CLIMATE CHANGE RESPONSE (AUCTION PRICE) AMENDMENT BILL
Second Reading
Hon JAMES SHAW (Minister of Climate Change): Thank you, Mr Speaker. I present a legislative statement on the Climate Change Response (Auction Price) Amendment Bill.
DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.
Hon JAMES SHAW: Thank you, Mr Speaker. I move, That the Climate Change Response (Auction Price) Amendment Bill be now read a second time.
E te Māngai, tēnā koe. Tēnā koutou e te Whare. A stable price signal is one of the most effective ways of driving investment in low-carbon technologies. This bill will help to provide that stability by amending the Climate Change Response Act 2002 and the Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020 to introduce a minimum acceptable price for emissions trading scheme units sold at auction. To put it simply, if the clearing price at the end of an auction were to fall below the confidential reserve price provided for by this bill, then the units that had been available for purchase will not be sold. Holding them back from sale will help to maintain a minimum unit price that reflects activity in the market up until the point of the auction, which will help to encourage polluters to change behaviour and reduce pollution in line with our domestic and international targets.
We have seen from examples around the world what can happen when a carbon price collapses: the market signal necessary to drive investment in clean technologies ceases to exist, pollution continues, and catastrophic climate change is further locked in. This bill, together with the price control measures that were put in place through the emissions trading scheme (ETS) reform bill last year, will manage the risk of that happening here and help to avoid emission prices falling for the wrong reasons and undermining much-needed low-emissions investments.
Later this month, New Zealand will, for the first time, auction a proportion of units available under the ETS. The exact number of units that will be auctioned in this and the other three auctions that will take place in 2021 has been determined based on the volume of emissions remaining in the emissions budget and after taking into account emissions that sit outside the ETS and emissions covered by units that are freely allocated. Where this has got to for us this year is the expectation that a total of 19 million New Zealand units will be auctioned. These 19 million units will be spread evenly across four scheduled auctions. In each of these auctions, two price-control mechanisms will be in operation: a price floor of $20 and a cost containment reserve. The latter will be triggered if the auction clearing price comes in at higher than $50, at which point an additional 7 million New Zealand units will be released into the auctioning system, helping to meet demand and bring the price down.
The purpose of these price-control measures is, in short, to stop the price of units available at auction getting either too low or too high. Exactly where the clearing price falls, within the parameters of the price floor and cost containment reserve, will be determined by a range of other factors, not least of which is the activity on the secondary market. The secondary market is where trades take place between various buyers and sellers, through which we get a sense of market opinion about the current value of a New Zealand unit. Secondary markets are crucial to the functioning of the emissions trading scheme, not least because they provide a means for participants to sell surplus units, which creates a powerful incentive to reduce emissions. Stability, then, like in any other market, is crucial. Its absence risks undermining confidence that the cost of population remains at a certain level, which could all but eliminate the price incentive to reduce
