Hon SIMON POWER (Minister of Commerce) Link to this
I move, That the Reserve Bank of New Zealand Amendment Bill, the Securities Markets Amendment Bill, the Personal Property Securities Amendment Bill, and the Securities Amendment Bill be now read a third time. These four bills were formerly part of the Settlement Systems, Futures, and Emissions Units Bill. Together, they address three policy changes. First, the Reserve Bank of New Zealand Amendment Bill provides settlement systems operating in New Zealand with the option of applying for designation. Designation will provide additional legal protections to support the integrity of the system, in the case of a participant’s insolvency or default. Specifically, it will provide 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 5C of the Reserve Bank of New Zealand Act 1989. Settlement systems could also be designated under this part, but without this bill designation would protect only the payment component of the transaction and, importantly, would not protect the settlement of the property component of the transaction. Second, the Securities Markets Amendment Bill aligns the regulation of exchanges 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. This bill amends the Act so that an exchange registered under Part 2B of the Securities Markets Act may be registered either in respect of securities markets, or futures markets only, or in respect of both securities markets and futures markets.
Currently, only the Securities Commission may authorise futures dealers, although there are class authorisations for the Sydney Futures Exchange and for the NZX. The Securities Markets Amendment Bill provides that market participants who have been approved by an authorised futures exchange under its operating rules are authorised to deal in futures contracts. This 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.
Finally, the Personal Property Securities Amendment Bill and the Securities Amendment Bill clarify the regulatory treatment of emissions 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. These bills give effect to this policy through several technical amendments to existing legislation, such as clarifying 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, unless they are part of an investment scheme.
It is also worth noting that the Personal Property Securities Amendment Bill amends the Personal Property Securities Act to enable persons to take possession of, and security interests over, emissions units.
I record my appreciation for the input from the members of the financial sector who made submissions on this legislation, and for the members of the Commerce Committee for their contribution, not to mention the work of the former Minister of Commerce, the Hon Lianne Dalziel, who introduced the legislation. I commend these bills to the House.
Hon LIANNE DALZIEL (Labour—Christchurch East) Link to this
I am pleased to see the final readings of these four bills, the Reserve Bank of New Zealand Amendment Bill, the Securities Markets Amendment Bill, the Personal Property Securities Bill, and the Securities Amendment Bill, which were originally introduced as the Settlement Systems, Futures, and Emissions Units Bill. As the Minister of Commerce has just said, I had the privilege of referring that bill to the Commerce Committee, as the then Minister of Commerce, just prior to the election last year. I also had the privilege of hearing submissions on it as the chair of the Commerce Committee.
I too place on record my congratulations to the members of the financial community who made submissions to the select committee. I think all of them did so with the desire to achieve a good outcome, which I believe we have achieved here. I also place on record my thanks to the officials from both the Ministry of Economic Development and the Reserve Bank of New Zealand. Their detailed technical advice was absolutely necessary in order for us to get the regulatory framework right for clearing and settlement systems that will meet the expectations of domestic and international participants. I think that is the strongest point that I want to make in the final reading of these bills—the fact that we are talking about introducing a regulatory framework. I know we have now a Minister for Regulatory Reform in this country. We often hear regulation being spoken of in disparaging terms, but in fact we need to have strong regulation in our financial markets, as has been seen over recent times to an unprecedented extent, probably.
The purpose of these bills is to allow New Zealand settlement systems to apply for designation, bringing them under a regulatory regime that in return provides additional legal protections in the case of a participant’s insolvency or default. That is probably the primary feature of the proposition contained within the legislation. Despite the provision for regulation, the bills actually combine to reduce compliance costs by aligning the regulation of exchanges that seek to operate in both the securities and futures markets, and by enacting that a person approved by the operator of an authorised futures exchange is an authorised futures dealer. So, even though we are again talking about a new regulatory framework being put into legislation, we are in fact talking about a reduction in compliance costs, because it minimises the impact on those who are already regulated under different parts of our law.
The bills also clarify the regulatory treatment of emissions units. Given the controversy surrounding the Government’s approach to the emissions trading scheme, I am sure that colleagues will expand on that further. But I will make one very strong point: this is legislation that came from the bottom up. This was not something that the Government designed in the abstract. The industry came to us and said it needed to be in a position to have a proper regulatory framework for the trading of emissions units, whether they were Kyoto units or voluntary units. We have to have this platform in place in order for New Zealand to play whatever role it wants to play on the world stage in that regard. The use of an exposure draft process, with an exposure draft bill having been made available to the market for considerable consultation before the Settlement Systems, Futures, and Emissions Units Bill was even introduced to the House, I believe puts us in a very strong position to be able to say this is good legislation that is well supported by the markets it is designed to serve.
