NEWS ON POLICY AND POLITICS
5 December, 2007

Watching Brief is a regular publication from Russell McVeagh on developments in public law and policy of interest to New Zealand business.

www.russellmcveagh.com

SPECIAL REPORT

Climate Change (Emission Trading and Renewable Preference) Bill more...

PROGRESS OF LEGISLATION

Bills Introduced/Awaiting First Reading more...

Bills At Select Committee more...

Open for submissions
Submissions closed

Bills Reported Back/Awaiting Second Reading more...

Bills Delayed more...

Bills Passed Second Reading more...

Second Reading Negatived more...

Bill Passed Third Reading more...

Abandoned more...

Supplementary Order Papers more...

Bills Passed more...

Acts Assented more...

Regulations more...

Hearings of Note more...

LEGISLATION IN THE WINGS more...

IN CONSULTATION more...

Climate Change (Emission Trading and Renewable Preference) Bill

The 208-page Climate Change (Emissions Trading and Renewable Preference) Bill, which establishes the New Zealand Emissions Trading Scheme (NZ ETS), was introduced yesterday by the Deputy Prime Minister, Hon Michael Cullen, and Climate Change Minister, Hon David Parker.

The Bill is still to receive its first reading before being referred to the Finance and Expenditure Select Committee.

The Bill's introduction is serendipitous, coinciding as it does with the announcement from Australia that the new federal government has ratified the Kyoto Protocol, and during the same week that 10,000 climate change delegates gather in Bali to discuss what happens next following the end of the Kyoto Protocol's Commitment Period 1 at the end of 2012. 

The Bill's introduction represents a concrete step on what is undoubtedly an ambitious programme and will present favourably with our global trading partners, particularly during a week when the world's focus is on long-term future goals for the reduction of greenhouse gas emissions.  It also represents an important fillip to Labour's strategists concerned to cement the Party in the public mind as the leader of responsible environmental policy.  

That said, those familiar with the consultative twilight zone that is normally the Christmas break may wonder why such an important Bill is being introduced two weeks before Christmas and submissions called for by the Select Committee over the Christmas holiday period… 

Turning to the Bill itself, it has two key objectives:

• to establish the NZ ETS by amending the Climate Change Response Act 2002 (which ratified New Zealand's commitment to the Kyoto Protocol); and
• to create a preference for renewable electricity generation by implementing a 10 year ban on new baseload fossil-fuelled thermal electricity generation (except to the extent required to ensure the security of New Zealand's electricity supply.

At the time of writing, National and most other political parties (with the exception of the Greens) have yet to make any substantive comment on the Bill.  Given its prior advocacy for an ETS, National is unlikely to take significant issue with the Bill.  Although the Green Party will support the Bill's introduction and referral to the select committee process, it is not happy about the long phasing-in period and, in particular, the delayed introduction for the primary sector.  The Greens have stated that they are planning to "remedy its defects" during the select committee process over the upcoming months.

Economic modelling released by the Government shows that the estimated cost of the ETS to the average household is expected to be in the vicinity of $170-$330 per annum (based on an international carbon price of $25/tonne CO2-e). 

An announcement yet to be made by the Prime Minister relates to her earlier promises in respect of assistance for low and fixed income New Zealanders due to the increased costs in commodities such as petrol and electricity.  When announcing the Government's plans for the ETS in September, the Prime Minister indicated that "additional measures", possibly in the form of compensation, to reduce the possible financial impacts for this group of taxpayers would be announced at a later date.  In his introduction speech yesterday, Hon Michael Cullen indicated that the Government is developing proposals to assist households and the Bill itself notes that the Government is particularly concerned about the impacts of electricity price increases on consumers and is considering compensation outside of the ETS.

From a legal perspective, the legislation is relatively unique in that:

• it provides the Minister with broad powers to step in and 'fix' the market if required.  These powers are required for flexibility purposes due to the uncertainties in the international framework for emissions trading and the fact that the NZ ETS will link directly with this market; and
• it allows for tertiary legislation in the form of "material" incorporated by reference in regulations.  This material is not explicitly defined in the Bill yet will have legal effect as part of the regulations.

These aspects of the Bill will require closer scrutiny over the next few months during the select committee stage.

ETS Design

As signalled earlier in September 2007, the ETS will be phased in for the major sectors as follows:

1 January 2008                Forestry

1 January 2009                Liquid fossil fuels (transport)

1 January 2010                Stationary energy and industrial processes

1 January 2013                Agriculture, waste and "other emissions"

By 2013, all sectors and all six major GHGs will be covered by the NZ ETS, so that all major sectors of the New Zealand economy will be exposed to the international price of emissions, at the margin, for all operations.

