'THE NATION'
PANEL DISCUSSION WITH DR NICK SMITH
hosted by STEPHEN PARKER

STEPHEN We're speaking to the Climate Change Minister Nick Smith, and on the panel this morning Colin Marshall and Andrew Holden.

COLIN MARSHALL – RadioLive Political Editor
Three dollars for a household for the ETS, say a dollar for the petrol in your car. John Key last week or so said something along the line that that would be enough to make people take the bus. Do you think it will be enough to make people take the bus and if not why are we bothering?

NICK Yeah firstly the really big areas where we want to see the ETS have an impact is firstly around that electricity sector. New Zealand's picture there is pretty ugly, more than double the amount of electricity produced from coal over the last decade, all the big investment has been in gas and diesel rather than in renewables. I've been very encouraged since the ETS legislation was passed that all of the new consents coming in under the RMA have been renewables, and that’s exactly what the government's wanting to achieve. The second big area where we're wanting to make a difference is around forestry. Over the last five years we've lost over 30,000 hectares of trees, the highest level of deforestation in New Zealand's history. All the surveys that have come through from MAF are showing a big increase in the investment in new forests. That’s really good and important for New Zealand long term, and both those areas are long term investments. On the petrol one, I think it'll be a difference on the margin. If we look previously you know the way in which the petrol price most impacts on people's decisions is actually about the car they purchase, and those cars are going to be driven around for 15 years, so even if the ETS makes people think more about buying a more fuel efficient car, that is exactly what we're wanting from the Emissions Trading Scheme.

COLIN But looking at both those issues you have the huge growth in emissions from generation, and also around cars and things like that, we're talking about paying for this, we're not talking about reversing the growth in emissions. Will the ETS actually do anything to stop emissions?

NICK Well without the Emissions Trading Scheme officials tell me will be about 22 million tons more in that Kyoto period through to 2012. if we don’t have the ETS we will not be meeting our Kyoto targets. Now when you're a small trading nation you actually really depend on those international institutions for getting a fair deal, and so my view is if we don’t do the ETS we'd effectively be breaching our commitments under Kyoto, and that in my view would be bad.

ANDREW Minister you say if you believe there's some Emissions Trading Scheme wroughting you’ve reserved the right to hold an inquiry. To be honest that’s a bit wet, an inquiry doesn’t strike a householder paying more for their petrol or for electricity, particularly their electricity, to feel like there's any real chance that a power company's gonna change its behaviour, can't you do more than that, can't you actually talk about penalties?

NICK Yeah the most powerful thing in the electricity sector, as we saw with the debacle over Contact with its directors' fees, is consumers, and if you’ve got one power company Mercury, saying they're going to put their price up, others like Meridian saying no, that will be the thing that most impacts on the decisions of those directors. Now in terms of the inquiry we're just simply saying we reserve the right. I have no evidence to date that the Emissions Trading Scheme is being abused for power price increases, but we're gonna keep a close eye on it.

ANDREW Can you give us an assurance that that will be an open inquiry, not done behind doors by bureaucrats producing a report that in fact there'll be public hearings that anybody can come along to and hear the evidence given by the power companies?

NICK Well I'm quite open to potentially it being a Select Committee, one of those things. What I'm saying is the ETS is likely to cause a power price increase of about 5%, one cent per kilowatt hour, if I see behaviour that’s outside of the independent advice that I've received then that’s the track we would likely go down.

STEPHEN If there was an inquiry though a power company would come along and say, well what do you expect us to do, the government has imposed an ETS and particularly a company like Genesis that say has Huntly, they'd go you know I need to pass the cost on to the consumer, it's a problem of the government's making, not ours.

NICK Absolutely and that’s why the government's been very upfront, and said look a power price increase of one cent per kilowatt hour, about 5% is what we expect from the ETS. If we look at Australian policy where they haven't been able to proceed with an ETS and they're going down a regulatory path, they're talking of power price increase of 7%. If we look at the European ETS it's delivered power price increases of about 20%. That reinforces the moderate approach the government's taken for this ETS.

STEPHEN Sorry to interrupt and I won't hold the floor on this too much, but you know I'm cynical about trusting the numbers because there's some Treasury official somewhere came up with this calculation that’s gospel that it's only going to cost $3 you know X Y or Z, and frankly the forecasting in this area hasn’t been entirely successful, and that overseas example, how do we know that is actually not an indicator, that we will just have big price rises?

NICK Two things. The first thing is on the 1st of July of course it's only a half obligation, the European scheme has a full obligation. In other words what we're saying to the power companies and the petrol companies, you effectively only have to pay one for two and that has been our government's view that in the current economic environment we want to have quite a soft entry into carbon trading. The second is that we made quite a deliberate decision to get some greater certainty to have a $25 price cap on carbon, because there's a lot of uncertainty about the degree to which the carbon price would float around, and that does give consumers in businesses a greater degree of certainty about what the sort of costs are, those cost increases that we've listed are three bucks a week, $165 a year, is based on that $25 carbon price cap that we have put in place.

COLIN If we look at our biggest trading partners, Australia's struggling with the ETS, China you know probably doesn’t really much care. I mean are we just punishing ourselves when the rest of the world won't do anything?

NICK Well I met with the Climate Change Ambassador from China in the last week, and you'd be amazed by the amount that they're doing, you know solar water systems, the amount that they're doing around climate change is a lot more than what we New Zealanders would appreciate. Australia is a bit of a political mess. The analogy I'd make with you is that New Zealand went into a GST, and there are some analogies in terms of complexity over GST back in 87, we made a relatively smooth entry, Australian politics was a bit of a dog's breakfast, they went all over the place for about a decade, there's a bit of a mess in Australia politically around their scheme, but the big misunderstanding is that there is not a cost for Australian consumers and businesses, as a consequence of Australian policy. Now they announced five billion bucks in their Aussie budget to go to fund regulatory impacts. Who do they think's paying that? Of course it's going to be paid for by consumers and Australian businesses. I would argue very strongly that the New Zealand government approach of a moderate ETS is actually an approach that minimises costs for consumers and deals with this issue ...

COLIN And are we going to press ahead whether Australia does it or not?

NICK Well we've got a Kyoto obligation, so someone's gotta cough regardless, and most importantly is that if you want to get the change in those electricity investments, the investments in renewable energy, the planting of trees, it's important that we start making some progress.

ANDREW Just on the political sell, it's tough enough as it is without having colleagues on the right wing of the spectrum if you like, like ACT and the Federated Farmers causing you such difficulty, isn't your fundamental problem as they actually don’t accept climate change.

NICK Absolutely, ACT has been quite upfront and I think that really shows the wisdom of the Prime Minister John Key, in forming a confidence and supply agreement both with the ACT Party and with the Maori Party, we passed our ETS legislation with the support of the Maori Party, who tend to be more environmentally conscious than ACT. No matter what ACT says you know when a carbon tax was proposed by the previous government they opposed the carbon tax. Now we've got an ETS they're saying well actually we think a carbon tax is better. ACT's position if they're honest and upfront is that they don’t think there is a problem with climate change, they don’t want to anything in that space. That’s not where National campaigned, we said we'd amend the ETS in 2009, that we'd bring it into force in 2010, and we're keeping our word with voters.

STEPHEN I'm sorry I have to interrupt you there but time's evaporating quicker than CO2 going into the atmosphere. So thank you for coming in. My guest today was of course Dr Nick Smith, the Climate Change Minister.

ends

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