I compare that process with the way that the current emissions trading scheme legislation has been dealt with by the Government: not allowing sufficient time to be spent on the bill at the select committee, so the select committee then referred an unamended bill back to the House because there could not be agreement on how it should be reported back. That was done in the knowledge that the Government intends to table extensive amendments next week, after it has reached an agreement with the Māori Party, with which negotiations are being conducted behind closed doors. One has to wonder whether that process will serve the interests of the markets that the legislation is designed to serve. I am deeply concerned about that, but I am sure others will have a lot more to say about it than I will.
The decision also to separate these bills from a broader assessment of our settlement services, in terms of the structure of ownership and governance, was also a good one, and I look forward to an update from the Government on where that is up to. I place on record my very strong personal point of view in relation to the platform. I believe that the platform should be treated as a public asset and a core item of infrastructure, so I believe the Government ought to address that in the second stage of the review of the settlement systems.
Rather than working through the detail of the legislation, I want to provide a little background context. I think that was best expressed in the NZX submission to the select committee. It talks not about this legislation in New Zealand but about why we need to have legislation like this in an international context.
The NZX submission reads: “Over the past year global markets have seen unprecedented declines in value and failures in over the counter and un-regulated risk management and settlement functions. Globally credit has contracted and corporates are more acutely analysing the counterparty risk that it takes against each and every counterparty in its ordinary trading patterns. What was once seen as a safe partner on the other side of the deal is now rigorously assessed for credit worthiness following a year in which names like Bear Stearns and Lehman Brothers failed. The completely un-regulated rise of off-exchange or over the counter products has now proven to have created serious short and long term uncertainty in global markets and an overall movement towards a more conservative outlook.
Against this background, New Zealand has a settlement system for its capital markets that is unique globally. Currently NZX Participants take counterparty risk against each other and settle trades bilaterally. The international norm is for a Clearing House to operate a central counterparty or otherwise novate, net and clear and settle trades. This internationally prevailing model allows participants to easily assess the counterparty risk of a single institution that is prudentially, and otherwise, regulated by a key central government agency.
In reviewing its settlement systems as part of a required upgrade, NZX considered an internationally vanilla model was more likely to promote confidence and international participation in New Zealand’s capital markets and reduce risk for domestic participants.
In order to promote confidence and participation in New Zealand’s capital markets, including trading in derivatives of carbon products, the clearing and settlement infrastructure must be operated in a way that is consistent with international best practice and illustrates soundness and efficiency in the underlying systems and regulatory framework. International best practice is reflected in the recommendations of the joint Committee on Payment Systems of the … IOSCO and Bank for International Settlements … in relation to Securities Settlement Systems and Central Counterparty Settlement Systems … . NZX has utilised the BIS/IOSCO recommendations is making changes to its settlement environment and where appropriate references those recommendations throughout this submission.”
I do not normally read into Hansard an exact quote from a submission of such length as that one. But the reason I have done so on this occasion is that NZX has encapsulated in those four paragraphs the essence of why this legislation is so utterly necessary in the current environment, and why it will enable New Zealand’s capital markets to go forward. New Zealand’s participation in various forms of carbon trading is to be done now on an internationally accepted platform. I would like to thank the Government for pursuing this legislation. I express slight disappointment that it took so long to complete the passage of this legislation through the House, despite the fact that our very good select committee had it back in the House by June and it is now November. On that note I would like to recommend the concluding reading of these bills, as broken up into their individual components from the Settlement Systems, Futures, and Emissions Units Bill.
PESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this
This is an opportunity for me to take a quick call on this legislation, and also to commend the previous speaker, the Hon Lianne Dalziel, who was Minister of Commerce at the time the Settlement Systems, Futures, and Emissions Units Bill was introduced to the House. I also commend the Hon Simon Power for going forward and making this legislation the business of the new Government. The Minister has already commented on how the original bill has been separated into four bills, and I shall comment briefly on the overview of what is behind the legislation. As the two previous speakers have alluded to, it is designed to align New Zealand’s clearing and settlement system with international best practice and to facilitate trading in both futures and emissions units. It provides that in securities and other products so that they can be cleared and settled through designated systems that meet the expectations of our international counterparts, as well as domestic participants in New Zealand’s financial sector.
A lot of work was done in the Commerce Committee. We listened to and took into account the views of the 12 oral submitters that came to the select committee, of which NZX was an important submitter, as the previous speakers alluded to. Some of the key changes that we put forward in the select committee were around the definition of insolvency. The new definition, “becomes subject to an insolvency event”, is critical, because the moment at which a participant becomes subject to an insolvency event is clear. Financial markets are pretty dynamic. They are pretty fast-moving. They are changing, as we have seen in the past 12 to 18 months. Sometimes that causes and creates problems between parties and counter-parties. But it was important in our select committee that we looked at the event of insolvency and the finality of settlement. The committee proposed several amendments in this area, to avoid potential problems.
