012. An allocation will also be made to cover a further 34 million tonnes of deforestation emissions after 2012. The assistance given to pre-1990 exotic forest owners is equivalent to the historic rate of deforestation over the current exotic forest estate. The first reporting period for deforestation of pre-1990 forests will conclude at the end of 2009, at the same time as transport. The two sectors will be able to trade emission units between themselves. In total, the assistance package offered to pre-1990 exotic forest landowners is worth around $825 million at a carbon price of $15 a tonne. This is a very substantial commitment.

The Government is still looking at the question of indigenous forests. There has been some consultation with owners of indigenous forests planted before 1990. It is unlikely that much of our native forest can be chopped down now, because it is largely protected. For example, we have stopped cutting down 1,000-year-old beech trees on the West Coast, and the region has already been compensated for that.

Other sectors, like agriculture, will not come into the emissions trading scheme for a number of years. They still need certainty, and for that reason the bill includes provisions about that point of obligation. Back in 2003 the Government agreed to meet the cost of non - carbon dioxide emissions from agriculture until 2012. In return, the sector increased its research efforts on cost-effective abatement technologies. That agreement has been kept, and agriculture will not come into the emissions trading scheme until 1 January 2013. In the meantime, the agricultural sector will start measuring and reporting its emissions before trading begins from 2011.

There is more work to do in deciding some issues affecting the sector. One crucial question is where the point of obligation can lie. Options include at the farm level, at the process or company level, or at the sector level. At the moment the Government preference is for a process or company level point of obligation, but we will work with the sector closely to develop a practical and cost-effective system that rewards good environmental practice. The Government will work with the sector on these and other issues, and the issue of a phase-out of free allocations by 2025 is still on the table for discussion. The bill we are introducing today has review provisions on this that will ensure we consider developments with our major trading partners.

This issue of climate change, and the policies that this and other Governments will follow to reduce emissions, is one of the most complex and vital issues that we have ever faced in this Parliament, and probably one of the most complex and vital in terms of the planet—all of us are in this together. We now have a comprehensive package of measures to rebuild capacity in order to address New Zealand’s land-management challenges. New Zealanders expect our primary industries to play their part. Our markets expect us to play our part. We have to get started with a vision of a sustainable and carbon-neutral New Zealand. This Climate Change (Emissions Trading and Renewable Preference) Bill gives us a historic place to start, and I commend it to the House.

GERRY BROWNLEE (National—Ilam) : I will follow the comments made by my colleague the Hon Nick Smith in response to the Minister’s speech earlier this afternoon, because he very clearly articulated National’s position and our concerns. We are committed to going through the select committee process in order to ensure that New Zealand gets a very good climate change and emissions trading regime. It was disappointing, therefore, hear the second speaker for the Government sound, again, a little petty about how people get themselves to any particular position. I would be quite within my rights to say that the Government is only now, after 8 years, getting to where National was back in 1999.

The tragedy is that we have seen an extraordinary deforestation of this country over the past few years. The very Minister who is criticising the position taken by us—which is in favour of this bill, I might add—is the person who has presided over the felling of some 15 million trees in the last 2 years, and who this year, in 2007, has presided over some 30,000 hectares of New Zealand forests being cut down and not replaced. That has to be a concern to anybody who looks at New Zealand’s emissions profile. I agree with him that we have to do something because of the reliance we have on the world’s demand for agricultural products from our country. If we do not have a tidy carbon footprint, then we are likely to see a degree of stress, probably significant stress, in the markets we need to access in order to sustain our lifestyle in this country.

One of my other responsibilities is in the area of energy, and I want to make a couple of comments about the way that this bill is supposed to fit in with the Government’s Energy Strategy. The Energy Strategy was produced after a long gestation, and I think it was somewhat of a disappointing document, inasmuch as it talks about a whole lot of concepts and has some very, very challenging goals in it, but does not talk about the practicalities and realities that will face this country in meeting the energy needs of its citizens and in trying to comply with a regime that demands we reduce the carbon dioxide emission profile from that sector.

The only thing I take comfort in is that the emissions trading system should see encouragement for some fuel substitution inside the energy market, particularly around fossil fuels, and it should see, we would hope, more renewable generation come into play. But as my colleague Dr Smith pointed out, every time that this Government has had an opportunity to support a sizable renewable energy project, it has found some reason to knock it over. That has to be the ultimate irony that works against the credentials it is trying to claim as a Government that is keen on looking after the environment.

Some serious questions need to be answered in the select committee process, and not the least of those, when it comes to energy, concerns the definition of security of supply. If we look at the demand curve for electricity in this country, we see that the Government has massively underestimated what it is likely to be. Currently, if we read the Energy Strategy we learn that it says there will be about half a percent of demand growth every year. But we know that historically that rate has been well ahead of 2 percent. There is a suggestion there that energy conservation will make up the difference. Well, that is highly unlikely, in our view. As Dr Smith pointed out, the dependence that New Zealand now has on thermal generation means that the challenge to get back to a higher level of renewable generation is even greater than it was some short years ago.

Not only do we want to know what the definition is for security of supply but we are fascinated to know what non-baseload thermal generation actually means. Right now, every bit of thermal generation capacity in this country is running, unless it is designated as reserve. Here we are heading into the warmer months of our climate, but we still have thermal generation running at peak loads. So what is non-baseload generation? At the moment every little bit we have is in fact baseload generation.

We would also like to know, in looking at the exemptions provisions of the bill set out in clause 60 right through to clause 62, what will trigger some exemptions being granted. Will it be a price signal? If there is a price trigger, can New Zealanders look forward to massively increased electricity prices? I for one do not accept that we need to have rising prices in an environment where we are reducing our greenhouse gas emissions from our electrical-energy sector. I think there are things we can do. One of the aspects of the energy portfolio is the scarcity of electricity. If it was not in scarce supply, we would not be seeing some of the dramatic price rises that we have seen over the past few years.

So there is a real challenge here to have a better regime for renewable energy to be fed into the grid and to be developed, and for some sensible legislation around the role that thermal generation will play in supporting that. People will be aware, I hope, that Contact Energy has a $1 billion project for the development of a very, very large wind farm on the west coast of the North Island, just below Auckland. The company has made it very clear that it will have to back up that big wind farm with a smaller amount of thermal capacity. That brings us back round in a circle, and causes us to ask what security of supply is, as a definition, and what non-baseload generation is, as a definition. We want to know those two things. We also want to know whether a price signal will trigger the exemption process, or whether it will just be a matter of whoever is the Minister of the day making up his or her mind about what that means.

Another interesting aspect of this bill is the fact that we see nothing in it that talks about how New Zealand might better develop carbon stores. We heard Minister Anderton talking about various projects around the place, but as we have said, some of the biggest carbon stores in this country have been completely knocked over and taken out in the last couple of years. There is no suggestion from the Government in this bill that we are to look at how we might measure the improved carbon store in the country’s pastures or how we might encourage the agricultural sector to get some benefit from improved soils—making the effort to improve carbon sequestration, effectively, in the improved soils. Also, there is no suggestion that active work will be done by the Government of the day, whichever Government it may be, to ensure that we have soil stabilisation. Much of Mr Anderton’s speech made mention of it, but, sadly, none of what he was talking about is reflected in this bill.

