Settlement Systems, Futures, and Emissions Units Bill

CHARLES CHAUVEL (Labour) Link to this

The Settlement Systems, Futures, and Emissions Units Bill is designed to help facilitate trading in emissions units through the development of carbon markets. It will apply regardless of whether the units are issued by the New Zealand Government, via international protocols, or by other Governments. The bill allows for a broadening of how an emissions unit is defined—this is very important given that carbon trading is still in its infancy, particularly in this part of the world. The bill also provides a basis for establishing the legal title to emissions units, much like the title surrounding, for example, tradable shares. Participants in the carbon trading system—which is voluntary—who wish to become designated and then maintain that status must ensure that their operating rules meet certain standards, including international standards and those of the joint regulators, the Reserve Bank and the Securities Commission. This provision concerning joint regulation is the result of a change recommended by the Commerce Committee.

This bill would help—but is no means vital—to set up and implement the emissions trading scheme. The bill was before the House last year, because it was introduced by the previous Labour Government in September 2008, but since then we have had a change of Government and seen a drastic shift in policy surrounding climate change and emissions trading. It has not been a shift to the country’s benefit. Because of this Government’s lack of direction on climate change, we have missed out on—but could have had—a world-leading carbon market. That could have placed us at the forefront of environmental and climate change policy and reinforced our place as a role model in the international community. However, the Government’s lack of direction on climate change has limited the possibility of our making any gains on the environmental and emissions trading front. We have seen dithering from this Government in the areas of climate change policy and emissions trading.

To begin with, the Government’s delaying of the emissions trading scheme has already caused our emerging carbon markets to grind to a halt. The forestry sector has suffered hugely from this, due to a documented lack of international investment. Foresters remain unsure of whether to sell their credits, trade them, or just sit on them—assuming they took an allocation of credits when the allocation became available. The dithering over forestry, combined with the repeal of the preference for renewable electricity generation, the removal of the biofuels obligation, the replacement of the New Zealand Energy Efficiency and Conservation Strategy—for which there is still no alternative—and the confusion in generation policy, caused by the confusion evinced by the Minister of Energy and Resources, Gerry Brownlee, over the existence, or not, of the 90 percent renewables target, has left New Zealand well down the order when it comes to climate change initiatives. So this bill is important and needs to be brought forward quickly in order to allow us to salvage what we can out of the carbon trading space. It is a real shame that it was not brought forward much more quickly. This is just another example of how this Government is mucking around in the important area of climate change.

PESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this

I am pleased to take a call in the second reading of the Settlement Systems, Futures, and Emissions Units Bill. I acknowledge the sponsor of the bill, the Minister of Commerce, the Hon Simon Power, and also the chair of the Commerce Committee and the previous Minister of Commerce, the Hon Lianne Dalziel, who introduced this bill in September 2008. The Commerce Committee, of which I am a member, received and considered 12 submissions, and reported on 22 June this year on the bill.

The bill is designed to align New Zealand’s clearing and settlement system with international best practice. It is also designed to facilitate trading in futures and emissions units. Firstly, it provides that trades in securities and other products can be cleared and settled through designated systems that meet the expectations of international and domestic participants in New Zealand’s financial markets. Secondly, it aligns the regulatory environment for exchanges seeking to operate in both the securities and futures markets. Thirdly, it allows market participants who are approved by an authorised futures exchange to be deemed to be authorised to deal in futures contracts. Finally, it clarifies the regulatory treatment of emissions units, to support the development of the market for emissions units.

The bill provides settlement systems operating in New Zealand with the option of applying for designation. Designation provides additional legal protections to support the integrity of the system in the case of a participant’s insolvency or default. Specifically, it provides the operators of a designated settlement system with priority under the Personal Property Securities Act 1999. At present New Zealand’s legislation provides for the designation of payment systems under Part VC of the Reserve Bank of New Zealand Act 1989. As has been stated by the two previous speakers, the bill aligns the regulation of exchanges that are seeking to operate in both the securities and futures markets. The Securities Markets Act 1988 currently provides one process for registering a securities exchange, and a separate process for authorising a futures exchange. The bill amends the Securities Markets Act so that an exchange registered under Part 2B of that Act may be registered either in respect of securities markets or futures markets only, or in respect of both securities markets and futures markets. The choice is open to those who are seeking such registration.