The bill as introduced provided that the finality protections extend until the earlier of 24 hours after the commencement of the insolvency, or when the designation settlement system contact person had been notified or ought to have been notified of the insolvency event. We recommended, as a committee, that it be extended for 24 hours after the commencement of an insolvency, regardless of when that contact person had notice. This was a particularly critical amendment that the committee assessed.
We also looked at shortening the disallowance period. The committee recommended that the joint regulators could disallow a proposed amendment to the rules of a designated settlement system, and this was shortened from 40 working days to 20 working days. One of the other key amendments that we assessed in the select committee was around the penalties. After comparing penalties in other jurisdictions, the committee proposed a change to the level of penalty for corporate bodies. The maximum fine for a corporate body was reduced from $1 million to $750,000.
This legislation had multiparty support throughout the select committee process. Much was discerned by listening to the submitters, but as the previous speaker alluded to, we have to thank the expertise and the guidance that was provided by both the Reserve Bank officials and the Ministry of Economic Development officials. I think this legislation comes out with an A grade in terms of the assessment through the select committee process and the contribution of our Government officials. On that note I commend this third reading to the House. Thank you.
CHARLES CHAUVEL (Labour) Link to this
I take a brief call on these bills, which will see the implementation of what was the Settlement Systems, Futures, and Emissions Units Bill in the manifestation of this legislation in its previous stage in the House. I took a call in the second reading of the legislation, and Melissa Lee pointed out then that I had not had the opportunity to sit on the Commerce Committee that heard submissions on the legislation. So I am delighted to be able to advise Ms Lee on this occasion that I will be rejoining the Commerce Committee this week. I can see that Jo Goodhew is equally delighted at that prospect.
Jo GoodhewOh well, we will be ships that pass in the night, again. The reason for my absence from the committee, and the reason for missing out on the treat of hearing the submissions on this legislation—which, going by the previous speaker’s contribution, were really fascinating—is that I had to sit on, first, the Emissions Trading Scheme Review Committee, which was probably an equal delight, and, second, the Finance and Expenditure Committee with its deliberations on the most recent amendments. So I did not get a chance to hear submissions on this legislation, but I do want to say that I think that this is the sort of legislation that should be promoted. I say that from the point of view of someone who supports emissions trading, who wants to see a robust carbon market in New Zealand, who wants to see us meet good international standards in this area, and who sees real possibilities for wealth generation for New Zealanders if we can ride the wave of managing to make the transition to a low carbon economy in a good time, rather than simply be dragged to the negotiating table in this area as reluctant participants—which, unfortunately, is the image of New Zealand that is emerging internationally.
I want to say a few words—first, to congratulate my friend and colleague Lianne Dalziel, who was the Minister who originated this legislation and introduced the original bill in September 2008. Later that month it was read a first time and referred to the Commerce Committee, which appears to have done a diligent job. It reported the legislation back in mid-June. It is a bit of a shame that it has taken until now, mid-November, to get around to passing the bills that give effect to the original legislation, which signals that trade in securities and other products can be cleared and settled in New Zealand through systems that meet the expectations of international and domestic participants.
It was interesting to have been involved in a parallel process—the emissions trading scheme deliberations—in two select committees over the time that this legislation was being considered, first by the Commerce Committee and now in the House. Perhaps it is instructive for the House to consider this idea of the emerging carbon market, which will be facilitated by the legislation that we are passing now. I just happened to pick up today’s copy of the New Zealand Energy and Environment Business Week. It is a very reputable publication, but it mentions in a number of places just how many influences there can be on the price of carbon.
First of all, it records the difficulties we encountered in the select committee when Treasury advised us on the last day of our meeting that the emissions trading scheme amendments being sponsored by Dr Smith were more likely to add between 13 and 17 percent of GDP by 2050—that is, around $110 billion in additional debt—compared with the original estimate of 6 or 7 percent of GDP. Interestingly, the reason for that mistake was a mistake around the calculation of the price of carbon. Instead of assuming a price of $25 a tonne to 2012, and that by then there would be the rudiments of an international agreement on how to deal with greenhouse gases, so it would be a reasonable expectation that the price might have got up to $50, Treasury forgot to factor in that upward variable, and that is where the massive mistake came from on the last day of the meeting.
The price of carbon is influential across our economy. If one looks through the rest of the New Zealand Energy and Environment Business Week one reads the news that Australia has decided to exclude agriculture from its emissions trading scheme. If one compares the two economies one can see why the Australians would do that. Fifty percent of our greenhouse gas emissions come from that sector. Only 15 percent of the Australians’ emissions come from agriculture. One can see the perils of harmonising the two schemes. One can see the distorting effect that harmonisation could have on our domestic price of carbon if we simply slavishly follow the harmonisation bandwagon as the Minster intends to do.