Our commitment is to travel with this bill into the select committee, supporting it, and then we will pick up on what the Hon Trevor Mallard said today. He said that the Government wants to consult widely and that it wants to work closely with all of those who have an interest in New Zealand’s future, particularly with regard to climate change, because there is no doubt that we cannot separate what we do to mitigate against climate change and what we do to reduce our carbon dioxide emissions profile, from what our future economic prospects will be. We accept that the Minister is saying in good faith today that he wants to work with us, and we make that commitment as we support this bill going to a select committee.

R DOUG WOOLERTON (NZ First) : New Zealand First supports the Climate Change (Emissions Trading and Renewable Preference) Bill going to a select committee. New Zealand First looks forward to the debate on this bill, because, like most caucuses, we have people who are slowly coming to the realisation that climate change is a problem. We have people who agree and people who disagree, and we have had many debates in our caucus over this issue.

I will mention that Peter Brown has problems with Part 2—he asked me to mention it—and he will be watching over my shoulder as we go through the process, to ensure that we do not get too silly on those aspects. I welcome that, because I think every caucus in Parliament—perhaps not the Greens’ caucus—has struggled with this issue.

We are certainly looking forward to the debate. We will not beat the Government or anybody else over the head about the 5 years that National says have been lost. I am sure that the Greens feel that we have all been latecomers to the party, as it were. But I think those 5 years have been a period when the opinion of the public of New Zealand has moved, and the polls we are seeing now reflect that climate change is of concern to in excess of 70 percent of the population. I think that now is about the right time for us to be debating a bill such as this.

New Zealand First was not amongst the first in this race, but we certainly will be approaching this bill with an open mind, and we are intent on getting things done. It is absolutely true that the debate over the whys and the wherefores has moved on. I think that debate was important, but now we need to approach what we actually will do about it. When I see—what do they call them—Green Cabs running around Wellington—

Hon David Carter: And the Green Parrot.

R DOUG WOOLERTON: —the Green Parrot—I see that the realities of life are moving into the commercial world. People are seeing that they can have a little competitive advantage. I and, I am sure, the National Party and others welcome that sort of thing, and that is the sort of positive debate we are seeing come out of this discussion. We will see many more such positive things. If slings and arrows are cast around, we will just have to accept that, but at least now we in this Parliament are all moving in the right direction.

We, as a population, have had debates with foresters and we have had talks about rights. We in New Zealand First voted against the carbon tax. Now we have come to an emissions trading regime. Others know far more about it than perhaps we in New Zealand do—people in Europe, for instance—but it is still a relatively new science. The trading regime is still relatively new, and I think we have a long way to go before we perfect it. There are a lot of arguments to be had before we agree amongst ourselves, but the debate has started. We in New Zealand First embrace it with open arms, and we will do everything in our power to progress it to the advantage—but not to the cost—of New Zealand.

JEANETTE FITZSIMONS (Co-Leader—Green) : As we debate the first reading of this Climate Change (Emissions Trading and Renewable Preference) Bill to establish an emissions trading scheme for New Zealand, our representatives are in Bali at the annual meeting of the parties to the Kyoto Protocol, discussing the nature of an agreement to follow the current protocol from 2013. The science has crystallised around the key number of 2 degrees of warming, beyond which there is little chance of arresting a process of climate change that will continue to accelerate. There is a strong and urgent international call for countries to agree that keeping warming below an average of 2 degrees must be the goal of everything we do. New Zealand has not yet signed up to that goal. The best scientific advice is that to meet that goal we need to reduce emissions by between 25 and 40 percent by 2040. Europe has agreed to that. Australia, under its new leadership, has just agreed to that. New Zealand has not yet signed up to that, either.

The time for debate about whether human-induced warming is occurring is over. A few sceptics remain, but their arguments have been rebutted repeatedly by the Intergovernmental Panel on Climate Change. Sceptics claim that changes in solar activity are causing the warming—sunspots. The Intergovernmental Panel on Climate Change has systematically investigated and debunked that idea. Sceptics say that warming has stopped and that the world has cooled since 1998, but that is an example of how statistics can be used to justify a lie. The year 1998 was a standout year. It was much warmer than any previous year, and the years since have not been so warm, but they have still all been warmer than the years before 1998. If we remove that one anomalous year, then the warming trend continues smoothly.

So there has been enough talk; it is time to take action. If we had taken action when the Kyoto Protocol was first negotiated in 1997, on the basis of some pretty certain science, then our task today would have been much easier. But like most of the world, we wasted those 10 years, saying “After you.”, and “No, no, after you.”, while the world burned. Although New Zealand’s emissions are small on a per capita basis, they are 4½ times worse than China’s, despite our renewable hydro resources and despite all the coal we are selling to China that it burns and takes responsibility for. Our extraordinarily high emissions per person are a serious trade risk if we do not reduce them substantially by the time our trading partners demand clean trade. Compared with Europe our cars average fuel use of 11 litres per hundred kilometres, while theirs use 7 litres, and our car ownership is the highest in the world. Our homes are poorly insulated, our industry has bad-quality electric motors and compressed air systems that leak, and we have very little public transport. And that relates only to the half of our emissions that do not come from farming.

Addressing climate change has to use all the mechanisms at our disposal: public information, education, skills training, demonstration, benchmarking, regulation, and pricing. This bill is about pricing. It is designed to make fossil fuels and other causes of climate change relatively more expensive, and renewable energy, energy efficiency, and alternative farming technologies relatively cheaper. It is designed to change behaviour and that is how we must measure its success.

Since 1993, the Green Party has been advocating a carbon charge, with corresponding reductions on the bottom band of income tax. So we welcomed the Labour Government’s 2002 policy that among other things promoted a carbon charge. But because the Government did not say what it would do with the money, it lost the political battle and, frightened of even more tractors on the steps of Parliament, it abandoned the charge in 2005. That was 4 years wasted. We now have a second-best system of an emissions trading scheme, and economists and a number of business people have recently come out in support of the view that it is a second-best system. Too late, those who now regret their opposition to the very much simpler and fairer carbon charge, with lower compliance and administration costs and real revenue to recycle, must accept their role in killing the better scheme and accept the second-best. It is here, and we have to make it work.

That is why the Greens will support the bill’s first reading, but we will work very hard to improve it at the select committee. The first question is “Will this complex system reduce New Zealand’s greenhouse emissions?” The answer is—on its own, not very much. There is no requirement for any of the emissions reductions to be made in New Zealand. The intention here seems to be to purchase cheap Clean Development Mechanism credits from developing countries that have no caps on their emissions but that need funding from developed countries to improve their energy efficiency, build renewable energy, and expand their forests. So far, so good—that is how Kyoto works—except that there is now a lot of published evidence that many of those Clean Development Mechanism credits are poorly verified and are, in fact, fraudulent. We need to do a lot more at home rather than rely on those trades.