Key amendments to Climate Change Response Act 2002

The Bill introduces new Parts 4 and 5 to the Climate Change Response Act 2002.  These Parts implement the core provisions of the NZ ETS, including:

• who is covered by the NZ ETS and when;
• the obligations placed on participants;
• compliance and enforcement provisions;
• allocation of emission units; and
• certain sector-specific provisions (mainly in relation to the forestry sector).

The Bill creates a core obligation for "participants" who carry out "activities" which result in GHG emissions to surrender one emissions unit for each tonne of GHG emissions that the participant is responsible for.  To meet this obligation, participants are required to monitor their emissions activities and calculate any emissions that arise from their activities.

NZ ETS participants will know who they are by reference to the "activities" prescribed in Schedule 3 of the Bill.  A person who carries out one of the listed activities must register as a participant under the scheme and comply with the obligations in respect of that activity.

Voluntary participants

The Bill also allows some emitters to "opt in" to the NZ ETS.  The following groups will have this option:

• Owners of, or holders of, forestry rights/leases over forests planted after 1989;
• Producers who embed carbon in their products;
• Major users of jet fuel used for domestic aviation; and
• Major users of coal and natural gas.

Major users will be defined based on the amount of product purchased (eg 10 million litres of jet fuel per annum or 250,000 tonnes of coal or natural gas).

Regulations

In order to calculate their emissions liabilities under the NZ ETS, participants will need to use prescribed emissions formulas which will be set in regulations (eg the quantity of carbon dioxide emitted when a litre of fuel is burned).  Analysis of the draft regulations will be critical for participants to understand the implications of the NZ ETS on their business.

The Government's cross-departmental climate change team, the Emissions Trading Group (ETG), has promised that the draft regulations relating to the forestry and transport sectors will be released at the same time as the Bill so that submitters to the Select Committee are fully informed of the NZ ETS's full implications.  We are yet to see these draft regulations which will help to shed light on the overall framework and implications.

Minister's powers

The Minister has wide-ranging powers under the Bill.  Given the significant uncertainties around the global framework for emissions trading right now (in respect of the limited number of markets and liquidity of emissions units), a degree of flexibility is required in the proposed legislation so that the Government can step in if required.  For example, it is proposed that the Minister will have the ability to place restrictions on which classes or subclasses of Kyoto units may enter the NZ ETS and what transactions may or may not be registered in respect of those units.  These restrictions will be made via Orders in Council by the Governor-General.

Whether the Bill's provisions give the Minister too much or too little power requires further scrutiny but will be a key area for further analysis over the next few months.

Amendment to Electricity Act 1992

The Bill introduces a new Part 6A to the Electricity Act 1992 which will apply to any proposed thermal generation above 10 megawatts that uses more than 20 percent of fossil fuels as its fuel source.

Climate Change Minister, Hon David Parker, confirmed that this change was necessary to implement the Government's proposed Energy Strategy (as released in October) and ensures that all electricity generators (both privately and publicly-owned) will operate on "a level playing field".

The Electricity Commission will be able to consider applications for exemption and make recommendations to the Minister of Energy.  Applications for exemptions will be judged against a set of criteria aimed at addressing security of supply concerns.

Bills Introduced/Awaiting First Reading

Climate Change (Emissions Trading and Renewable Preference) Bill
Type of Bill: Government
Member in Charge: Hon David Parker

The Bill's principal purpose is to amend the Climate Change Response Act 2002 to introduce a greenhouse gas Emissions Trading Scheme in New Zealand. It also amends the Electricity Act 1992 to create a preference for renewable electricity generation by implementing a moratorium on new fossil-fuelled thermal electricity generation, except to the extent necessary to ensure the security of New Zealand's electricity supply.

Real Estate Agents Bill
Type of Bill: Government
Member in Charge: Hon Clayton Cosgrove

This Bill replaces the Real Estate Agents Act 1976 and introduces a new regulatory framework for the real estate industry that aims to promote and protect the interests of consumers in real estate transactions by raising industry standards, increasing licensing requirements and procedures, providing mandatory disclosure obligations, and providing for a new disciplinary process.

Climate Change (Transport Funding) Bill
Type of Bill: Member's Bill
Member in Charge: Jeanette Fitzsimons

The Climate Change (Transport Funding) Bill, sponsored by Greens Co-Leader Jeanette Fitzsimons, aims to gradually increase the National Land Transport Fund allocated to public transport, walking and cycling, rail, coastal shipping and travel demand management.
"A significant increase in funding to these areas will help people take up sustainable alternatives to private car use," Ms Fitzsimons says.  "It will also decrease the amount of freight transported on roads.  Getting freight onto coastal shipping and rail has huge benefits.  It gets long-haul trucks off the roads, saving fuel and reducing the amount of CO2 emissions."
In the 2007/08 year the National Land Transport Programme spent six times as much on maintaining and expanding the road network as it did on providing more sustainable options such as  public transport.  "While having good roads is important, we have to prepare for the increased demand on alternatives once fossil fuels become less affordable," Ms Fitzsimons says.

