Appropriations (2010/11) Estimates Bill

Key Points

• From 1 July National’s ETS will put jobs and our fragile economic recovery at risk.

• Even though 70 percent of our electricity is renewable, Kiwis will pay a price based on the higher cost of coal and gas generation 80 percent of the time.

• Our per capita emissions are already lower than 1990, even ignoring the effect of forestry.

• Nick Smith has said that our ETS will be the first outside Europe and ‘on July 1 2010 it will be the most comprehensive by including transport, industrial and energy emissions’.

• New Zealand is allocating over $1.2 billion in forestry credits this year alone.

• National acknowledged in 2008 that the Government will make windfall capital gains, but now are strangely silent.

• 85 percent of New Zealand’s exports will go to non-ETS countries versus only 20 percent for European exports; our competitive disadvantage is far greater than Europe’s.

• ACT believes that the ETS will cost households far more than the $165 per annum quoted by National; the Government’s own figures prove this. The Budget tax-saving calculations ignore this cost totally.

Speech

Mr Speaker, there is much to commend in this Budget.  One only needs to look at the reductions in marginal tax rates, which will drive incentives for New Zealanders to work, save, and get ahead.

However, buried away in the Budget document is the elephant in the room, the one thing no other political party in Parliament wants to talk about, the extra $907 million – almost $1 billion - appropriated in this Budget for the Emissions Trading Scheme (ETS).  And, that figure ignores the additional $378 million the Government will take in from selling emissions credits.  In essence then, emissions credits worth $1.2 billion are being allocated to foresters in the current year.

On July 1, in less than a month, the Government is going to usher in the most comprehensive emissions trading scheme in the world.  We’re going to expose our famers and exporters to costs that none of our major trading partners incur.

We’re going to lead the world on climate change, we will lead the world with our Emissions Trading Scheme, and we will do so despite the fact that the National Party promised prior to the last election that we wouldn’t be world leaders, but fast followers.

This Government, for all its good work, is prepared to risk peoples’ jobs, their livelihoods and the fragile recovery slowly taking place in our economy.

From July 1, all New Zealanders will pay more for their electricity, their heating, their petrol, and their food, in fact for virtually everything they consume, as a consequence of the ETS.

There will be massive windfall profits to the electricity generators.

Close to 70 percent of our electricity is generated from renewable sources, yet under the ETS, New Zealanders will be charged more for electricity, and for over 80 percent of the time they will pay a price based on coal and gas generation.

We’re doing this to ourselves at a time when our gross emissions of carbon dioxide per capita are actually less than what they were in 1990; and that totally ignores the impact of carbon sequestration by our forests, which results in an even greater net reduction in emissions per capita.  In essence, our population growth has been greater than our emissions growth; thus gross emissions per capita have fallen.

The Most Comprehensive ETS in the World

Yet this Government is prepared to risk jobs, security, and the very basis of our recovery to lead the world with this most comprehensive ETS.
Mr Speaker, how do I know it’s comprehensive?  Because Dr Nick Smith, Minister for Climate Change Issues, has said so himself.  On September 24, just last year, when introducing the Bill modifying the previous Labour Government’s Emissions Trading Scheme, he said: ‘The Emissions Trading Scheme will be the first of any country outside Europe, and on July 1 2010 it will be the most comprehensive, by including transport, industrial, and energy emissions.’

So in his own words, the Minister of Climate Change actually acknowledged that New Zealand’s Emissions Trading Scheme is the most comprehensive in the world.  For example, simply by including transport, it goes beyond anything in the European ETS.

Yet, so much has happened since National made those amendments six months ago.  While it might suit Dr Smith and his National Party colleagues to play down that fact, that is the reality.

And if that’s not enough, Mr Speaker, Dr Smith repeated that claim during the third reading of that amending Bill.  Once again, he asserted that the Emissions Trading Scheme that this Parliament passed into law was the most comprehensive in the world.

We’re going to impose costs on our farmers and our exporters, the very backbone of our economy.

Where Is The Money Going?

And where is the money going?  That is the question most New Zealanders want to know the answer to.  As I travel up and down the country holding public meetings on this subject, I am asked time and time again where the money is going.