There is news about the Lake Hayes decision in the South Island, where Meridian Energy, which wants to build a big wind farm, was declined permission. That will obviously have a major effect on our forward price of carbon and on our price of electricity. Then there is a warning about the lake levels. Some people are very concerned about the South Island lake levels. There is some recent maintenance work, stopping generation on the Waitaki scheme, and people are having a think about what that will do to the power price on the spot market. Obviously, when we have an active carbon market going, when carbon is properly traded domestically—as this legislation that we are considering today will facilitate—we will see these sorts of fluctuations right across the board.
I conclude by repeating the tribute that I have paid to Lianne Dalziel. It was far-sighted to introduce this legislation late last year. It was a good thing to have it referred to the Commerce Committee. It was good that the committee promptly progressed the legislation. But it is a shame that it has taken until now for the House to pass the empowering legislation. Unfortunately, it does reflect the fact that we have a Government that is not sufficiently serious about the problem of global warming and climate change, and consequently the developing of economic instruments, including the ability to trade carbon, which this legislation facilitates, and which Labour supports. Thank you.
JOHN BOSCAWEN (ACT) Link to this
I too was a member of the Commerce Committee that discussed the Settlement Systems, Futures, and Emissions Units Bill. Unfortunately, when we first started to hear submissions I was unable to attend all of the committee’s deliberations and the hearing of evidence, but I acknowledge the work of the chair, the Hon Lianne Dalziel; the officials; and the submitters. It has been interesting to listen to this debate this afternoon. Charles Chauvel commented extensively on the process that we have just gone through in reviewing and hearing submissions on the Government’s proposed amendments to Labour’s emissions trading scheme. It is interesting that during the course of the last 2 or 3 weeks we have had a report from the New Zealand Business Council for Sustainable Development. It has done a survey of a number of issues in relation to National’s proposed amendments. If we looked at that we would read “Shock horror!”—that everything the Government is putting up is bad. But when we read down finally to the last paragraph of that three-page document, we see that the council asked people how well they understood the emissions trading scheme. It is interesting to note that about 4 or 5 percent of the people surveyed acknowledged that they have a good understanding of the scheme. In effect, 95 percent of the people in the sample who made submissions and expressed an opinion on what the National Government is proposing acknowledge that they do not properly understand the scheme.
I will use this opportunity this afternoon to go back to first basic principles. We have talked about this scheme facilitating the trade in emissions units. We have heard from the Minister that emissions units will not be treated as personal property under the Personal Property Securities Act. I ask what an emissions unit is. It is the most basic thing that is traded and provided to be traded for under the provisions of the four bills before the House. An emissions unit is the right to discharge 1 tonne of carbon dioxide or its equivalent. I understand that one tonne of methane, which is given off by animals, by sheep and cattle, is equivalent to 25 tonnes of carbon dioxide equivalents. So 1 tonne of carbon dioxide is equivalent to one unit, whereas 1 tonne of methane would be equivalent to 25 tonnes of carbon dioxide equivalents, or 25 units.
Under the Kyoto Protocol, which New Zealand has signed up to and ratified, New Zealand has committed to restricting our emissions of carbon dioxide, or carbon dioxide equivalents, during the 5-year period of 2008 to 2012, to 1990 levels. In 1990 the New Zealand economy was responsible for discharging, if you like, the equivalent of 61 tonnes of carbon. We have signed up to a commitment to restrict our emissions during that 5-year period to the equivalent of five times 61 tonnes of carbon dioxide equivalents. That is 305 tonnes of carbon dioxide equivalents, or 305 million emission units.
We might ask what happens after 2012. Well, we do not know. We actually do not know. We have been talking about a scheme that has projections for 2020, 2050, and 2080, but the reality is that New Zealand has signed up to no commitment whatsoever beyond 2012. We may not sign up to that commitment or we may; we simply do not know. There will be a meeting in Copenhagen in the second and third weeks of December, which is in less than a month’s time, where this issue will be discussed, and I am sure that it had been anticipated by the participants that formal agreement would be reached amongst the nations of the world. Well, as recently as a fortnight ago, we heard the news that, no, we will not be reaching any agreement in Copenhagen, as the parties are too far apart. It may take a year. This afternoon we had the press release from the Prime Minister stating that he is not going to Copenhagen. He does not expect an agreement in 2010; he does not even expect an agreement in 2011. In fact, I have it on good authority that the Government does not expect an agreement will be reached or entered into before the end of our Kyoto Protocol commitment period.
But coming back to the emissions unit and the requirement to discharge 1 tonne of carbon dioxide or its equivalent, New Zealand is being given, essentially, a free allowance. We have been given the allowance to discharge at our 1990 levels. Our existing levels of emissions, in a gross sense, are in excess of our 1990 levels, but we also get credits for carbon that is absorbed into trees and forests. Since 1990 New Zealand has planted huge additional acreages of forests. Those forests have absorbed carbon, and the current Treasury projections, I understand, are that the levels of our equivalent emissions will be below our 1990 levels. So New Zealand may have no obligation to pay money to anyone for the period from 2008 to 2012.
