2. CHARLES CHAUVEL (Labour) Link to this
to the Minister of Finance
What recent reports has he received on the revenue implications of the proposed emissions trading system?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I have seen a range of reports, some suggesting that the scheme will be a revenue-raising machine, raising up to $80 billion. Any estimates are of course subject to assumptions, but Treasury’s latest advice to me is that on the assumption that in the second commitment period the cap will be lowered under international agreements by 5 percent from the current caps, the net revenue gain for 2013 to 2018 will be $159 million a year. If, however, the cap is lowered by 15 percent, there will be a net revenue loss of $106 million a year. In either case, these are relatively small numbers compared with total Government revenue.
Hon Dr MICHAEL CULLEN Link to this
I have seen many reports—in particular, a report from one member of Parliament indicating support for the scheme last year, followed by an announcement last weekend that his party will no longer support it. I am reminded, of course, that the same member previously described the Kyoto Protocol as a hoax, before going on to say that he had always believed in it. It does suggest a certain inability to have a firm and fixed position on perhaps the largest challenge facing the world at the present time.
Hon Dr Nick Smith Link to this
Does the Minister agree with the statement by David Parker, the Minister responsible for Climate Change Issues: “the emissions trading scheme does not create any cost for the economy.”?
Hon Dr MICHAEL CULLEN Link to this
What Mr Parker was saying is completely correct, in that the costs are created by Kyoto. Those costs bear upon—[ Interruption] The Kyoto Protocol imposes costs upon the Government.
Hon Dr MICHAEL CULLEN Link to this
That is not sophistry; that is a fact. The question is about how those costs are going to be shared. Are they shared entirely by the Government—that is, the taxpayers—or are they transmitted through an emissions trading scheme? That has the added advantage of sending the appropriate price signals about changing behaviour, whereas simply increasing taxes does not send that signal, at all.
Hon Dr Nick Smith Link to this
Why did the Minister responsible for Climate Change Issues say that there would be no windfall of profits to the Crown in the first commitment period, when the climate change emissions trading Cabinet paper notes “The increased revenues for government associated with increased costs of electricity could also be significant. Estimates of the windfall profits that are likely to be received by SOEs … is $70-220 million/year.”?
Hon Dr MICHAEL CULLEN Link to this
Those numbers probably reflect the impact of the marginal pricing arrangement of electricity, considering that an emissions trading scheme raises the marginal price and, therefore, there would be increased windfall to renewables generation in particular. However, the member forgets what the Minister, I think, outlined yesterday, and that is that the State-owned enterprises have built those profits into their assumptions around reinvestment back into renewable generation. Without that revenue stream the Crown will have to provide equity injections in order to enable that investment to occur.
Hon Dr Nick Smith Link to this
Why will the Government not release the advice on the flow of revenue to the Government under the emissions trading scheme, in which, under the range of scenarios, it shows that the best estimate is a $13 billion surplus from the sale of emission units, and a possible range of $6.6 billion to $21 billion of surplus?
Hon Dr MICHAEL CULLEN Link to this
The numbers the member refers to are projected out to 2030, on the latest advice that I have. Most of those so-called gains are back loaded—in other words, they occur during the latter part of the period. Of course, by then the economy is likely to be some $300 billion - plus a year. So a gain of perhaps $1 billion to $1.5 billion a year by that stage will be a relatively small part of the total economy, and will have been recycled, no doubt, either into expenditure to compensate for costs or into tax reductions. Treasury is quite clear that the direct gains to the Government in the initial period are very small, and even those in the second period from 2013 to 2018 are actually quite small. I am happy to table that advice today.
Jeanette Fitzsimons Link to this
Does the Minister agree that if he wishes to recycle some revenue into helping the most vulnerable consumers to meet the higher costs of energy, then the best way of doing so would be to invest in making their homes and transport choices more energy efficient so that their bills go down even if prices go up; the second-best way of doing so would be to raise incomes; and the absolutely worst way of doing so would be to give consumers a reduced electricity price, which would completely remove the whole incentive of the emissions trading scheme to get people to invest in more energy-efficient choices?
Hon Dr MICHAEL CULLEN Link to this
I think the last point is a fair one, and I believe compensation is best made not through a price mechanism but through other mechanisms. I think the member is quite right that considerable assistance can be given through retrofitting, in terms of insulation, and, obviously, assistance around public transport. But of course people who already have a well-insulated home and perhaps do not use public transport very much would still face a net increase in cost. So the Government will be giving a lot more consideration between now and the introduction of electricity into the scheme at the start of 2010 as to how best to achieve compensation. Already there is commitment with New Zealand First to look into the issue of a rebate for superannuitants. But that of course is not a reduction in price—it will be a flat rebate.
Hon Tariana Turia Link to this
Tēnā koe, Madam Speaker, tēnā tātou katoa. Does the Minister agree that the nature of Māori land tenure may result in disproportionate effects on tangata whenua from controls on deforestation; and what initiatives will the emissions trading scheme introduce to mitigate this effect?
Hon Dr MICHAEL CULLEN Link to this
No, I do not entirely agree with that position. There has already been significant discussion with iwi leadership groups about how best to allocate forest entitlements units in a way that is consistent with overall equity and that addresses some issues, and an agreement has been arrived at in that regard. I think it is a perfectly fair outcome. At the end of the day, it is not possible to exempt a large part of the primary sector economy from the impact of the emissions trading scheme and expect to have a positive effect, because the cost of that would be transferred to all other parts of the primary sector economy.
Hon Tariana Turia Link to this
What response will he be making to the recommendations from the Māori reference group regarding compensation if the demands under the emissions trading scheme undermine the value of the Crown rental forest lands returned to Māori?
Hon Dr MICHAEL CULLEN Link to this
In terms of lands being returned, certainly from at least 2002 onwards, obviously including central North Island lands, the impact of the emissions trading scheme or a similar scheme, whether it is carbon tax or whatever, has already been factored into decisions that are being made around the price for that land. In effect, more land is available because the value of the land is less. It is the quantum that is the key factor in that regard. With respect to Ngāi Tahu in particular, which is the most affected in terms of negotiations in the past, discussions are continuing at the present time.
Jeanette Fitzsimons Link to this
Does he agree that the increased cost to the taxpayer of bringing in transport 2 years later is also a revenue implication of the emissions trading scheme and that this will amount to a revenue reduction to the Crown of over $900 million, at $30 a tonne?
Hon Dr MICHAEL CULLEN Link to this
There is certainly an operating balance and, indeed, a balance-sheet effect of delaying by 2 years the emissions trading scheme with regard to liquid fossil fuels. If it is at $30 a tonne, it would be some $900 million, and sooner or later that deficit has to be made up. There is no free ride for anybody in the whole issue around climate change. Those who argue we should have a climate change policy where no changes have to be made are simply engaging in a totally illogical position.
Hon Dr Nick Smith Link to this
I seek leave to table the report of the Emissions Trading Group on the revenue flows from the auction of emission units.
Hon Dr MICHAEL CULLEN Link to this
I seek leave to table the latest advice I have from Treasury on the net revenue implications of the emissions trading scheme.