This year alone, we’re allocating $1.2 billion in forestry credits.  Of that of that $1.2 billion, $400 million is to go to pre-1990 foresters as compensation for losses, that in the absence of a post-2012 deal we can’t even be sure about.
We do not even know what losses, if any, these people have suffered, because: a) we have no post Kyoto agreement beyond 2012, and b) with the failure of the Copenhagen talks, I suspect the chance of having one has reduced substantially in the last six months.

However, even if there was to be a post Kyoto agreement negotiated, there is a real chance that there would be a change to the rules governing Land Use and Land Use Change.  So we’re about to pay $400 million, and we’re about to tax all New Zealanders more for their electricity, their petrol and their food, so we can make the first $400 million compensation payment to pre-1990 foresters - and we can’t even be sure of what loss they will suffer.

Worse still, the money is not going to subsidise the planting of new trees some time in the future.  Rather, the great bulk of credits allocated to foresters will be going in respect of trees, most of which were planted in the 1990s when foresters themselves acknowledge they had no expectations of receiving credits and subsidies from their fellow tax payers.

And we’re doing this at a time when most of our trading partners are walking away from emissions trading schemes.

Changes In The International Scene During The Last Six Months

So much has happened in the last six months

Copenhagen failed to produce a post Kyoto agreement and the prospect of one is now bleak.

Climate-gate has challenged the very credibility of the UN IPCC, leading climate scientists, and even the hypothesis of human induced global warming.
Record cold winters in Europe and the United States have reduced substantially public support for emissions trading schemes.

France abandoned its proposed carbon tax on petrol recently because it couldn’t get its EU neighbours to match it.

Finally, Australia pulled the plug less than a month ago when they said 2013 is the earliest they would have an ETS.

So what is this National Government doing?  It continues to blunder on, head held back, blinkers on, totally ambivalent to developments around the world.  And, ignoring totally the Minister for Climate Change Issues acknowledgement in this House, not once, but twice, in the last six months that this is the most comprehensive emissions trading scheme in the world.

ETS Costs And Windfall Gains To Electricity Generators

All New Zealanders will pay.  Treasury forecast that electricity will rise by five percent and petrol by three to four cents per litre, with another round of similar increases in 2013.

The Reserve Bank says that the ETS will add 0.4 percent to the cost of living.  It will feed into everything, including the very food we eat for our survival.

We’ve already seen this with the electricity price rise announced last month by Mercury Energy.  Mercury Energy, a fully owned subsidiary of the government owned generator Mighty River Power has announced that it intends to increase retail electricity prices by 3.3 percent solely on account of the Government imposed ETS from July 1.  This is only a down payment; consumers can expect more, particularly after Genesis moves to recover the increased costs they will incur from burning coal and gas at Huntley.

Worse still, Mercury Energy’s letter to its customers talked about increasing prices to reflect the cost of emissions ‘for the industry as a whole’.  This is Morse code – a signal – for windfall profits.  The reality is that Mighty River Power generates between 85 and 90 percent of its electricity from renewable sources, and as such will incur little extra in the way of emissions costs.  Yet, because the electricity industry as a whole will incur costs much greater than Mighty River Power and Mercury Energy, Mercury Energy is able to increase its prices by more than the additional costs it incurs, simply because its competitors will and it knows that it can increase its prices without a significant risk of losing customers.

The Government will make very substantial windfall profits from this Emissions Trading Scheme.  But, it doesn’t even have the courtesy or the decency to acknowledge to the people of this country that it will make those windfall profits.

The Minister for Climate Change Issues knows it.  Just two years ago, in its minority report on Labour’s ETS the National Party stated: ‘There are also additional indirect windfall gains to the Government from its electricity State Owned Enterprises.  Meridian has advised the Committee of an increase of $750 million in its valuation as a consequence of the ETS.  Including, Mighty River Power, the windfall gain to the Government from SOEs will be in excess of $1 billion.'

Despite this, the Minister was very happy to tell Parliament that in the coming year the Government was forecasting revenue of around $350 million against allocations of credits to foresters in excess of $1 billion and as such the taxpayer was going to incur a massive loss.  The Minister knew that these figures didn’t include the windfall gains to the Government referred in National’s own minority report.

National’s Spin

And what else is Dr Smith telling New Zealanders?