It is a moving feast; it could change. The recession that New Zealand has suffered over the last 2 or 3 years has had an impact, and we simply do not know what it will be. But let us say that New Zealand has to pay under this calculation. It might interest members to know that Canada has stated that it will not pay. Canada has made the bald statement that it has signed up to Kyoto and it has made commitments, but it has no intention of paying. Well, if Canada will not pay, then I ask why New Zealand would pay. And if we do pay, then whom do we pay?
One of the countries that we would be likely to pay if we have a liability—but we may not, and the projections are that we will not—is Russia. Why? The reason is that the levels of emissions in the Russian economy are less than they were in 1990. That is not because the Russian economy has become a whole lot more efficient. On the contrary, the Russian economy has been in decline, factories have closed, and its levels of carbon emissions have reduced, simply because products have not been produced.
We have heard an awful lot from the Labour Opposition in respect of subsidies, and the Labour Opposition has been very critical of the National Government’s amendment bill and the process that that bill has been put through by the Finance and Expenditure Committee over the last 7 weeks. Let me say to this House, and to the Labour members in particular, that I totally agree with Labour members with regard to the process. The process has been an absolute shambles. It has been reckless. It is a very complicated scheme that would impose liabilities and, potentially, billions of dollars either way. The select committee received 350 submissions on the legislation, and it is a fact that the select committee report contains the very important detail that, had the National Government had its own way, the great bulk of those submitters would not have been given the opportunity to speak.
It was only this afternoon, when Rahui Katene—who sits alongside me in the House—Dr Russel Norman of the Green Party, and the Labour members voted to hear all of those people who had a meaningful contribution to make and who wanted to make that contribution, that the committee agreed to hear those submissions. I think it is a great indictment on this Government that it would seek to shut those submitters up.
I totally agree with the Labour members on the process. Labour has talked about subsidies. We do not know what commitment we will make beyond 2012. It has been speculated that we will commit to reduce our emissions levels to 50 percent of 1990 levels by 2050, but the scheme that the previous Labour Government passed into law last year phases out, let us say, assistance to polluters, which is the transitional phase, to zero by 2030. Essentially, the Labour scheme was a massive tax grab, and in that regard I totally agree with Minister Nick Smith and the Prime Minister. The Prime Minister said that it was a massive tax grab that needs to be reversed. I have run out of time, but I will be raising this issue as this debate continues. Thank you.
Hon DAVID PARKER (Labour) Link to this
I rise to speak to the third readings of the bills arising from the Settlements Systems, Futures, and Emissions Units Bill. Labour members will be supporting this legislation. It deals with mechanisms to ensure that we have the proper governance of trading in emissions rights in the future, including as to futures.
We cannot embark upon a discussion of that without considering what will be available to be traded in New Zealand. Those units in the main will be derived from Kyoto Protocol - compliant markets under the New Zealand emissions trading scheme, and we cannot make reference to that without the consideration of the developments over recent weeks in New Zealand in respect of the New Zealand emissions trading scheme.
I agree totally with the criticisms made by the ACT Party member John Boscawen of the process that was run recently in respect of the changes being made to the emissions trading scheme. It was a terrible process. I think that everyone but the Government members agreed that the process was poor, no matter what their views are as to the substantive merits of the changes that were being proposed. Legislation that has very serious consequences for the New Zealand economy was being dealt with in a rushed way.
No matter what side one sits on the substantive issues, one should be critical and concerned that we live in a country that could handle those multibillion dollar effects in such a contemptuous way.
This has been pushed through with inadequate time for people to properly engage in the detail. The most egregious examples of that were the attempts to limit the rights of submitters to properly participate in the process. There was a proposal at one stage to require all submitters to present their submissions in only 1 day.
That member might want to avoid the reality that, as a consequence of what the Government has done, the number of units that are able to be traded under the legislation arising from the Settlement Systems, Futures, and Emissions Units Bill is much reduced. But that is the reality, so I am entitled to talk about it.
The reality is that National tried to truncate the process and not allow submitters, in respect of that major change, the ability to talk to their written submissions. That was avoided only because the other parties, including the Māori Party, the ACT Party, the Greens, and Labour, agreed that that was an abuse of the processes of the select committee. We stood our ground and made National listen to submissions.
But that is but one part of the poor process. The regulatory impact statement that accompanied the bill recorded Treasury’s very grave concerns that the analysis that lay behind the bill was not adequate. The regulatory impact statement that accompanied the bill made it clear. The Cabinet paper that lead to the bill had that same regulatory impact statement, but it, additionally, had a warning not just from Treasury but also from the Ministry of Economic Development that what was being proposed was wrong.
The effect of the legislation has been to extend the period of transitional support to major emitting industries. I agree with Mr Boscawen that major emitting industries need some transitional support. If we do not give them free emission rights during that period of transition, they would close up, we would lose the jobs, and we would lose the profitable contributions of those businesses to our economy. We might lose those industries forever. But with appropriate transitional support, those industries might be viable long into the future for the benefit of our economy, and, indeed, at no detriment to the world environment.
