Embargoed until delivery
Thursday 20 September 2007

Rt Hon Helen Clark
Prime Minister

ADDRESS

AT

LAUNCH OF EMISSIONS TRADING SCHEME

Banquet Hall
Beehive

Thursday 20 September 2007
10.30 am

Eleven days ago I met in Sydney with the leaders of twenty other APEC nations.

At that meeting we put the challenge of tackling climate change and achieving clean, sustainable development at the top of the region’s economic agenda.

The message from the APEC leaders was clear : climate change is real and we must deal with it now.

Today, I am pleased to announce the next step in the Government’s plan to fight climate change.

What you will hear today are New Zealand solutions to our part of a global problem.

They are solutions which are fair, flexible, and effective for all sectors of New Zealand business and society.

They are solutions that many of you have discussed and contributed to during a long period of consultation.

Above all they are solutions which will put our economy and society on the path towards a sustainable, carbon neutral future.

In just the last year there has been a huge change in attitudes to the issue of climate change.

The need to act has been generally accepted.

The focus is now on solutions.

The Labour-led Government has for many years accepted the importance of this issue, and the need to tackle the challenge.

We have also recognised that New Zealand cannot tackle climate change alone.

We are neither an economic giant nor a global superpower. We are a small nation, with a proud history of being a responsible international citizen which acts on its values.

That is why our Labour-led Government, along with the governments of 175 other nations, has accepted responsibility for tackling this global problem by ratifying the Kyoto Protocol.

If we want to influence other countries and the responses they take in coming years and decades, then we must take action ourselves.

Taking action is not only the right thing to do, it is the smart thing to do.

New Zealand has an enviable reputation as a country with a clean and green environment, high achieving and honest people, an inclusive community, and a commitment to peace and justice.

Our international reputation and positioning is priceless. Failure to protect our reputation would pose a considerable economic risk to New Zealand.

Sustainability is a key competitive advantage. In today’s global marketplace, consumers are increasingly concerned about ethical and environmental issues, and the carbon footprint of products and services is becoming an issue. To protect our markets and our nation’s reputation, we need to act pre-emptively.

Addressing these risks cannot be done piecemeal; it requires a comprehensive strategy and action plan.

And it requires vision. That is why I have set out the challenge to our nation to become the first truly sustainable nation on earth – and to dare to aspire to be carbon neutral.

Already many steps have been taken in many sectors:

- New energy and energy efficiency strategies are well on the way.

- Biofuels are being introduced; investment in public transport has soared; and a commitment has been made to support rail electrification in Auckland as part of the drive to get cars off the roads.

- Big changes are being made to the Building Code to get greater energy efficiency in homes and buildings.

- There is a big retrofit programme for older homes, with a loan scheme being designed to complement it, and there are incentives to install solar water heating.

- The New Zealand Waste Strategy is getting results.

- The public service is going carbon neutral and has new sustainable procurement guidelines.

- Many in the business sector are showing leadership on sustainability issues, and in many homes people are consciously reducing their carbon footprint.

Now it’s time to take the next steps with an economy wide programme for reduction of greenhouse gases.

The Government believes that an emissions trading scheme which puts a price on emissions creates the right incentives across the economy to use fuel and energy more efficiently, and to think about how we use resources and manage our land.

Important sectors of the economy – notably tourism, the wine industry, and agriculture - are already developing long-term strategies based on achieving sustainability.

New Zealand Winegrowers, for example, have set the goal of having 100 per cent of their industry operating under independently audited sustainability schemes by 2012.

Grove Mill winery in Marlborough reported a 100 per cent rise in sales to UK supermarket giant Sainsburys after becoming the world’s first CarboNZero certified winery.

The tourism industry contributes close to nine per cent of GDP and just under one in every five export dollars we earn. Sustainability is at the heart of the Tourism Strategy 2015 which the sector is finalising this year.

NZX and others in business leadership have already identified opportunities arising from emissions trading activity for New Zealand.

The long-term benefits of becoming a sustainable nation will spread beyond our national reputation and success in business to benefit all New Zealanders. There are multiple benefits.

More energy efficient buildings, appliances, and vehicles reduce both financial costs and air pollution.

Reducing the use of nutrients on land improves water quality.

Having warmer, better insulated homes means healthier families.

Quieter, cleaner public transport relieves congestion.

At the centre of today’s announcements is the proposal for an emissions trading scheme.

This scheme will help reduce, over time and in the most efficient way, the emission of greenhouse gases into the atmosphere.

In simple terms, an emissions trading system will put a price on carbon dioxide and the five other greenhouse gases specified in the Kyoto Protocol.

Putting a price on emissions will, over time, change investment and consumption patterns, so that we develop an economy and lifestyle with lower emissions.

Over time the scheme will lead to greater investment in energy efficient infrastructure, renewable energy, and more efficient consumer goods.

An emissions trading scheme is a big, bold step forward, and has not been embarked on lightly.

There has been a lot of consultation with business and other stakeholders on the best mix of options to address climate change going forward.

The options discussed included a carbon tax and direct regulatory measures. In our view, and that of most of those consulted, an emissions trading system offers the most flexible, effective, fairest, and least-cost option for reducing New Zealand’s greenhouse gas emissions.

In deciding the details of the proposal, the government has been guided by the desire to be fair. That is why we have opted for a scheme which will apply to all sectors of the economy and includes all greenhouse gases.

The economy does need time to adapt to the changes which the scheme brings. As well, different sectors of the economy are at different stages in their ability and readiness to reduce emissions.