The bill also provides that market participants who have been approved by an authorised futures exchange under its operating rules are authorised to deal in futures contracts on any futures markets operated by the authorised futures exchange. That does not affect the ability of the Securities Commission to authorise futures dealers more generally, but codifies the existing class authorisations granted by the Securities Commission and makes them available to any authorised futures exchange.

The previous speaker touched on emissions units, and I want to comment briefly on them. The Finance and Expenditure Committee is doing good work on the Climate Change Response (Moderated Emissions Trading) Amendment Bill. But this bill clarifies the regulatory treatment of emissions units, to support the development of the market for emissions units. This applies, as Mr Chauvel has stated, to both units issued as part of a statutory scheme and units issued in the voluntary market. It does take into account the Kyoto Protocol. It gives effect to the policy through technical amendments to existing legislation. For example, the bill clarifies that emissions units will be treated like other forms of property under the Securities Act 1978. As a result, trading in emissions units will not need to meet the requirements of the regulatory regime for offers of securities or the relevant provisions of the Securities Markets Act until they are part of an investment scheme.

I was a member of the Commerce Committee, which sat and listened to submissions on the bill. The key recommendation from the committee to replace the definition of insolvency with a new definition of “becomes subject to an insolvency event”. This is critical because it is the moment at which a participant becomes subject to an insolvency event, and it is much clearer. The committee proposed several amendments, to avoid potential problems in the event that a participant in a settlement transaction became subject to an insolvency event while the settlement was only partly completed. Although such a situation is unlikely, it is wise to close any gap in the difference in timing between those two events, especially in the current global financial climate. The bill as introduced provides that the finality protection extends until the earlier of 24 hours after the commencement of the insolvency, or the time when the designated settlement systems contact person has notice, or ought to have notice, of the insolvency. The committee’s recommendation that finality protection would extend for 24 hours after the commencement of insolvency is regardless of when the contact person has such notice. This would remove any uncertainty over the receipt of notice, while maintaining a 24-hour window after the commencement of an insolvency in which to complete any settlements that were already in progress.

I will now touch on penalties. The bill proposes various penalties for offences relating to designated settlement systems, ranging from fines and imprisonment to the revocation of designation. It was submitted that the revocation of designation was the only necessary and effective penalty. But the committee concluded that a range of penalties is more appropriate, as revocation is an extreme measure under any circumstance. Without lesser penalties, minor or even moderate offences that did not warrant revocation might go unpunished, and that would inevitably undermine the system. There is also a need for penalties against individuals, as the committee believes the possibility of employees being held personally accountable would greatly increase the incentive to comply. After comparing those penalties with penalties in other jurisdictions, the committee proposed one change to the level of penalty for corporate bodies. It recommended that the maximum fine for a body corporate should be reduced from $1 million to $750,000, bringing it into line with fines in other jurisdictions.

I have given a summary of the key issues that were involved within the committee in bringing this bill to its second reading, and I commend the bill to the House. Thank you.

MOANA MACKEY (Labour) Link to this

I am very pleased to be able to stand and take a call on the second reading of the Settlement Systems, Futures, and Emissions Units Bill. I acknowledge the work that was done by the Commerce Committee on this bill.

KEVIN HAGUE (Green) Link to this

I will take just a short call to outline a few points behind the Green Party’s decision to support the Settlement Systems, Futures, and Emissions Units Bill at its second reading, as we did at its first reading.

First of all I state that the Green Party shares absolutely Labour’s critique of the Government’s climate change policies, but we note that the regulatory framework that this bill sets up will be necessary for the development of a viable emissions trading scheme and carbon trading market in the future. Who knows? Possibly even the groundswell of public opinion and, indeed, the international opprobrium that the Government will encounter in Copenhagen may be sufficient to change this Government’s policies on climate change, and we may find the regulatory framework to be of use sooner than we thought.

In general I will make about four points. The first is that it is important that New Zealand’s regulation of settlements is brought up to date and is in line with world best practice. The Green Party supports the bill from that perspective. Secondly, the bill goes a long way towards clarifying how settlements are made and the mechanisms for resolving issues when disputes arise. That is very important in order to avoid unnecessary litigation, and it will give participants a lot more certainty on how they manage their risk. Thirdly, clarifying who carries the risk at what stage of a transaction is vital if our stock market is to function competitively. We support the bill for that reason also. There is inherent risk in the Reserve Bank being both a regulator and a participant. The Commerce Committee has made some adjustments, and it has retained the Commerce Commission as a co-regulator. That may well address the issue adequately, but we must remain vigilant and monitor that particular aspect.