But that does not mean that transitional support should exist forever, and it does not mean that the transitional support should be tied to the rate of phase-out of transitional support in Australia, the United States, China, or wherever. Those factors are relevant, but New Zealand should do what is in New Zealand’s economic interests as well as what will achieve the environmental purpose of the scheme.
There are examples that have been used by economists time and again, including by the adviser to the committee, Dr Suzi Kerr. She is currently a visiting professor at Stanford University. She is one of the world-renowned experts in emissions pricing. We are lucky to have her in New Zealand most of the time. She is a niece of Roger Kerr, from the Business Roundtable. She normally works at the Motu Economic and Public Policy Research Trust. There is no doubt about her credentials. She is a very clever woman indeed, as evidenced by the fact that she is lecturing on these very topics at Stanford University in the United States at the moment.
Dr Kerr makes the very clear and easily understood point that what is economically efficient for the country is not necessarily what is in the interests of the emitter. Of course the emitters want more and more free emission rights for as long as possible. But that does not make economic sense for New Zealand, and we had some examples of why that is such a nonsense.
The Parliamentary Commissioner for the Environment—who is a an officer of this good House; an Officer of Parliament—came to the select committee and quoted a study that had been overseen by a group that included, I think, Treasury representatives. Anyway, it was one of the leadership forum papers during a prior iteration of the emissions trading scheme. That report found that the amount of subsidy or, if one does not like the word ‘subsidy’, the amount of contribution of free emission units to Rio Tinto in Bluff is the equivalent of $100,000 per employee per annum. That is a very real cost. If those free emission rights were not given to them, the Government would have the equivalent of $100,000 per employee per annum.
Hon Steven JoyceNo, I would not close it down. But nor would I buy into the myth that it will. What I am saying is that we should not phase out their free allocation at the rate of 1.3 percent per annum, the effect of which, I say to Mr Joyce, is that even after 50 years, more than 50 percent of their emissions will still be being paid for by taxpayers.
The proper analysis when applied by economists like Suzi Kerr is to make comparisons with tariff policy. New Zealand reduced our tariffs ahead of our trading partners. Not many people in New Zealand think now that that was economically wrong for New Zealand, even though we did it faster than most of our trading partners.
We can have a big debate as to whether we should have done that over 5 years rather than over 1 year, or over 10 years, but no one says we should have done it over 50 years. No one says that by 2050, if we were phasing out tariffs, we should still have tariff protection equivalent to 50 percent of where they were when we started to phase them out.
The economic principles that underlie that argument are exactly the same as those that apply to emissions pricing. It is what the economists say, and it is what Treasury says, and they are correct. Instead, the Government is giving such generous free allocations to the likes of Rio Tinto, to the farming sector, and to Methanex so that by 2050 still more than half of their emissions costs will be borne by taxpayers.
Taxpayers will be paying for all their own emissions in respect of their fuel and electricity. Taxpayers—me, other taxpayers, all the individuals in New Zealand—will keep paying the full cost of their emissions for their transport and electricity. They will also be paying for more than 50 percent of the emissions by the major emitters because those major emitters will not have been phased out of their free allocation. It is wrong, and, as a consequence, Government debt cumulates to $110 billion more by 2050 than would be the case under the status quo.
One hundred and ten billion dollars is the equivalent of between 13 and 17 percent of GDP. The National Government is doing what Sir Robert Muldoon did previously. We have a current account deficit as well as growing Government debt, and through this one measure alone the Government is visiting on future generations another $110 billion of Government debt. Treasury’s estimate—which the Government now rubbishes; the Government feels free to rubbish anything Treasury says if it disagrees with it—is that New Zealand’s Government debt will increase by between 13 and 17 percent of GDP.
The error that that was not discovered until the last day of the select committee was not even enough to cause the Government to take a breath. It did not think that maybe it should look at the issue for another month and get to the bottom of it. The Government just pushed on remorselessly, and it is visiting on New Zealand’s younger generation an unaffordable bill, which will see wealth destruction in areas like farming, which occurred when supplementary minimum prices were withdrawn because they were no longer affordable.
MELISSA LEE (National) Link to this
For a moment I thought I was in the wrong place. I thought I was here for the Settlement Systems, Futures, and Emissions Units Bill, which in its new incarnation has been turned into the Reserve Bank of New Zealand Amendment Bill, the Securities Markets Amendment Bill, the Personal Property Securities Amendment Bill, and the Securities Amendment Bill. The previous speaker, David Parker, was waxing lyrical about something completely different, so I was a little bit lost for a minute.