The Government estimates emissions trading will reduce transport emissions by 0.3 percent; the statistic disappears into the margin of error in any calculation. By comparison, setting fuel efficiency standards for vehicles entering the country, as now agreed to under the Energy Efficiency and Conservation Strategy, will save 25 percent of the fuel that those cars use. This system is claimed to be a world first that includes all sectors and all gases. In fact, it does neither. Half of our emissions are not covered at all until after the first Kyoto commitment period is over.

Agriculture, the major emitter of methane and nitrous oxide, is totally exempt until 2013. Dairying must be the most profitable sector of the New Zealand economy at present, as well as one of its dirtiest. It is the fastest growing source of methane and nitrous oxide emissions. It can well afford to pay for them, but it has been given a taxpayer subsidy for 5 more years, during which time it will grow, converting more and more forest area to dairying, and being aided and abetted by the Government’s own company, Landcorp, that actually does the conversions. It is not as if there is nothing farming can do. Nitrification inhibitors are now available to significantly cut nitrous oxide emissions, but where is the incentive to use them? This huge taxpayer subsidy of well over $1 billion is founded on an agreement in 2003 that the industry has not kept, despite what Mr Anderton just said about research funding. The industry has done nothing to voluntarily reduce its emissions.

Also exempt, but in this case forever, is the methane emitted from underground coal mines. New Zealand is accountable for it under Kyoto but, once again, in a substantial subsidy—this time to the coal industry—the taxpayer will pay for coal seam methane. Unlike a carbon charge, the emissions trading scheme produces no revenue for the Government to recycle in order to help the most disadvantaged become more energy efficient so they can cope better with the higher prices.

It is quite possible to have higher fuel and power prices but lower bills. If a person’s home is insulated and that person has better public transport and a more efficient car, then that person needs less energy. But any money provided for that—and there should be some—will again have to come from the taxpayer, because what little revenue the scheme does provide is all going to subsidise farmers.

Some weeks ago I warned that the Green Party is not of a mind to support legislation that leaves all the most critical decisions to regulation, over which Parliament has no scrutiny, and that is what this bill does. It is critical for the environmental integrity of the scheme that we do not allow Russian hot air—units resulting from the collapse of their industry—into our registry. But that decision is left to an Order in Council decision under new section 30G, as is any decision to link with other trading schemes overseas. Also without parliamentary scrutiny, the Minister has wide powers of exemption, may issue new New Zealand units and auction them, and must make allocation plans.

The hardest decisions of all—and I have been warning of these since the mid-1990s—are the decisions around the allocation of free credits to protect firms that are trade-exposed. The timing in this bill allows the Government to be comfortingly vague until after the election about who will qualify for free units, how many, and over what part of their emissions. The crunch decisions will be announced after the election in the form of allocation plans. We considered very carefully whether we could support such a delegation of powers by Parliament. The mitigating factors are that clear criteria are set in the bill and there will be a process of public submissions. We believe that that has taken care of enough of our concerns, and that it will be workable. However, we will work very hard, with many others who want a system with environmental integrity, to have agriculture enter earlier, to have coal seam methane captured, to exclude Russian assigned amount units based on hot air, and to persuade the Government to sign up to the internationally recognised critical goal of no more than two degrees warming and to a very substantial emissions reduction target within New Zealand in the post-2012 period.

HONE HARAWIRA (Māori Party—Te Tai Tokerau) : Tēnā koe, Mr Assistant Speaker. Kia ora tātou e te Whare. As I was thinking about what to say on this bill, a couple of emails came in. The first was from Lowndes Associates proudly announcing that it is the first law firm to get carbon neutral certification in Aotearoa—although given the amount of methane coming off the bull droppings that are a natural part of law firms, one would have to assess that claim through a healthy whiff of incense. To its credit, though, Lowndes Associates also has an army of legal experts to help its clients understand the Government’s emissions trading scheme and the emerging carbon trading market—and that suggests at exactly what level this whole thing is being pitched.

The second email came from the Indigenous Environmental Network at the United Nations climate talks in Bali, urging Governments to reject the World Bank initiative to include forests in carbon markets. The Forest Carbon Partnership Facility was set to be launched as a key project to reduce emissions through deforestation in developing countries, but the Indigenous Environmental Network said that the scheme would not make any difference because all that it would do is let industrialised nations and companies buy their way out of emissions reductions.

When law firms, international indigenous groups, and the World Bank all get caught up in something as big as climate change, we know that it is a big deal, so we have to ask how come this Government is introducing something as important as this bill under urgency. We simply do not get robust and intelligent debate on a bill that is squeezed into the middle of 19 other bills being rammed through the House just before Christmas. What we get is limited discussion from MPs thinking about something else, and no real depth of understanding of the costs and benefits of an emissions trading scheme to support global efforts to reduce greenhouse gas emissions—a lot of which I am getting from other members in this House today.

But there are a couple of concepts I would like to present as the Māori Party contribution to this debate, if I could. The first is our responsibility as tangata whenua to care for all those who live in this land, and their descendants, in line with our kaupapa of rangatiratanga, manaakitanga, and whānaungatanga, and the obligations we have of care and preservation. This emissions trading scheme has a similar philosophy of recognising and honouring obligations in the industries of forestry, mining, steelworks, and farming, through the verification and surrender of emission units.

The second is the concept of kaitiakitanga and our responsibility to care for our world through the reduction of those activities that would harm and, indeed, destroy that world. In the interests of life itself, let alone social, economic, and environmental sustainability, we have a responsibility to reduce our carbon output. Māori have a role to play in the reduction of greenhouse emissions, and we do not resile from that responsibility, but Māori also have the right to manage what little assets they may have for the betterment of their people. We realise that in order to manage both roles effectively we must—and we do—appreciate that our total well-being, our health, our economy, and our sustenance are dependent on the well-being and health of our world, just as all indigenous peoples across the globe understand their unique role of caring for and conserving mother Earth.

But is this emissions trading scheme really the answer to all our climate change problems, or is it just creating another property rights regime to let the world’s biggest polluters continue along their merry, filthy way? Charging people for greenhouse gas emissions was supposed to encourage businesses to come up with alternatives to fossil fuels, but all it is doing is giving them an excuse to continue. Why bother with the expensive, long-term structural changes if we can meet our targets by simply buying pollution rights from operations that can reduce their carbon cheaply?

To understand how the Climate Change (Emissions Trading and Renewable Preference) Bill will affect Māori we looked at what it would mean for Crown forestry. In a report called Māori Impacts From Emissions Trading Scheme we get a clear understanding of the responsibility Māori owners of Crown forest licence lands have: “In determining what constitutes a fair, equitable and proportionate burden, Maori are assumed to be concerned with their level of economic development relative to non-Maori (as a consequence of past Crown actions or otherwise) as well as their relative contribution to New Zealand’s green house gas emissions.” There are no simple solutions to this problem, particularly with so many factors at play. To meet the challenges posed by greenhouse gas emissions we need to be creative and innovative.

