1st Reading of Climate Change Response (Emissions Trading) Amendment Bill

The emissions trading scheme puts sustainability at the heart of our economy.

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First Reading of the Climate Change Response (Emissions Trading) Amendment Bill

Madame Speaker

New Zealand is exposed to climate change in multiple ways. We face a choice. We can move strongly to seize the benefits and reduce the liabilities, or we can sit on our hands as the opposition would have us do and be exposed to enormous risks.

We are more dependent on climate than any other developed country, because more of our economy is based on climate-dependent production. In our export markets, consumers and regulators are already asking hard questions about the sustainability of our produce.

Unless we can say our exports are from the first truly sustainable country in the world we will increasingly be shut out of the markets upon which we rely.

Fortunately for New Zealand, climate change is not only a risk. It is also an opportunity. As consumers are turning away from environmentally damaging products, they are turning towards environmentally responsible production and prepared to pay premiums for it.

If we can get our own house in order, New Zealand can take advantage of this.

The emissions trading scheme is a landmark in our efforts to address this crucial issue. It puts sustainability at the heart of our economy.

The underlying principle behind the emissions trading scheme is that it should cover all sectors and all gases. It therefore has profound effects on the future of our primary industries.

The nature of the effects on forestry and agriculture, in particular, deserve special attention.

Agricultural sector emissions represent almost half of New Zealand's total greenhouse gas emissions. They are currently a significant source of emissions growth. It is not plausible for New Zealand to leave our major industries out of the scheme. It would mean, at the very least, that the cost of the sector's emissions would need to be paid elsewhere in the economy.

So all sectors are in the scheme, but we have also had to design a trading scheme that allows for a smooth transition.

Emissions trading allows flexibility in land use while ensuring decision-makers consider the true costs, including the environmental costs, of their choices. We can particularly see the strength of the emissions trading scheme in the forestry sector.

A couple of decades ago the government used to provide subsidies to farmers to farm marginal lands more intensively. We ended up with eroding hill country and inadequate protection for our soils, waterways and communities.

Emissions trading turns that around. Emissions trading makes for less erosion, because the scheme gives an economic incentive to plant more trees.

Protecting against erosion helps the environment and protects communities, it is much better for farming business than over-intensification of marginal land.

The emissions trading scheme allows forest owners to benefit from the value they provide the rest of us when their forests store carbon.

The forest sector will enter the emission trading scheme on 1 January next year.

Forest land will be designated as either "pre-1990" forest land or "post-1989" forest land. Owners, lessees and rights holders of forests planted after 1989 can join the scheme if they choose. They will then receive New Zealand Units when their forests grow and surrender units if carbon stocks decrease.

Depending on the price of carbon, this is likely to be worth at least several hundred million dollars to the forestry sector.

One advantage of the emissions trading scheme is that it allows the benefits and costs from Kyoto to be devolved. In fact the more that costs and benefits are devolved, the more effectively the trading scheme works. It puts the incentives closest to the contributors to the problem and to the solution.

From 1 January owners of exotic forests first planted before 1990 will be liable for emissions if they choose to convert their forest to another land use.

For example, if they move from forestry to agriculture. If you own a small forest, such as a forest under 50-hectares planted before 1990, then you can be exempted from the scheme.

Naturally, if you face no liabilities you won't receive any free allocation.

Deforestation is the second largest source of greenhouse gas emissions globally, and therefore we have to do something about it. Reducing deforestation is one of the lowest cost options for reducing emissions.

It is also important to address it immediately as forestry is the one area where individuals can bring forward their emissions to beat any future measure.

The government is easing the transition for the sector. The Government will meet the cost of 21 million tonnes of deforestation emissions from exotic forests until 2012.

An allocation will also be made to cover a further 34 million tonnes of deforestation emissions after 2012. The assistance to pre-1990 exotic forest owners is equivalent to the historic rate of deforestation over the current exotic forest estate.