In finishing—I did say that this would be a short call—I am struck by the contrast between the debate we are having on this bill and the speech the House heard from my friend and colleague Sue Bradford immediately prior to the dinner break. I remind the House that Sue spoke about the warning we have been given over, I guess, the last 18 months of a collapse in the global economy that is inherent in the way it is structured. That economy has acted as a huge imposition on the real economy. When we examine the factors that have been implicated in the warning that we have been given by the crisis that we have faced over the last 18 months, we see that the speculative economy has played a very great role. It is clear from most of the world’s Governments and international organisations that part of the formula for remedying that problem is to have greater regulation of the speculative economy. Members of this House would be familiar with the Green Party’s policy of trying to redirect investment away from the speculative economy and into the real economy, and aware of our proposals for various measures to achieve that: transaction taxes, a capital gains tax, and limitations on losses that could be attributed to loss attributing qualifying companies. All of those measures will be important. Fundamental regulatory change to the way that we handle the speculative economy will be necessary.

In some ways, the adjustments that we are making to the regulatory framework today seem like tidying up rather than rearranging the deckchairs on the Titanic. A much greater reform of that framework will be required, and the Green Party remains committed to holding the House to that obligation. But, that said, the changes the bill makes to the regulatory framework are necessary, and the Green Party will continue to support this bill.

KATRINA SHANKS (National) Link to this

It is my pleasure to take a call and speak in favour of the Settlement Systems, Futures, and Emissions Units Bill this evening. This bill was first brought into Parliament in September last year by Lianne Dalziel, who was then the Minister of Commerce. The current Minister of Commerce, the Hon Simon Power, is now in charge of it for its second reading and its Committee of the whole House stage.

This bill addresses three areas. The first is to do with settlement systems. The Reserve Bank of New Zealand Act 1989 is amended to provide for the designation of systems that clear and settle products, not just payments. The second area is futures. The Securities Markets Act 1988 is amended to align the regulatory environment for exchanges seeking to operate in both securities and futures markets, and to provide that market participants approved by an authorised futures exchange are deemed to be authorised to deal in future contracts. The third area is emissions units. The Securities Act 1978, the Securities Markets Act 1988, and the Personal Property Securities Act 1999 are amended in order to clarify the legal treatment of emissions units.

This bill had some quite complex issues attached to it, so I take this opportunity to thank the officials. They gave us some fantastic advice and kept on simplifying these complex issues so that we understood them properly and understood the impact that this legislation will have on the sector. I also thank the submitters, who made some very complex, detailed submissions to the Commerce Committee. I acknowledge the NZX for its submission; it was very detailed and very informative for the committee. Our officials used that submission a lot when we were formulating decisions as to what changes we would make to this bill before it was brought back to the House. So I take this opportunity to thank officials for their work.

In 2007 the New Zealand Exchange requested that the Government urgently provide legislation to support an upgrade of its existing clearing and settlement system, and the expansion of its exchange-traded products to include futures and emissions units. In response, Cabinet approved the introduction of this bill, which we saw at the end of last year. A robust market mechanism is necessary to facilitate improved risk management and functioning of New Zealand’s capital markets, to develop the products that exist in the market, including preserving the ability for businesses, and to develop carbon and other derivatives and over-the-counter markets that offer a regulated and authorised clearance of settlements function. If we are serious about getting our economy going, we must be serious about the capital markets as well.

I would like to talk particularly to the emissions units part of the bill. The bill clarifies the regulatory treatment of emissions units to support the development of the market for emission units. This applies both to units issued as part of a statutory scheme, such as the Kyoto Protocol, and to units issued in the voluntary market. It gives effect to this policy through technical amendments to existing legislation. For example, the bill clarifies that the emissions units are to be treated like other forms of property in the Securities Act 1978. As a result, trading in emissions units will not need to meet the requirements of the regulatory regime for offers of securities or the relevant provisions of the Securities Markets Act unless they are part of an investment scheme. The bill also amends the Personal Property Securities Act 1999 to enable persons to take possession of, and security interests over, both statutory and voluntary emissions units.