Furthermore, there is the question of whether the 55 million carbon credits due to be allocated to pre-1990 forests under the proposed Act for Crown forestry lands should be allocated as part of Treaty settlements, and here is where it all gets kinda tricky. Naturally, Government officials say the claimants should have to buy their carbon credits out of their settlement moneys, whereas Māori involved with Crown forestry rental lands quite rightly say that those carbon credits should be treated like accumulated rental separate from their settlements. The Māori Party supports the advice from the Climate Change Iwi Leadership Group and the Māori reference group that carbon credits should be allocated on the same basis as accumulated rentals held by the Crown Forestry Rental Trust. In other words, once one has acquired Crown forestry land, one gets carbon credits of equivalent monetary value over and above one’s settlement. We do not see the sense in making claimants buy these carbon credits from their settlement. In fact, we believe that to make them do so would constitute a further breach of the Treaty of Waitangi. Claimants are not the reason these lands are not in Māori ownership, and Māori should not be punished for that while still being denied the same opportunities available to other New Zealand owners of pre-1990 exotic forest lands.

We also note the concerns of the New Zealand Council for Infrastructure Development that this legislation might place a 10-year ban on thermal energy. We have a particular interest in this, given the contribution the Tuarōpaki Trust is making to geothermal power through Mōkai I. The Tuarōpaki Trust, which comprises hapū of Ngāti Tūwharetoa and Ngāti Raukawa, is an ahu whenua trust that is fast advancing progress in efficient thermal generation, and we will be extremely interested to hear from its chairperson, Tūmanako Weretā, about the implications of this bill for them.

As I said earlier, there are some huge issues in this bill; issues that will linger long after this session of urgency has been lifted. We welcome the opportunity for iwi to reflect on the issues that emerged at the national climate change hui in October, and the national Māori forestry hui held just last month. We recommend in the strongest manner that all Māori interested in this debate make sure they get along to the next national hui on this climate change bill, which will be held at 1 p.m. on Tuesday, 18 December, at the Brentwood Hotel in Wellington. We cannot just leave this to chance. We must manage both the opportunity and the risk that presents itself with this bill. So the Māori Party will support its first reading, to enable those debates to be held. Kia ora, Mr Assistant Speaker. Kia ora tātou e te Whare.

Hon PETER DUNNE (Leader—United Future) : In 1989 I had the privilege of leading the New Zealand Government delegation to the first Conference on Atmospheric Pollution and Climate Change, in a little village called Nordvijk just outside The Hague in the Netherlands. The events of that meeting, which was attended by representatives of 160 countries, became somewhat overshadowed when on day 2 of the conference the Berlin Wall fell and most of the Eastern European delegates who had been there suddenly shot home very quickly. I recall at breakfast on the day of that event dining with the East German Environment Minister, who assured me that there would have to be one or two changes back home, but nothing serious was going to happen. By lunchtime, he was gone—

Hon David Carter: At least he’d finished his breakfast!

Hon PETER DUNNE: It was a good breakfast, too. That meeting set the pathway for what became the Rio Earth Summit in 1992, which, in turn, set the groundwork for the Kyoto meeting that led to the Kyoto Protocol, and, now, the Bali meeting, which is looking at the post-Kyoto environment. It is interesting to track the change in thinking that has occurred over those two decades. Back in 1989, the focus was much more on atmospheric pollution, the concern about deforestation, the fact that there were issues relating to international development and debt, particularly amongst Third World nations, and there was this consequential thing in the background about how this might be doing something to promote greenhouse gases, which might be damaging to our environment.

Over the subsequent two decades the emphasis has shifted 180 degrees. We are now totally preoccupied, and quite properly so, with climate change and the ways in which that can be mitigated. These other matters that were at the forefront of the agenda at that first round of discussion are now seen as more of the symptoms of the problem, rather than the problems themselves to be resolved.

Over those two decades a number of issues have arisen as ways in which we should address those issues. The bluntest instrument of all, in my view, was the notion of a universal carbon tax. I think it is totally appropriate that having looked at this matter the New Zealand Government abandoned it in 2005, because it was too blunt an instrument. I do not accept the viewpoint put forward by an earlier speaker that moving to an emissions trading regime is a second-best option. I have long felt that that is actually the better option, where we put a price on a product, enable people to trade in the commodity, and establish the type of regime that is, in fact, envisaged in this bill.

Having said that, it is one thing to take a view in theory about what is desirable; it is quite another thing to design a workable system in practice. While we will support the introduction of this bill, we give notice that the detail that needs to be resolved will require a great deal of work by the select committee before we could feel confident—and I am sure others would have a similar view—that the regime we are putting in place is a sustainable and workable one.

For example, let me turn to the provisions under Part 1 relating to the point at which various sectors will enter the regime. On the face of it, it seems logical to have a staged approach, presumably based around the complexity of resolving industry or sector-specific issues. I suppose one could say, given the work that has already been done in some quarters, that it is logical that forestry should be the first entrant, liquid fossil fuels should follow, stationary energy, industrial processes, agriculture, waste, and so on. But it is actually not as simple as that, because while forestry might, for example, appear to be the obvious candidate, it does not necessarily follow that all of the issues relating to forestry are resolved at this point, or are in a state where they are likely to be resolved to enable, without significant work being done, the entry of the forestry regime in part by 2008—that will not happen—but certainly by 31 December 2009. There are issues relating to some of the technical details, and I had advice only this afternoon about more problems that will need to be addressed in that regime. The same applies to the various other sector areas set out in this bill.

So we support the bill going to a select committee. We support it being carefully considered and these matters being resolved to the greatest extent possible. But I want to enter a couple of caveats. There will be natural tendency to have this bill passed before the election, because the Government, and, I suspect, parties supporting it, will want to be able to go out and say: “We have done something. Look at this, it has been passed into law. New Zealand has a strategy.” If that can be achieved, well and good, and the cards will fall where they will. But this is an issue—and I think Dr Smith made this point in his remarks earlier on—that is bigger than any particular political party, this Parliament, or any particular Parliament. I would far rather that we took a little longer and got it right, rather than rush to a glory that might be very short-lived because we are amending it at our leisure over the subsequent years. That is the first point I have some concern about.

The second point is that, as we work our way through this, it is going to be critical to get the maximum buy-in from the largest number of people possible. As I hear all the discussion about this group being involved, that these meetings are being held, that these people are in favour, and so on, there is one large group of New Zealanders who are completely left out of the process to date, but who are in fact going to be critical to its ultimate achievement in so many different ways. I refer to New Zealand households. We are going to be talking, through the various stages of sectors joining this regime, about all sorts of impacts on households.

Reference has been made to some form of compensatory adjustment being made available to them so that they are not adversely financially affected by the provisions of this bill. That is all fine in theory, but the real test will be the extent to which they feel, as the regime unfolds, they are actually part of what is happening. Because if they feel in any way disconnected or imposed upon, or unfairly treated, or unequally treated, then I strongly predict that there will be an adverse political reaction that will see the Government of the day, whichever it might be, forced to make compromises and changes that will challenge the fundamental integrity of what we are trying to do. I strongly urge that the Government—in the first instance—the select committee, and all those involved with furthering the development of this process take some time over the next few months to make sure that we are not just putting in place a high-level strategy with a language all of its own that most New Zealanders do not understand, but that we start to talk about it at a level that people can relate to and can start to see what the impact on them will be, what the consequences will be, and where those compensations, if they are to be made, might be.