The first reporting period for deforestation of pre-1990 forests will conclude at the end of 2009, the same time as transport. The two sectors will be able to trade emission units between themselves.

In total, the assistance package offered to pre-1990 exotic forest landowners is worth around $825 million at a carbon price of fifteen dollars a tonne. This is a very substantial commitment.

The government is still looking at the question of indigenous forests. There has been some consultation with owners of indigenous forests planted before 1990.

It's unlikely that much of our native forest can be chopped down now, because they are largely protected. For example, we have stopped cutting down thousand year old beech trees on the West Coast, and the region has already been compensated.

Other sectors, like agriculture, won't come into the emissions trading scheme for a number of years. They still need certainty and for that reason the Bill includes provisions about the point of obligation.

Back in 2003 the Government agreed to meet the cost of non-carbon dioxide emissions from agriculture until 2012. In return, the sector increased its research efforts on cost-effective abatement technologies.

That agreement is being kept and agriculture will not come into the emissions trading scheme until 1 January 2013. In the meantime the agricultural sector will start measuring and reporting its emissions before trading begins - from 2011.

There is more work to do in deciding some issues affecting the sector. One crucial question is where the point of obligation should lie.

Options include the farm level, processor or company level, and sector body level.

At the moment, the Government's preference is for a processor or company level point of obligation. But we will work with the sector closely to develop a practical and cost-effective system that rewards good environmental performance. The government will work with the sector on these and other issues.

The issue of the phase out of free allocations by 2025 is still on the table for discussion and the Bill we are introducing today has review provisions on this which ensures we consider developments with our major trading partners.

It's vital that the next five years before the sector comes into the emissions trading scheme are used to begin to adjust.

The total level of free allocation when the agriculture sector enters the emissions trading scheme will be at a maximum of 90 per cent of 2005 emissions. This will ensure that the sector is not encouraged to increase its baseline emissions before it enters the scheme.

Existing technology is available to help begin the process of reducing emissions. Examples include nutrient management plans, nitrification inhibitors and improved energy efficiency.

The agriculture sector will benefit in several ways as it begins to reduce nitrous oxide emissions. For example, its nutrient budgets and management plans will reduce costs. It will improve water quality. It will be better positioned to compete in international markets where our environmental and climate change performance is being counted.

When agriculture enters the emissions trading scheme, we propose an assistance package of emission units allocated at no cost to the sector.

The emissions trading scheme is the cornerstone of New Zealand's efforts to reduce our carbon emissions. But on its own it won't do enough to reduce agricultural emissions as much as we need to over the medium to long term. We need a technological breakthrough to do that.

Nor will the emissions trading scheme on its own address broader questions affecting land management and the business opportunities of climate change.

To this end, he Government has already announced that it will invest $175 million over the next five years. The money is being used for a plan of action on land management and climate change. It will help the land management sector adapt and prepare for the future.

A priority for the plan of action is increasing our research effort to ensure New Zealand continues to lead the world in agricultural emissions research.

There will be many other measures, including farm scale greenhouse gas monitoring and reporting. There will be work to break down the barriers preventing business from capitalising on climate change opportunities.

And in addition to devolving carbon credits the Government has agreed to invest $50 million in an Afforestation Grant Scheme. It will be used for landowners who choose to stay out of the emissions trading scheme and prefer a simple cash payment instead. It will likely target tree planting projects that offer co-benefits such as soil conservation and improvements to water quality. It comes on top of the existing East Coast Forestry Project and Permanent Forest Sinks Initiative, as well as funding to address hill country erosion announced in the Budget.

We now have a comprehensive package of measures to rebuild capacity to address New Zealand's land management challenges. New Zealanders expect our primary industries to play their part. Our markets expect us to play our part.

We have to get started with a vision of a sustainable and carbon neutral New Zealand.
The Climate Change (Emissions Trading) Bill gives us an historic place to start.