The select committee made some recommendations in relation to the definition of “emissions units”. It recommended that clauses 27, 33, and 36—covering the definition of “emissions units” to be inserted into the Securities Act, the Securities Markets Act, and the Personal Properties Act—be amended to include units in accordance with any enactment of a jurisdiction within another country, or any international treaty or protocol. That is very important. These clauses should also be amended to include the storage of greenhouse gases in the definition. The carbon market is still quite new, so the definition of “emissions units” should be broadened to allow for the evolution of this market, and the changes that we will see in the future. This might involve technological developments in the way carbon is managed and stored, and developments in the sources of carbon credits. Regarding sources, for example, the committee noted that “increasingly carbon credits are being issued by state or local governments, under international treaties and protocols, and through legal or contractual arrangements, in addition to being issued by central governments.” The definition specified in the bill needs to be wide enough to cover all potential sources of credits so that this bill stays relevant for a period of time.

The bill is designed to align New Zealand’s clearing and settlement system with international best practice and to facilitate trading in futures and emissions units. It provides that trades in securities and other products can be cleared and settled through designated systems that meet the expectations of international and domestic participants in New Zealand’s financial sector. It aligns the regulatory environment for exchanges seeking to operate in both securities and futures markets, and provides that market participants in approved and authorised futures exchange are deemed to be authorised to deal in all these future contracts. This bill clarifies the regulatory treatment of the emissions units to support the development of the market for emissions units. That is just one part of the changes that we made in this bill. I will leave my colleagues to expand on the other two parts. It is my pleasure to support this bill tonight. Thank you.

Hon DAVID PARKER (Labour) Link to this

I thank the previous speaker on the Settlement Systems, Futures, and Emissions Units Bill, Katrina Shanks. I thought her contribution was thoughtful and useful in terms of the way in which carbon markets could evolve. I agreed with the comments she made.

I think it is probably timely to reflect on why we are creating carbon units in New Zealand. The world has to reduce carbon emissions if we are to avoid some of the catastrophic changes that are predicted by many scientists to occur if carbon dioxide and other greenhouse gases continue to build up in the atmosphere. We have changes in temperature, rising sea levels, changes in patterns of food production, acidification of oceans, loss of reefs, and loss of species in the sea that produce calcium for shells—they will not be able to produce that calcium because of higher levels of acidity in the ocean. These are very serious matters. The theory that lies between the creation of carbon rights and emissions pricing is that we need to create an economic incentive for the businesses that produce the goods we all consume, so that businesses are encouraged to produce goods and services for us to buy that do not cause carbon emissions, and to make it more profitable for them to produce a different product where those carbon emissions are absent.

We do that by charging emitters for the cost of their emissions. We put a price on carbon dioxide, methane, and other greenhouse gas emissions, and that price is avoided by those who produce goods and services in a way that does not produce carbon dioxide and other emissions. So those emitters that are going down the clean route have a price advantage, compared with those that are producing carbon emissions and then suffering a price disadvantage. In that way we bring forward renewable electricity instead of coal-fired electricity. We change lots of little decisions in society. It becomes cheaper to run a light car, so an aluminium car becomes more viable compared with a heavier steel car, because the aluminium car uses less fossil fuel and therefore has lower carbon emissions. All of these complex pricing decisions, which we will never notice, happen because we price emissions. This bill sets up some of the regulatory framework to make sure that those carbon obligations can be dealt with in commerce in the way that other securities can, so this bill is worthy.

The bill was introduced by the previous Government over a year ago, and it has taken a year for this Government to get it back from the Commerce Committee, which is a bit long. Why did the New Zealand Exchange, as the previous speaker said, come to the Government with a sense of urgency a year and a half ago to get this legislation progressed? The answer to that is that at that time there was an opportunity for New Zealand to lead in this way, given that emissions pricing was clearly on the way in New Zealand and around the world. Given that that was going to happen, our stock exchange figured that it might as well take advantage of the commercial opportunities that arose in any way that it could. It spent quite a bit of money on developing a business plan to take advantage of the fact that New Zealand was leading in this arena, so that it could take advantage of the service industry opportunities that would arise from New Zealand being at the forefront of developing this new market.