Otherwise, we will be setting this up to fail. We have gone down the path previously of saying that we do not want a carbon tax. I think that is absolutely right, because it is a blunt instrument, unevenly imposed, etc. There is an overwhelming public view that we have to do something. The danger here is that if we put in place a regime that is half-baked, ill-considered, and does not have public buy-in, it too will go the way of a carbon tax, and as other regimes and other agreements enter into it, New Zealand will still be left in the position of trying to figure out what its response is. I do not think we can afford to do that.

RODNEY HIDE (Leader—ACT) : I know that Mr Harawira worries about the quality of the speeches given under urgency, but I say that the speeches on this bill have been excellent.

On behalf of the ACT party I feel as though I need to offer an explanation, because I believe that we will be the only party voting against this bill. Let me explain. I first became aware of the possibility of anthropogenic effects on the world’s climate, I believe, in 1972. There was some debate then about whether the earth could be possibly warming or cooling, and certainly there was a possibility of an effect of industrialisation and its impact on world climate. Subsequently, the consensus emerged in the late 1970s, interestingly, that the earth was cooling as a consequence of human actions. Indeed, because of my interest in such matters I went on to do a master’s degree in ecology and environmental science, and indeed lectured in environmental science for many years, and did a master’s degree also in resource economics.

Over that time a lot of scares came along and obliterated the concern people had about the possibility of human impact on world climate. These scares have come and, thankfully, gone. I am mindful of Mr Peter Dunne when he was speaking, and alarming the House about Y2K. The scare now of course is global warming, or in fact as it has now been called, climate change.

It is a worry, of course, because we are having such a large impact on the earth, and it is a worry in a host of complex ways. New Zealand is a trading nation, and the perception of New Zealand and our markets is crucial. So whatever we might think of the science, we have to be good environmental citizens. I use the word “good” not in an objective, scientific way, but in a way to justify ourselves to the very peoples we want to be selling our products to in order to maintain our access, and, more particularly, to win a preference for New Zealand goods and services. It is good that New Zealand maintains and extends its green image, and I fully support that.

Let me just run through why we are opposed to this bill. I think essentially it is that we do not want to be running ahead of the rest of the world. If we are going to constrain carbon emissions in New Zealand, it is going to be a huge cost on New Zealand. I find it interesting that not even a rudimentary cost-benefit analysis has been done on the scheme. I notice with some interest that the National Party leader, John Key, said “Oh, by 2050 we’re going to reduce what emissions were in 1990 by 50 percent.”, which is a huge stretch. It would constrain enormously New Zealand’s capacity to produce, and divert resources out of current industries from which we make a great deal of money into those that are not even on the horizon. It is hard to imagine how New Zealand could possibly meet that goal. Even holding the level of emissions has proved impossible for this Government. We can set these worthy goals without thinking about the costs, but if we are going to hold down carbon emissions it will be a huge cost on the economy, and indeed a huge disruption to the economy. So members should make no bones about it; this is a big issue.

The second point I will make is that although there is some debate about the science, I think a good working place for politicians to start is the Intergovernmental Panel on Climate Change. We can all point to that and say that, yes, this is where—I guess I am saying—there is scientific consensus, but we all know that science is not run by consensus; it is run by facts. Yet as politicians we have to come up with a response, and that is a good place to start. I should point out that that is a political response. The science does not tell us what we should do. At the end of the day it is going to be politicians, not scientists, who have to decide what the response is to any environmental scare or threat. As limited as we are in many people’s imaginations, it is hard to think of any other route whereby there can be a response, other than a political one, to the questions and issues of science and, in particular, of the environment.

When we look at it, certainly the alarm statistics we were having some years ago have somewhat diminished, so it is less scary than it was. We are talking a long time frame—a hundred years, a temperature rise of 2 or 3 degrees over a hundred years. But a lot can happen in a day, a lot can happen in a week, a lot happens in a year, and a heck of a lot will happen in a hundred years. For example, the Western World will probably be three times richer per capita. Poorly developed countries will be eight times richer per capita, hopefully, if they pursue good policies. So the world will be a richer place, it will be a different place, and it will be a technologically advanced place compared with what it is now. So the sorts of things that we are worried about—about where we are going—are quite something.

Let us think about temperature. There are a lot of cold countries in the world. Finland is cold, and it is a very successful economy. I guess its average temperature must be zero degrees or 5 degrees. If we look at Singapore, its average temperature must be jolly hot, and the temperature range between Singapore and Finland is far, far higher than any change we are talking about for the world, even in the worst case scenario from the Intergovernmental Panel on Climate Change. That is the point that I would like to make in this speech. The amazing thing about human beings and modern society is our ability to adapt to our environment and, indeed, our ability to change our environment, which is what we are debating here. All this alarm that we have that we must stop climate change, and that we must stop carbon emissions, escapes the point that we can adapt to changes. We can adapt to somewhat higher water levels; of course we can. We have adapted to far worse. We can certainly adapt to different temperature regimes. Human beings demonstrate that. We can succeed in cold environments and warm environments. Yet the suggestion is that somehow some change in temperature would be a calamity. Actually, the facts do not bear that out. So my view on the science is that we should just be a bit cautious and a bit sceptical, particularly in our response.

I know that Jeanette Fitzsimons said that this bill will have an almost negligible effect on New Zealand’s carbon dioxide emissions. That is absolutely true. This bill is a political thing so that Parliament, the Government, and the political parties can say they are doing something. But the actual impact is quite small. It goes nowhere to meeting the commitments that Labour and National have signed up to; all it does is set up a soft regime. That is another point about this environmental trading scheme.

Here is my worry about it. I was involved on the side, as an academic, in setting up the quota scheme for the fisheries, so I know something about setting up market schemes. I heard Dr Nick Smith say that we need to incentivise in pricing, and I think that that is true. But what we are doing here, I think, is setting up a scheme that will be a potentially corrupt scam worldwide, because what is being traded is an odd thing—the ability to emit carbon dioxide, and eventually other greenhouse gases, I guess. Countries that are crooked will be involved, and companies that are crooked will be involved, and they will be trading in these emissions.

There will also be people sitting on property rights that are made valuable simply because of legislation such as this. They will defend those rights to the death, lobby politicians, and say: “No, you can’t do that.” We have seen that already in New Zealand with the forest owners. They said: “We thought we were planting these trees and that we’d own these carbon credits.” I think the potential for abuse and corruption on this is massive. I agree with Jeanette Fitzsimons that this is a very second-best solution. We can achieve Nick Smith’s goal of incentivising in pricing by a tax. The virtue of a tax is that it does not create a property right or therefore a political lobby group that will be arguing around that. In fact, a tax creates a lobby group that says: “Is this a good thing that we should be doing—paying this tax?” But the lobby groups will be huge on this bill when it goes through the committees, and over time.

It is a great thing to be part of the ACT party. We are just two MPs, but we have two votes against this scheme.

MOANA MACKEY (Labour) : I am very happy to stand up and take a call in the first reading debate on the Climate Change (Emissions Trading and Renewable Preference) Bill. With reference to the member Rodney Hide, who has just resumed his seat, I say with the greatest respect that, if anything, there has probably been too much caution and too much scepticism from politicians around the world on this issue. I do not think we could say that that has been lacking. I think that were we ever to rely on science to produce an absolute result on anything, we would be very disappointed, particularly when it comes to an issue as complex as climate change.