It is a great pleasure to take a very short call on this legislation, because there is great support in this House. It is a complex set of bills, but when one nuts it down, one sees that it provides a way for trades in securities and other products to be cleared and settled through designated systems that meet the expectation of international and domestic participants in our financial sector. In this current economic climate, where New Zealand relies very heavily on our trading relationships with our overseas partners, it is crucial that New Zealand is aligned with international best practice.
Previous speakers have spoken about everything else, so I will move to some issues that were raised by the Commerce Committee and a couple of amendments that were proposed by the committee, which are reflected in the legislation. One issue is the penalties relating to designated settlement systems. Two main issues were raised regarding penalties. The first issue relates to the many offences that exist under the new Part 5C of the Reserve Bank of New Zealand Act 1989. The second issue relates to the level and nature of penalties available to remedy these offences. There were 12 submissions to the select committee. We also had advice from the Ministry of Economic Development, the Reserve Bank, and the Securities Commission. Submissions suggested that fines and imprisonment were unnecessary and that the remedy should be limited to revocation of designation. But the power of revocation is extreme, and a less severe option needs to be available to provide regulators with ways of ensuring compliance. The level and nature of penalties were also debated, and it was recommended that although all penalties in the legislation should be retained, the maximum penalty for bodies corporate should be reduced from $1 million to $750,000 to align it or make it comparable with other jurisdictions.
Another issue is in regard to insolvency and the finality of settlement. Although it is rare and unlikely, to avoid potential problems in the event that a participant becomes insolvent during a settlement transaction, the Commerce Committee recommends that finality protection should extend for 24 hours after the commencement of an insolvency, regardless of when the contact person had notice. This would remove uncertainty over receipt of notice while maintaining a 24-hour window after the commencement of an insolvency event to complete any settlements that were already in progress.
Finally, I commend the work of the select committee, which is led by the Hon Lianne Dalziel, very, very ably supported by Sam Lotu-Iiga and the rest of the members. I also welcome the new member, who went AWOL for a little while, Charles Chauvel. I commend this legislation to the House.
MOANA MACKEY (Labour) Link to this
I am happy to take a call in the third reading debate on the four component pieces of legislation coming from the Settlements Systems, Futures, and Emissions Units Bill. Labour will be supporting this legislation. Indeed, it was introduced to the House by my colleague the Hon Lianne Dalziel last year. It was reported back from the Commerce Committee in June this year, and I congratulate the select committee, under the leadership of my very good colleague the Hon Lianne Dalziel who was the committee’s chair. I thank the committee for the work that members have done on the legislation. I think it is good work. It is a shame that it has taken so long for this legislation to come back to the House; I think that it is far more important than a number of other pieces of legislation that have been progressed under urgency in this House.
But I say to the member who has just resumed her seat, Melissa Lee, that if she does not see any connection between a bill that facilitates a carbon trading market and an emissions trading scheme, then that may go some way to explaining the complete shambles that we have had to sit through, over the last few weeks on the Finance and Expenditure Committee. If that member thinks that carbon trading and the facilitation of the purchase of international, Kyoto-compliant emission units are in no way related to the emissions trading scheme, and that Labour members should therefore not be allowed to talk about that scheme, then I say that that is a very, very worrying position that the Government is taking. At the moment it is a little bit as if the Government has its blinkers on: “Here is a piece of legislation that people support, and so much is going on that people are opposing out there that we really just don’t want to think about it, so could Labour members please not bring it up.” But we will talk about it, because it is very important.
This is the only stage of this debate where members have been able to stand up and publicly speak about what happened at the Emissions Trading Scheme Review Committee. Prior to this it has been in committee, and we have been very careful about commenting. In my short time in Parliament, and I have been here since 2003, this is undoubtedly the absolutely worst process I have ever seen for anything.
David GarrettNo, no—for the emissions trading scheme. This bill went through a very, very good process, and it shows what would happen if legislation were allowed to go through due process in the House.
I am talking about them now; if Ms Lee just listened she would hear that. The Commerce Committee did a very good job. They made some good changes. I am particularly happy that they have been flexible about some of the definitions, because there will be a lot of innovation in the area of carbon trading.
We need legislation that does not continuously have to keep coming back to the House to be amended, and that allows that innovation to be covered under existing legislation. The fact is that when we compare this legislation to the piece of legislation that is the most important when it comes to the carbon trading market—the emissions trading scheme—the contrast could not be more stark. On the day that we were deliberating on the emissions trading scheme amendment legislation, we were still receiving advice from officials and our specialist advisers. We could not even consider that advice before we had to decide whether to support the emissions trading scheme legislation. That is absolutely appalling. We did not even have time to consider a revision-tracked version of the bill, because the time frames did not allow it. We finished hearing submissions the week that we had to deliberate. We went through a departmental report that had no clause by clause analysis, yet this was the most important piece of legislation when setting up any kind of carbon trading market.