That did not mean that New Zealand was going to slay the economic interests of emitters. We were not going to cause aluminium smelters to shut down or farming to go broke. We were not going to cause the steel mill to go broke, or anything like that. But we were going to start pricing emissions, because since the start of 2008 New Zealand has already had to face the cost for increasing emissions. It was important that that reality was reflected in the economy, and that we sent the signal to emitters in New Zealand to stop producing increases in emissions at a cost to the country. We do that by making them pay for some of their emissions.

Unfortunately, in the last year since we have had a change in Government the impetus has been lost. Nowhere is this clearer than in respect of what has happened with the New Zealand Exchange. It has now effectively abandoned its efforts to be a leader in this field. It has given up on the business opportunity that had arisen as a consequence of the previous Government’s actions. That has had a real economic effect on New Zealand: instead of New Zealand having an additional profit centre as a consequence of our leadership in this area, New Zealand has a Government saying that somehow we should not lead in this area, despite the enormity of the environmental challenge. It says that we should just sit back and be a follower of the rest of the world. One of the prices of being a follower, rather than a leader, is that we cede the economic opportunities of being the advanced guard in running the related service industries for other jurisdictions. Instead of New Zealand having that economic opportunity, it is falling instead to other countries around the world, including Australia. It is with sadness that I reflect on the fact that although this bill is still necessary, it does not provide the point of advantage it would have had for the New Zealand Exchange and the service industry, because New Zealand has lost both its moral authority in this area and the business advantage it accrued from the fact that the previous Government was treating these issues responsibly.

I do not think there is much more to say than that. Fewer units will be traded than would have been the case, because of course the softening of the emissions trading scheme on major emitters is such that billions of dollars of units will now be paid for by taxpayers over the years rather than by emitters. They will have to buy fewer emissions units in the market, therefore, there is less of a need for this bill than would otherwise have been the case. That is another reason why the business opportunity will not be as great for the service industry. With those comments, I say that the Labour Party is happy to support the bill, but I feel that it is sad that the business opportunities that surrounded the service industry have been lost to New Zealand because of the short-sighted measures the National Government has taken. Thank you.

JONATHAN YOUNG (National—New Plymouth) Link to this

It is my pleasure to stand and speak in support of the Settlement Systems, Futures, and Emissions Units Bill. I believe that our Government has brought changes to the emissions trading scheme because we are seeking to bring a better balance between our economic opportunities and our environmental responsibilities. We felt that the advantages that the previous speaker, the Hon David Parker, spoke of would bring very strong disadvantages to other sectors of our community, so we believe that our more measured approach is far more sustainable.

This bill, which was introduced by the Hon Lianne Dalziel towards the end of last year, was reinstated in the 49th Parliament in December because it is essential legislation, particularly with regard to emissions trading in the global sense. Putting regulation in place for that to happen is very important. The member in charge of this bill is the Hon Simon Power, the Minister of Commerce. It returned from the Commerce Committee in June this year.

There are a number of issues that this bill addresses. It is a very complex bill. Most New Zealanders probably will not understand it, but people in the foreign exchange, securities, and futures area of work and interest will be very interested in this bill. One of the areas that was discussed in the select committee was the choice of a regulator for designated settlement systems. Several submissions questioned the efficiency of appointing joint regulators for the designation of settlement systems. However, we recommend the joint regulator model be retained because it is effective, without compromising administrative efficiency.

We considered these two potential models of regulator: the Reserve Bank of New Zealand as a sole regulator with a duty to consult with the Securities Commission, and the Securities Commission and the Reserve Bank as joint regulators. It has been suggested that the oversight of settlement systems is primarily a matter of prudential regulation, and, as such, the Reserve Bank is best placed to perform that role. However, the settlement of transactions per se is primarily a regulatory matter for the Securities Commission. Thus, both the Securities Commission and the Reserve Bank have a legitimate interest in the operation of settlement systems in the financial sector. To provide for a sole regulator with a duty to consult, the bill would need to be amended to provide protocols around the duty to consult the other party, its role in the process, and the extent to which the views of the other party need to be taken into account. That would be less flexible than providing for joint regulators that may coordinate internally and more seamlessly.