This issue is not about deciding where we will spend our holidays next year because it will be 2 degrees warmer somewhere and 2 degrees colder somewhere else; it is actually about the very subtle but important changes that happen in ecosystems with very small increases or decreases in temperature, which have huge flow-on effects that impact on the rest of our economy. We have had issues in this country, such as the importation of honey from Australia, which have highlighted what could happen if new pests are introduced into New Zealand. If our bee populations were to suffer, that would have huge flow-on effects down to our agricultural sector. This House should take very, very seriously any indication that there may be a change in climate.

Even if we take the very sceptical view and say there is only a 1 percent chance that all the scientists in the world whose research has been quality peer-reviewed are right and we are on a pathway to massive destruction, we should take that seriously, because by the time we are certain that climate change and its devastating consequences are a reality, it will be too late to do anything about it. A year ago the Government released five energy and climate change discussion documents and engaged in a significant consultation process. The 3,000 submissions that were received showed the depth of feeling out there in the New Zealand community, and those submissions have been worked through over the last year. Certainly, we know that around the world the depth of feeling about climate change is high. I take on board what the Hon Peter Dunne said, but, of course, this bill is only one tool in the arsenal to combat climate change. Other policies and other initiatives are also going on. It is not the only one, although it is obviously an incredibly important one.

Other members have gone through at length what the bill does, but it is important to highlight the need for New Zealand to play its part. We are second only to Australia in the amount of greenhouse gas we generate for every dollar of economic activity. That means that New Zealand, as one of the OECD’s biggest per capita polluters, needs to stand up and say we are prepared to take seriously our role in climate change reduction.

Again, in contrast to what Mr Hide was saying earlier, there are actually many precedents in the world already for emissions trading schemes. New Zealand is certainly not “well ahead” of the pack when it comes to emissions trading schemes. There are active trading schemes in a variety of pollutants, not just greenhouse gases, around the world, and the largest is the European Union Emission Trading Scheme, which I am sure the select committee will take a great interest in. Also, various states in the United States have their own schemes, including markets to reduce acid rain, reduce nitrous oxide, and other schemes like that. I think it will be very important for the select committee to look at the experiences of the European Union, even though New Zealand has a very different greenhouse gas emissions profile, and we are bringing in a different trading scheme.

I note for members’ benefit that, since the beginning of 2005, 12,000 energy-intensive plants in the European Union have been able to buy and sell permits that allow them to emit carbon dioxide into the atmosphere. The companies that exceed that individual limit are able to buy unused permits. This scheme goes on until the end of 2007, when the second period will start. Although organisations such as the UN and the World Bank have praised the European Union Emission Trading Scheme and highlighted it as a scheme that could form the basis of a global system, in practice there have been a few bumps that I think we need to look at during the select committee process. For example, the accusation has been made that more permits to pollute have been granted than were needed. Certainly, that is something we should look at.

Of interest is the fact that the European Union now wants to bring the aviation sector into its emissions trading scheme. It produces about 3 percent of the European Union’s greenhouse gas emissions, but it has had an 87 percent increase in carbon dioxide emissions since 1990. Following the emergence of cheap air travel in the European Union, with £5 fares, that is hardly surprising. According to the European Commission, someone taking a return flight from London to New York will generate the same amount of carbon dioxide as an average person heating his or her home for a year. That tells us how significant this issue is for the European Union. This proposal has been strongly opposed, not surprisingly, by the International Air Transport Association, and airlines outside the European Union, particularly those in the United States, have said they will oppose the proposal, and plan legal challenges. The US has even warned that it could spark a trade dispute. I think these are issues that the select committee needs to look at when considering our emissions trading scheme.

A number of suggestions and proposals were considered during the consultation period, and it is important to look at why an emissions trading scheme was pursued. From those submissions, it was clear that there was broad—although, it must be said, not unanimous—support to introduce an emissions trading scheme. There was strong consensus that, to be fair to all sectors involved over time, it had to involve all gases and all sectors, and that is what this bill does. An emissions trading scheme is also the most flexible and the lowest-cost option, and it enables firms and industries across all sectors to pursue emission reductions, and that is something we want to incentivise.

Also, the science tells us that we need to control the quantity of our emissions. We can talk for a long time about where those emissions should come from and which industries can do better, but, of course, over time the important factor is an overall reduction in the total amount of emissions. If we look at New Zealand’s current net position, we see that our emissions are set to continue to rise if we do not introduce measures now to stop that. This bill is an important part of that. The good news for New Zealand is that we can, in a cost-effective way, reduce our emissions substantially through both a range of recently announced policies and this emissions trading legislation.

Of the sectors that will be brought in, a lot will be said about the agricultural sector. There has been a large amount of discussion about the time frame for bringing in the agricultural sector. Unlike most developed countries, almost half our emissions come from the agricultural sector. We are unique in the world in that respect. It is our single biggest source of greenhouse gases. One-third is from nitrous oxide, and approximately two-thirds is from carbon dioxide—a by-product of partial digestion in ruminant animals. A fair and equitable emissions trading scheme, I think we all agree, must over time include agriculture as well as all the other big emitting sectors. Part of the reason is there is huge opportunity within our agricultural sector for low-cost greenhouse gas emission reductions. It would be a huge cost on the rest of the economy if we were to exclude them and not get the benefit from the potential that lies within that sector. It would also be unfair on all the other sectors and on the taxpayers, who would have to carry the burden of those emissions if this sector was not brought in to play its part.

But we have acknowledged that its inclusion is complex, and therefore it will not happen till after the first commitment period, although, as already indicated, monitoring of this sector will commence well before then. Minister Parker has said that when the sector joins the scheme, the Government would prefer to impose direct obligations on processing companies rather than individual farmers, but many approaches will be investigated and all options will be looked at. Fortunately, I think our agricultural sector is known for being adaptable, and it is known for leading the world. We know we have a lot to lose if we open ourselves up to false barriers to our trade from markets that are prepared to say they will not deal with a country that does not have an emissions trading scheme. We are already world leaders, because we know that we produce 1 kilo of meat or 1 litre of milk far more efficiently than anyone else in the world does.

I welcome Federated Farmers’ response to this bill and their commitment to being part of the solution. The challenge has been firmly laid at their door, and the Government is coming to the party with an investment of $175 million over the next 5 years in a plan of action for land management and climate change, and in science and technology. Although work has been done on nitrogen inhibitors, methane reduction research is still in its relative infancy, and it holds huge potential. The benefits to New Zealand of that could be not only greenhouse gas reduction and the trade benefits that would come from that, but also the use of that technology around the world to bring in other countries, and to ensure that once again New Zealand is seen as a leader in assisting the entry of the rest of the world’s agricultural sector into the Kyoto Protocol. That perhaps could also allay many of the concerns around the world about the implication for food supplies of the Kyoto Protocol. No other country is looking to bring agriculture in at this stage, although the European Union reform of the common agricultural policy has led to some reduction in greenhouse gases, and what New Zealand is doing here is being watched with interest.