Forestry, for example, is a vitally important sector in addressing climate change. One of the major benefits of an emissions trading scheme is that it allows us to devolve credits and liabilities across the economy, rather than holding them within government. As a result of this it now makes sense to devolve the credits and liabilities for post-1989 forests back to forest owners.

This will create major new incentives for planting trees, with all the flow on benefits for the environment, the forestry industry, and for mitigating emissions which that brings.

For landowners who choose not to enter the emissions trading scheme, an Afforestation Grant Scheme will be introduced, along with other measures to improve the monitoring and management of emissions on farms and forests.

Alongside tourism, agriculture is the sector to which our clean, green image is most important, but it is also the sector with the biggest challenges of adaptation to climate change mitigation. Agriculture is the largest single source of greenhouse gas emissions in New Zealand, making up approximately 49 per cent of our total emissions. It primarily emits gases other than carbon dioxide – methane and nitrous oxide.

It is important that agriculture is included in the scheme, but the challenges the sector faces in adapting to a price on emissions have to be taken into account. That can be done in several ways.

First, we will continue to invest in world leading research on reducing pastoral greenhouse gas emissions through better fertiliser and nutrients, and through our understanding of animal health. The payoff from this research in lower emissions and more efficient farming practices could be significant.

Second, agriculture will not enter the emissions trading scheme until 2013. This creates a window of opportunity for the sector and government to work together in preparation. While agriculture is an important driver of our economic growth, we all need that growth to be smart and sustainable.

The major features of the proposed emissions trading scheme are as follows;

* We will include all sectors of the economy, and all greenhouse gases in the scheme.

* We propose to bring sectors into the scheme gradually, reflecting the different challenges and the differing capability of sectors to adapt. Our proposed timetable is as follows:

o Forestry from 1 January 2008
o Liquid fossil fuels from 1 January 2009
o Electricity generation, industrial heat and power and other industrial processes from 1 January 2010
o Agriculture, waste, and all other emissions from 1 January 2013

* We propose that the government continue to accept some Kyoto liability during the first commitment period, and that some free allocation of emission units be made. Both these decisions recognise the challenges faced by some sectors in adapting to the introduction of a cost on greenhouse emissions. There will be ongoing consultation about the allocation of emission units.

* To reduce compliance and administration costs we propose to place the obligation for emissions upstream in the market. For example, fuel companies will be responsible for emissions, not motorists.

* With regard to forestry, we have decided in principle to offer owners of eligible post-1989 forests the choice of entering the scheme. If they do so, both credits and liabilities will be devolved. Other arrangements for non-Kyoto forests will be described in detail by the Minister of Climate Change and the Minister of Forestry.

* To ensure that people on low or modest incomes are not unfairly disadvantaged by higher electricity costs, the government will put in place additional measures to reduce the financial impacts, while still ensuring that incentives for efficient energy use remain. An important point to note in this regard is that emissions pricing on fuel and electricity will not come into effect until 2009 and 2010 respectively, so no resultant price increases are imminent.

The Government has also agreed on specific medium and long-term objectives and targets to move New Zealand towards greater sustainability.

* By 2025 our target is to have ninety per cent of electricity generated from renewable sources.
* By 2040 our target is to reduce by half per capita emissions from transport.
* We aim to be one of the first countries to introduce electric vehicles widely, and;
* By 2020 we aim to achieve a net increase in forest area of 250,000 hectares.

Achieving those targets will move us significantly towards our vision of New Zealand becoming carbon neutral.

With this programme our electricity sector could reasonably be seen as carbon neutral by 2025, the rest of our stationary energy sector by 2030, and our transport sector by 2040.

The emissions trading scheme being announced today has been designed to meet New Zealand’s unique needs.

It is fair and flexible, and it will enable businesses to reduce emissions in the most cost-efficient way.

It is designed to link into the emerging international emissions trading system.

An emissions trading system is already operating in the European Union; both Australia and Japan are working on proposals; and, in the United States, the Northeastern and Mid-Atlantic states, and California, are all planning trading systems.

The Kyoto Protocol is itself a global cap-and-trade system. Our ratification of the Protocol enables us to participate using Kyoto-compliant emission units.

What that means is that we will have access to buying and selling those emission units in overseas markets. Thus businesses which reduce emissions will benefit from a world-wide market for their units. Businesses which need to cover their liabilities will be able to seek offsets at the best international price.

Many present here today have already participated in consultations on the design of this scheme. There will now be a further period of engagement on the framework I have outlined, before legislation is introduced to Parliament towards the end of this year.

As we propose to bring sectors into the scheme gradually, there will also be time for ongoing consultation and engagement around the details for each sector, beginning this year with forestry and the liquid fuels sector.

The decisions being announced today constitute an important part of the Labour-led Government’s plan to tackle climate change.

Further announcements will be made in the coming weeks as we release the New Zealand Energy Strategy the New Zealand Energy Efficiency and Conservation Strategy, and the Transport Strategy Implementation Plan.

I am pleased to see so many leaders from different sectors of business and the community here today, because achieving the goals we are setting out needs leadership across all sectors.

Tackling climate change presents us with both great challenges, and great opportunities.

It enables us not only to work to sustain our environment and our national reputation for being clean and green, but also to improve our quality of life and to give our businesses a competitive edge in a world which cares about sustainability.

Today the government has set out the leadership it is prepared to take with these new initiatives.

The next steps will need leadership across the economy and within the community, so that New Zealand can make its contribution to the climate change challenge and move along the spectrum towards greater sustainability and carbon neutrality.
Thank you.

ENDS

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