The assessment of an application for designation is a complex task. The work of preparing guidelines in assessing an application is split between two regulators under the joint regulator model. Such work can be allocated according to the expertise of the agency and its particular interest in settlement systems. In this regard, the joint regulator model is underpinned by provisions in the bill that allow the joint regulators to share information and have regard to, and rely upon, any relevant information, work, or matters held or produced by the other joint regulator. There are expected to be only a handful of applications for designation during the life of the legislation. Potential opportunities for both the applicants and the regulators to refine procedures and reduce costs over time are, therefore, low. One application will likely come from the Reserve Bank in its role as operator of Austraclear. As a joint regulator, the Securities Commission can be a witness to the separation between the Reserve Bank’s role of settlement system regulator and operator. The joint regulator model does not require applicants and designated settlement systems to duplicate effort across two regulators. The applicants are able to choose which regulator to lodge their application with.

As I mentioned, this is a complex bill and a complex matter. I thank the officials, who have put in a tremendous amount of work in preparing a bill that has this level of importance for securities, settlements, and emissions trading in our country. Thank you.

JOHN BOSCAWEN (ACT) Link to this

It is a pleasure to take a call in this debate on the Settlement Systems, Futures, and Emissions Units Bill. This bill is designed to align New Zealand’s clearing and settlement system with international best practice and to facilitate trading in futures and emissions units. The bill contains various technical amendments to existing legislation, and Katrina Shanks listed the three Acts that are being amended. The bill is designed to facilitate the development of markets for emission units.

The Hon Nathan Guy, Sam Lotu-Iiga, and Katrina Shanks have already outlined in some detail the inner workings of this particular bill. I do not wish to repeat what they said, other than that I would like to acknowledge the work of the officials who diligently attended the Commerce Committee, of which I am a member. In particular, I thank submitters to that committee, because although there were not a large number of them, they brought a lot of expertise. However, I have to say that in respect of some of them I could not help thinking that they were there out of self-interest. I also acknowledge the work of the chair, the Hon Lianne Dalziel.

I would like to spend the bulk of my speech responding to the comments of Charles Chauvel and David Parker. They used this opportunity to open up the debate to the whole wider issue of the emissions trading scheme. I cannot leave some of the comments of Mr Parker and Mr Chauvel unchallenged. However, let me start by saying that certainly in one respect I totally agree with Mr Chauvel. I think it is a disgrace that the legislation to amend the emissions trading scheme is being rushed through this Parliament with such undue haste. It is the role of Parliament to question and investigate the work of the executive and the bills it puts up. Submissions closed on the amendments to the emissions trading scheme on 13 October, and the Finance and Expenditure Committee is due to report back by 15 November. In the space of just a month, we have to analyse some 380 submissions, hear the views of the officials, listen to the recommendations, and debate those recommendations.

As a matter of public record, certainly in the early stage, there were a number of submitters who had less than 24 hours’ notice. Labour members on the Finance and Expenditure Committee regularly asked the submitters to the committee when they had received the advice that they were required to attend. Some of them had been given 12 hours’ notice, some even 15 hours’ notice. I think the record was probably 4 hours’ notice. One gentleman took a phone call at 4 o’clock on a Thursday afternoon and was before the committee at 8 p.m. that evening.

I raise those points because I think the bill to amend the emissions trading scheme is being done in undue haste. Why is that? We all know that New Zealand is a signatory to the Kyoto Protocol, and the world community is looking to extend the protocol at the upcoming meeting in Copenhagen. It seems that New Zealand is hell-bent on pushing through its amendments to the scheme before that Copenhagen meeting. But those amendments are based, in substantial part, on the proposed scheme for Australia. I say “proposed scheme”, because the scheme is not legislated for in Australia; it has not been passed. The United States does not have emissions trading legislation.

Earlier this afternoon Mr Phil Goff, in seeking to embarrass the Government, made a point about an increase in power prices. He accused the National Government of pushing up power prices. Well, nothing will do more to push up power prices, which will result in subsidies and huge massive profits, than the emissions trading scheme. As Mr Parker said in his speech earlier, the emissions trading scheme seeks to put a price on carbon. It seeks to increase the price of energy, and therefore every single New Zealander will pay a higher price for electricity. It is already legislated for; the scheme is there. It currently takes effect on 1 January next year. The National Government’s solution is to delay its introduction and to reduce, somewhat, the costs for the first 2½ years, but we will all pay a higher price for electricity.