We have addressed many of the other issues in other speeches today, but I just want to say that the select committee will have a range of important options to look at. One that has been pointed out is minimising environmental leakage, which is going to be extremely important, and also making sure that as the methods of measuring greenhouse gases change over time, any scheme that we put in place here is able to adapt to that. Thank you, Madam Assistant Speaker.

Hon DAVID CARTER (National) : As has been stated earlier by my colleagues Nick Smith and Gerry Brownlee, National supports the Climate Change (Emissions Trading and Renewable Preference) Bill to the select committee, but we do so with caution. We will use that select committee process very, very carefully to analyse, or attempt to analyse, the effect that this legislation will have on New Zealand’s economy. Under no circumstance can I accept legislation that will significantly impact on our New Zealand economy at a rate far greater than any similar economy in the world. That will not achieve anything for New Zealand.

I want to pick up on two or three comments that have been made by earlier speakers. Firstly, in relation to the contribution made by the ACT member Rodney Hide, I say to him that it is not an option to do nothing. New Zealand ratified the Kyoto Protocol in 2002. There was significant debate around that decision of Helen Clark to ratify at that time. I remember National arguing very strongly that we did not need to be ahead of our major trading partners. But that debate is a past debate. New Zealand has ratified Kyoto. We have significant international commitments to meet; therefore we have to get on with it.

The current Government has an appalling history of rushing to ratify, and then spending 5 years to get to the current position. The Government had the “fart tax” as its first proposal. Well, that cost the member who promoted it—the Hon Jim Sutton—his job. He is no longer in Parliament. Then Labour pronounced a carbon tax, and we have had a number of people talk about that today.

R Doug Woolerton: That bit the dust.

Hon DAVID CARTER: That bit the dust, as Doug Woolerton said. So there is an urgency about this matter, and I say to Mr Hide that the option of doing nothing is not a runner.

The second comment I picked up was from the Minister who introduced the legislation, Trevor Mallard. He said that this is landmark legislation, and that is very, very true. This is the most complicated piece of legislation I have ever had to grapple with. A lot of tax legislation goes through here—terribly complex stuff—but because there is a benchmark preceding it, it is easier for me, as a member of Parliament, to get my head around it. This is ground-breaking legislation. As mentioned by a number of speakers, this is about an emissions trading scheme that is far wider than attempts made by any other country in the world. No other country in the world has attempted to put agriculture into an emissions trading scheme, and I will talk about that later. I am not arguing for 1 minute that agriculture be exempted; I am just saying that we must get this right for the future of our economy.

The important point about this legislation, as it goes to the select committee, is that our emissions trading scheme will be one that will work. There are thousands of variations to an emissions trading scheme, but for one to work properly it must introduce behavioural and management changes to those who emit. If it does not work properly we are simply back to where Labour was and, in effect, we are putting a de facto tax on emitters. If it does not change behaviour then we are not actually achieving anything to address global warming. That is what I will watch in the select committee process—that we truly have an emissions trading scheme that is about emitters and those in a credit position being able to negotiate between themselves, and, more important, that gives signals back to emitters that they need to do something responsible about reducing their emissions.

One of the things that I fear, as I understand the legislation introduced in regard to agriculture, is the proposal to signal the collection of any liability to agriculture at the point of the processors—the meat companies, the Fonterras, and others. If that happens we are missing a very valuable opportunity to get that signal back to the farmer, who ultimately will pay the cost. For example, if I send lambs from my farm to the works and there is an associated cost levied by the Government on the freezing company, then I will cop the cost. But if I am a guy who wants to do something about it on my particular property—as opposed to my neighbour who says “I couldn’t care less and I’m not going to take any action at all.”—that is the sort of emissions trading scheme that has to get back, with the correct signals, to those who can change behaviour to do something about it.

The legislation will be examined very, very closely at the select committee. One of the questions I will ask is one I have already asked of the Ministry of Agriculture and Forestry officials when they were before the Primary Production Committee a couple of weeks ago: “What work have you done, Mr Murray Sherwin, as the Director-General of Agriculture as to the impacts of this proposed legislation on farmers?”. His answer was, in my mind, close to irresponsible. He said to the select committee: “We have done no real work because the matter is too complex.” Now this country is so reliant on agriculture that we cannot make decisions without knowing what the financial impact will be, and that is certainly an issue that I will be teasing out at the select committee.

The third comment that was made in this House earlier today that I want to pick up on was from the current Minister of Forestry and Minister of Agriculture, Jim Anderton. He said something that is probably typical of Mr Anderton. It reflected his absolute ignorance, and I found it offensive. He suggested that anybody who questions this legislation is, in effect, a sceptic about climate change. I am totally fed up with people who call me a sceptic simply because I question the economics of this and the effect it will have on New Zealand agriculture. Mr Anderton is the Minister of Forestry who has overseen 15 million trees coming out and he is the person who has seen our forestry situation in New Zealand go to a net deforestation figure for the first time in 50 years.

The more alarming statement made by Mr Anderton was that agriculture had to pay its share of the burden because agricultural emissions have increased substantially since 1990. I say to Mr Anderton that he should go and do some research. If he bothered to contact the Parliamentary Library, it would tell him that agricultural emissions from 1990 until 2005 have gone up 15.2 percent—effectively 1 percent a year. By comparison, energy industries emissions have gone up 53.7 percent and transport emissions have gone up 61.9 percent. So again I say to Mr Anderton—who is meant to represent the farmers of this country—that he should know the facts. The growth in emissions from 1990 until today has been in small part agriculture—and significantly around dairy conversions—but in no way should agriculture be hung out by that Minister as the industry that is to blame.

My final point is that I accept that the need to do something is urgent, but we cannot do anything that makes this economy suffer. If we get this wrong—and do not get an emissions trading system that sends the correct signal to our New Zealand farming industry—we will do two things. Firstly, at the end of each commitment period we will transfer a bundle of money to the Russians. That will not help global warming. Secondly, and more important, we will put New Zealand agriculture at a competitive disadvantage compared with other people who produce similar products in countries such as Australia or South America.

Parliament needs to realise that the New Zealand economy is based on primary production, and what we produce is not unique in its quantum—it is unique in its quality; I will accept that—and what we produce here can be produced elsewhere. At the end of the day, if we impose a huge cost on New Zealand farmers and no other country does, that means that our product suddenly becomes difficult to sell. Again, what have we achieved for global warming?

The one thing that Mr Anderton was right about when he made his contribution is that this does present opportunities for us. The initial reports from the likes of Lincoln University show that in a carbon efficiency sense New Zealand’s farming systems are very, very efficient. The world needs to note that there is no point in making it difficult for New Zealand to carry on an efficient farming system, and then make it easier for the European producers, who are huge emitters themselves in an agricultural sense. There is no sense in transferring the wealth from this country to make us poorer, and to make the Russians wealthier.