The Emissions Trading Scheme Review Committee that was set up was nothing more than a smokescreen. We had no idea what we were meant to be doing. The terms of reference were so broad that it was clear that all it was there for was delay, and that delay has done incredible damage to our prospects as a serious engager in international carbon trading markets. We had the opportunity in this country to create enormous wealth, from being a country—
Hon Dr Wayne MappWhat bill—the emissions trading scheme amendment bill? We actually have an emissions trading scheme in place at the moment; we do not need to vote for National’s bill.
Again, I find it very disturbing that National members opposite do not seem to realise that this legislation is not the emissions trading scheme legislation. Labour is supporting the legislation that we wrote and that we put into the House. But we are raising serious, serious concerns about passing this legislation, when the most important piece of legislation to a carbon trading market, the emissions trading scheme, has gone through such a shambolic process. That has done so much damage in terms of the delay.
We are now a year out from the election. We went through a review period on the special select committee set up to review the emissions trading scheme, a committee that really was stumbling around blindly in the dark. We did not know what we were meant to be doing, but then all of a sudden the Minister said we had to report back and we were not allowed to discuss anything more. We then had a process of something like 6 weeks to consider the most important piece of legislation in this area—the emissions trading scheme, and why that is important.
Dr Mapp can chip away, he was not at that select committee and he does not know how shambolic that process was. He does not know that the National Party complained last year about the nearly 60 hours we spent in hearing submissions, saying that it was not enough. This year it was about 20 hours of submissions, but somehow that is OK. When the Labour Party restricts the hearing of submission to 60 hours, then that is an absolute outrage to democracy because it is not nearly enough. But when the National Party hears those same submissions in 20 hours, well, that is fine—
Oh, Dr Wayne Mapp says that that is because it is an amendment bill. Well, the fact is that no one who came to the committee knew what the Government wanted to do. It did not give the Supplementary Order Paper to the members of the committee. We have not seen it and we do not know what will be in it. It will be dropped in the House—as they always are—just before we are about to debate it, so that we will not get a chance to see it. I say to Dr Mapp, because he said that it was just an amendment bill, that it is an amendment bill for which Treasury, we were told at the select committee this week, was put under enormous time pressure. Treasury did not have time to do the analysis properly, but the legislation will impose a $110 billion liability on the taxpayer—a $110 billion liability. Dr Mapp says that this is just an amendment bill so it does not need to go through a proper select committee process. Eighteen percent of GDP debt will be added; that is what Treasury said. But Dr Mapp says that it is just an amendment bill, so it does not need to go through a proper process. Well, I tell Dr Mapp that the submitters who were rushed through that process did not think it was just an amendment bill. They did not think that it was just an amendment bill.
What the Government does not tell people, and why the bill is so important—a bill that facilitates the purchasing of international emissions units—is that we will be buying a whole lot of units. When the Government decided that it would have an emissions reduction target of between 10 to 20 percent, it did not say that it had no intention of reducing emissions. Officials confirmed this for us at the Finance and Expenditure Committee. When the Government says an emissions reduction target of 10 to 20 percent, it does not actually want to reduce emissions; it just wants to purchase enough emissions units to pay for it. That is quite different. But when we look at the Government’s emissions trading scheme, we clearly see that the emissions trading scheme amendment bill that has just been reported back from the Emissions Trading Scheme Review Committee will not reduce emissions. In fact, ironically, there are incentives in the bill to increase emissions.
We will be buying a lot of emissions units on the international market. Treasury officials told us this week that they made a $50 billion mistake because they were under such incredible time pressure. They did not have time to do the work properly. It is not their fault; they were put under unrealistic time frames for one of the most important economic measures our country will ever see. I ask members what time the measure had. It had only 6 weeks at select committee, and officials were not able to do the work properly—and they told us that. The Parliamentary Counsel Office told us it did not have time to do the work properly. Everyone said there was not enough time. The Business Roundtable said there was not enough time for it to do a proper submission. It was rung the day—the very day—it had to do its submission; it was asked to come in that night to do a submission. The Business Roundtable complained about the process, as well.
Although Dr Mapp may say that this is just an amendment bill, members on this side say that it is $110 billion worth of liability that Dr Mapp is putting on to future generations. The bill had 6 weeks at the select committee, which is an absolute outrage. It is just as well we are passing legislation here to facilitate the purchase of international emissions units, because we need $110 billion worth of them.
JONATHAN YOUNG (National—New Plymouth) Link to this
I am very pleased to see the final readings of this series of bills. It is vitally important to New Zealand’s standing in the international trading community to have sound best-practice systems so our export-orientated country does not have impediments, perceived or real, that would dissuade any traders from participating in our market. In regard to emissions trading, it is very important to have a regulated framework. It is essential. The global market and its disruptions mean that safe partners can no longer be assumed, and these bills work towards bringing that sense of surety, regulation, and framework. The bill also works to define the emissions units. The world around us is changing and a new commodity that markets need to come to grips with is emissions units. I am very pleased to commend these bills to the House. Thank you.