But it is worse than that. The generators that generate electricity from hydro sources and from other renewable sources will get windfall profits. So TrustPower, which owns a suite of hydro dams and is a company in private ownership, along with Genesis and the Meridian Energy, which are both companies that are State-owned enterprises and also have a suite of hydro generation and renewable electricity, will all have windfall profits. The emissions trading scheme, the one that is currently on the books and the one that is in the process of being amended, will result in a higher price of electricity. Those generators of electricity that generate at a hydro dam, or through a geothermal field, will not pay that price of carbon. They will receive a higher price for their electricity and they will make windfall profits.

The Green Party member commented on Sue Bradford’s valedictory statement made this afternoon, when Sue Bradford talked about wanting to be known for more than the amendments to section 59 of the Crimes Act. She referred, in part, to her desire to reduce the deepening gap between rich and poor. I suggest that nothing will do more to make that gap wider than raising the price of the most basic commodity—electricity.

I wish this were just an issue of looking to protect the environment—we have signed the Kyoto Protocol—but it is not. We heard from a number of submitters who have forestry interests. In particular, we heard from Te Arawa Group Holdings, which is owned by a number of iwi who own in excess of some 30,000 hectares of central North Island forest. This forest is capable of being converted into pastoral farm for dairying to create wealth and employment for New Zealanders. But Te Arawa Group Holdings is not able to convert that forestry into pastoral land to create wealth for New Zealanders. To do so would require the company to surrender some 800 emissions units at a current market price of $25 a unit or $20,000 a hectare. Te Arawa Group Holdings estimated that the cost to it of the current emissions trading scheme on the books is some $600 million. What will the National Government’s amendments to the scheme do? They will increase that cost by a further $30 million. So Te Arawa Group Holdings was up for a cost of $600 million, but it will now cost $630 million.

It would not be so bad if Te Arawa Group Holdings were in a position where it could chop the trees down on the land that was good for dairy conversion and replant those trees on other land. The company would like to do that; it has offered to do that. New Zealand has much terrain that is mountainous and is not suitable for pastoral and intensive farming. The company would like to replant those trees, so that in time those trees in their new location would sequester as much carbon as they do right now. Under the terms of the treaty that we signed up to, the company cannot do that. If it chops those trees down, it is up for a charge of $20,000 a hectare.

I understand that New Zealand is going into the Copenhagen round in the hope of negotiating an offset so that Te Arawa Group Holdings, and others—like Wairākei Pastoral—can replace those forests on other land. But there is no guarantee that they will be able to. It is quite likely that many billions of dollars will be taken from Māori in terms of a diminution in the value of land that they have been given for Treaty settlements. Why the rush on this bill? In 5 weeks’ time we will know the outcome of the Copenhagen round. Why the rush? I say to Sue Bradford that she has every right to be concerned about the deepening gap between rich and poor. New Zealand is not a rich country. We are a heavily indebted country, yet those 30,000 hectares in the central North Island could be converted to dairying and could earn overseas exchange for New Zealand, but we have signed up to a treaty that denies those people, and others like them, the opportunity to do that.

I could go on to talk about the fact that although amendments are being made to allow an offset, or allow a phase-in period—Mr Chauvel was very keen on his scheme—it would put New Zealand industry at a massive disadvantage, and would cause huge additional costs and job losses. Thank you.

AARON GILMORE (National) Link to this

I will talk a little bit about the Settlement Systems, Futures, and Emissions Units Bill. It represents another step along the way of our putting in place a sustainable emissions trading scheme. This bill concerns emissions units and futures trading.

I will also fisk a bit. A bit of fisking was going on in prior speeches, particularly from the other side of the House. We heard from Mr Chauvel that we are in danger of becoming the fossil in Copenhagen. Well, under his Government’s emissions trading scheme, the only thing in danger of becoming a fossil was the New Zealand economy. Thousands of New Zealanders would have been put out of work, and for what? So that Labour could go to some international convention somewhere and say: “Look at us; aren’t we so clever?”. Well, we thought this through a bit more and we think that jobs are important. In the worst recession that this country has had for over 60 years we think that helping industry through the transition of introducing an emissions trading scheme is incredibly important. That is a good thing to do. People who have jobs in trade-exposed industries will thank us, but I tell members that they will not be thanking Labour.

This bill, along with our other emissions trading bill—the Climate Change Response (Moderated Emissions Trading) Amendment Bill; the greater, parent bill—is a good step in the right direction. It clarifies the regulatory treatment in support of, and develops the market for, emissions trading, and that is a good thing.