TIM GROSER (National) : I am very pleased to follow the very thoughtful contribution by my colleague David Carter. I would go one step further than him and say that I think this is probably one of the rare occasions we have in this House to write policy almost on a blank page. Although that is not technically true, because there are some antecedents to this, it is about as true as one ever gets in the real world of politics to writing a policy on a blank page. It is a policy of—and for once the words are justified—profound importance. This will have very large impacts on the way New Zealand will look in 20 to 30 or more years.

Behind all the uncertainties of the debates we have had on climate change over the last 10 to 15 years, I think the thing that motivates us in the National Party is a clear sense that in recent years the science has absolutely firmed up that human-induced, or anthropogenic, climate warming is becoming a greater and greater problem and that it is totally irresponsible to sit there and worry about the uncertainties and do nothing. I understand the uncertainties around the effects. For example, we have around 380 parts of carbon dioxide - equivalent gases per million in the atmosphere. According to the Stern report, this may reach a range of 450 to 550 parts, inducing perhaps 2 to 3 degrees of global warming. Others have an even more frightening prospect. We are never going to settle these issues, but we have to make a response now. The one thing I agreed with in Rodney Hide’s analysis was that, yes, some major issues are still being debated out there but, as he said, politicians have to decide on a response. On that ground the National Party will support this emissions trading scheme bill going to a first reading.

In relation to the uncertainties there is a metaphor I like to use that I have used in the past, and it is a quote from Arnold Schwarzenegger in his latest career move as Governor of California and one of the leading exponents in the United States of standing up to the plate on climate change. I thought he put it very simply and very neatly when he said: “If my son shows signs of sickness and I have nine physicians saying ‘Take him to the hospital.’, and I have one physician saying ‘This is a naturally occurring phenomenon. Don’t do anything. He’ll get over it.’, what do I do? I take my son to the hospital.” It is a very simple political metaphor, and I think it is exactly the right prudential approach.

Moving from that to the policy response is an awesomely complicated matter. There are two faces of this: the domestic and the international. The first point I want to make when I look at those two interconnected faces is that precisely because we are trying to get something that will be durable, we have to factor political sustainability into the equation, both domestically and internationally. That is why we put into the discussion paper on external strategies the following statement. We observed that there were three traditional strands to New Zealand foreign policy that we saw consensus emerging on, across particularly the two parties—defence, foreign affairs, and trade—but we saw a fourth strand emerging, which is climate change, and that is the area that we need to work on. We need to work on that because only if it can command at least bipartisan support in the context of New Zealand politics will we have a politically durable base. And it is only if it is based on political reality that the companies and individuals whose behaviour we expect to modify through an emissions trading scheme will have sufficient certainty that although there will still be fine-tuning of the scheme in the future, to be sure—this will have to regarded as a work in progress—the fundamental direction is settled.

To me that is the real lesson of the carbon tax and the “fart tax”. I am not trying to make a partisan point here; I am just trying to make a point about the importance of factoring political sustainability into the equation. If we start off with a view that we do not need to take account of political realities and commercial realities, as soon as pressure is imposed on those environmental policies, what happens? It is the collapse of those environmental policies. So, taking too extreme a view in terms of the balance between the environment and economic sustainability resulted, in those two cases, in the complete collapse of an environmental response. There is a deep lesson there for all of the people who will be involved in this debate. That is why, right at the start of this process, our leader, John Key, made it absolutely clear that we are not a one-issue party. We do want to sustain this country economically, just as we want to fulfil our environmental responsibilities, and we will be looking for balance. It is only in that way that we will get a politically sustainable solution.

I now want to pass to the international dimension of this issue and make some fairly general observations. Frankly, the international negotiation of this is the heart and soul of the matter. If we do not get an international response that builds on the first commitment period with a successor agreement or a set of interlocking complementary agreements, then we have literally nothing. Kyoto is a first response by the international community to global warming. I was much intrigued by Peter Dunne’s interesting personal recollections of predecessor negotiations to the global warming convention. It is easy to criticise Kyoto, precisely because it is a first, and, I think, limited, response by the international community. In reality, all international economic diplomacy moves forward on the basis of incremental progress. People want revolutions. New Zealand farmers in the world trading system always wanted a revolution. That is not how it happens. If we look at the history of the international community’s response to international trade imperatives, what we see is a successful policy of incrementalism—starting off 50 years ago with a very limited set of agreements, building on the back of that, and always moving in the right direction.

I suspect that when the history—30 or 40 years from now—of the international community’s response to anthropogenic-induced global warming is written, the history will be a very sad story of failure if we simply stop at Kyoto, with its limitations. It will be a success if the future historians on climate change politics can write: “Kyoto was a first, limited step, which led to more sustainable political agreements.”

In respect of the future of the negotiation, let me make just a couple of points about the United States and the developing countries, because quite clearly this is where we need major buy-in. Of the two, personally I am much less concerned about the situation of the United States, and I say that for three interlocking reasons. First of all, in terms of the dimension of the problem, the United States is probably currently around equal to China in respect of its total greenhouse gas emissions. In fact, according to some estimates China may now be fractionally ahead. So the nature of the threat and the nature of the problem from the sum of all developing countries is a much, much larger problem.

Secondly, I think it is palpably clear that opinion in the United States is changing. My colleague Dr Nick Smith, our spokesperson on this issue, has referred to 23 individual states where there are climate change initiatives under way. So although there have been some problems at the federal level, to describe the United States as not moving in the right direction, is, I think, a gross mischaracterisation of the reality. Thirdly, we will be absolutely relying on the combination of international commitments and science breakthroughs if we are ever to seriously get on top of this problem. An enormous proportion of the world’s scientific knowledge, scientific talent, and research development money resides in the United States. I am not so concerned about that.

I am not expecting very much from Bali, and I would urge other people to be a little patient. The way I would see it panning out, in terms of my experience with international economic negotiations, is that Bali will be seen essentially as a holding pattern. The United States will define its position, essentially, for the post-Kyoto commitment period, starting in 2013, after the next presidential election. That will take place at the end of 2008. The President, whoever she or he is, will appoint her or his chief climate change negotiator, probably around May 2009. This will require a long period of consolidation in the United States. Members should not be surprised if it is not until 2010 that we see a United States response.

In the meantime we will proceed down this track. We are committed to working with the Government. We think it is very important to get the detail right. Let us observe the point that Peter Dunne made—that this is far too important to rush through. Let us try to get this as right as we can.

Hon CLAYTON COSGROVE (Minister of Immigration) on behalf of the Minister responsible for Climate Change Issues: I move, That the Climate Change (Emissions Trading and Renewable Preference) Bill be referred to the Local Government and Environment Committee

Hon Dr NICK SMITH (National—Nelson) : I raise a point of order, Madam Speaker. The Minister, in introducing the bill, indicated it would go to the Finance and Expenditure Committee. Perhaps the junior Minister would like me to move it for him.

Hon CLAYTON COSGROVE (Minister of Immigration) : I accept that.

The ASSISTANT SPEAKER (Ann Hartley): Would the member move it again, please. He needs to state the words.

Hon CLAYTON COSGROVE (Minister of Immigration) on behalf of the Minister responsible for Climate Change Issues: I move, That the Climate Change (Emissions Trading and Renewable Preference) Bill be referred to the Finance and Expenditure Committee.

• Motion agreed to.