Well, up and down the country and on television, Dr Smith says that of the 38 developed countries that have Kyoto obligations, 29 have emissions trading schemes. Yet, by his own admission, those 29 countries are all in Europe.
What he doesn’t mention is 80 percent of European exports are to other countries within Europe.  Only 20 percent of European exports actually leave Europe to compete with the goods of other countries that don’t have emissions trading schemes.

How does that compare with ourselves?

Of our exports, only 15 percent go to Europe, leaving a massive 85 percent going to countries that don’t have the added costs of an emissions trading scheme.  For example, none of our four largest trading partners - Australia, China, the United States, and Japan - has an ETS.  Therefore, our competitive disadvantage is five times greater than anything faced in Europe.

Dr Smith is also telling New Zealanders that the ETS will ‘only’ cost the average household $165 a year or $3.17 a week.  He told Parliament that he based this on the average household consuming 8,000 kilowatts of electricity per annum at an additional cost of one cent per kwh and travelling 28,000 kilometres per annum (presumably in two cars) at an increased cost of 3 cents.
ACT believes that $3.17 a week is a substantial underestimate of the real costs households will pay, because it fails to fully take into account the flow through of petrol and energy costs into the costs of everything else households consume, including food as calculated by the Reserve Bank.  It won’t take long for New Zealanders to realise this.

And Mr Speaker does National’s Budget document take account of the extra ETS costs New Zealanders will incur when it calculates their net tax savings?  No.  A big, fat ‘no’ Mr Speaker.

Dr Smith is also telling New Zealanders that even though Australia will not have an ETS until at least 2013, it’s regulating for a minimum of amount of renewable generation.  As a consequence he says the price of electricity is forecast to rise by seven percent and that New Zealanders are some how getting a good deal because our electricity prices will initially only rise by ‘only’ five percent.  What he doesn’t mention, is that electricity prices in Australia are only one half to two thirds of what we pay.  So even if there is a seven percent increase in Australia, the gap between yourselves and Australia will still widen.
Finally, famers haven’t been fooled that they’ll only be incurring ETS costs from 2015.  They’re becoming aware that they’re up for costs, big costs, from July 1 - $75 per week for the average dairy farmer and $30 for the average beef and sheep farmer.

New Zealanders are not fools, no matter how often the National Party tries to treat them as such.

New Zealanders are becoming more and aware of the costs of this ETS.
I have travelled up and down the country for the last two months speaking about this issue.  And I tell members of the National Party that New Zealanders are concerned, and in fact they are very concerned.  The National Party ignores that concern at its peril.

Mr Speaker, at a recent meeting in Gore, less than half a mile from Bill English’s electorate office, 52 people came out to a meeting at 11 am on a Monday morning to discuss the Emissions Trading Scheme.

Apart from the severe impact of on agriculture, what was one of their biggest concerns?

Well, living close to coalfields, they heat their homes in winter with coal.  From 1 July the price of that coal will rise by 30 percent.  That is not a mistake. The ETS will cause a 30 percent increase in the price of coal for these people.

Where is the money going?  It is going in subsidies to the Japanese owners of forests in Southland; that is where it’s going.

This Government is prepared to tax, impose an extra cost on electricity and put our exporters at risk at a time when we need them to be expanding. It’s putting jobs at risk.

Why?

So that it can allocate in the current financial year, $1.2 billion of emissions credits to foresters, both pre-1990 and post-1989.  This is a disgrace, an absolute disgrace, and members of this Government know it.

Finally, the biggest travesty of all, is that this, very expensive scheme, won’t actually make an iota of difference to the world’s climate.  The Prime Minister’s Chief Science Advisor, Professor Sir Peter Gluckman, pointed out long ago that we’re far too small to make any difference.  He said: ‘anything we do as a nation will in itself have little impact on the climate – our impact will be symbolic, moral and political.’

Regardless of whether you belief in the hypothesis of man made global warming or not, it simply makes no sense what so ever for New Zealand to lead on this issue.

I urge members of the public to contact Ministers and to contact their members of Parliament, because it is not too late.  It is not too late for this Government to acknowledge that it made a commitment to the people of New Zealand not to lead on climate change, not to lead with a world-leading emissions trading scheme, and not to bring in the most comprehensive emissions trading scheme that Dr Smith so proudly talked about in this Parliament less than six months ago.

Thank you.