Waka Umanga (Māori Corporations) Bill
Type of Bill: Government
Member in Charge: Hon Parekura Horomia

The primary purpose of this Bill is to provide a legal entity, the waka umanga or Māori Corporation, which is designed to meet the organisational needs of Māori tribes and other groups that manage communal Māori assets.  Both tribal groups and non-tribal Māori associations can form waka umanga.  Those established by tribal groups will be known as waka pu while those established by Māori associations will be known as waka tumaha. 

Te Ururoa Flavell, Member for Waiariki (Māori Party) has raised concerns that while those entities which are already managing tribal assets may eventually opt to become waka umanga, in the meantime we need to be sure that the deficiencies of trust, company and incorporated society structures for Māori can be sorted out before then.

Reserve Bank of New Zealand Amendment Bill (No 3)
Type of Bill: Government
Member in Charge: Hon Dr Michael Cullen

This Bill amends the Reserve Bank of New Zealand Act 1989 in order to implement elements of the new regulatory framework for non-bank deposit takers and enhance the Reserve Bank of New Zealand’s accountability and transparency arrangements in relation to its financial sector functions.

As part of the Government's Review of Financial Products and Providers, a new regulatory framework for deposit takers was agreed in September 2007.  The new framework will require all deposit takers, as defined in the Bill, to be licensed by the Bank, the directors, and senior managers of deposit takers to be subject to fit and proper requirements, and deposit takers to comply with minimum prudential standards prescribed in regulations and enforced by trustees and the Bank.  Deposit takers will continue to be subject to trust deed, prospectus, and investment statement requirements under the Securities Act 1978 and will continue to be supervised by trustees.

Affordable Housing: Enabling Territorial Authorities Bill
Type of Bill: Government
Member in Charge: Hon Maryan Street

This Bill enables - but does not require - territorial authorities to assess the level of affordable housing in their districts. Following its assessment, a territorial authority may, if it wishes to, develop an affordable housing policy and implement that policy.

Corrections Amendment Bill
Type of Bill: Government
Member in Charge: Hon Phil Goff

This Bill makes a number of amendments to the Corrections Act 2004 that are intended to improve the operations of the corrections system.

Injury Prevention, Rehabilitation, and Compensation Amendment Bill (No 2)
Type of Bill: Government
Member in Charge: Hon Maryan Street
This Bill is part of the Government's amendments to the ACC scheme as a means of reducing the incidence and impact of personal injury, by proposing amendments to the medical misadventure provisions.  Further, the Bill includes a number of secondary issues that arise out of the ongoing policy development, and also some operational improvements and technical changes. 

Wanganui District Council (Prohibition of Gang Insignia) Bill
Type of Bill: Local
Member in Charge: Chester Borrows

This Bill seeks to address the increasing problems created by violent confrontations between rival gangs in the Wanganui District.  The Bill aims to reduce these problems by prohibiting the wearing or display of gang insignia in public places.  Chester Borrows considers that gang insignia is used as the principal means of identifying the members or associates of different gangs and contributes to, and is likely to promote, further gang confrontations.

The Wanganui District Council ("Council") as a territorial authority constituted under the Local Government Act 2002 ("LGA") seeks to fulfil their purpose of promoting the social, economic, environmental and cultural well-being of the Wanganui community through this Bill.  Further, the LGA provides local authorities with power to determine how it will fulfil its mandated roles and responsibility towards communities.

Public Health Bill
Type of Bill: Government
Member in Charge: Hon David Cunliffe

The policy of this Bill is to update existing public health legislation in order to improve, promote and protect public health and help attain optimal and equitable health outcomes for all population groups in New Zealand.  The Bill will also enable New Zealand to comply with its obligations under the International Health Regulations 2005.

Mauao Historic Reserve Vesting Bill
Type of Bill: Government
Member in Charge: Hon Parekura Horomia

The Bill vests fee simple estate of Mauao historic reserve in the trustees of the Mauao trust, to hold on behalf of Ngāi Te Rangi, Ngāti Ranginui, and Ngāti Pukenga.  The Bill also provides that Mauao historic reserve be subject to the Reserves Act 1977.

Dog Control Amendment Bill (No 2)
Type of Bill: Government
Member in Charge: Hon Nanaia Mahuta

The purpose of this Bill is to extend or improve aspects of the current regime under the Dog Control Act 1996 to help improve dog control and public safety around dogs.

Bills At Select Committee

The Auckland Domain (Auckland Tennis) Amendment Bill (Private) was read for the first time and referred to Local Government and Environment Committee.  Submissions are due on 31 January 2008 with the Committee is due to report back on 20 May 2008.

Open For Submissions

Submissions Closed

Bills Reported Back/Awaiting Second Reading

Electricity (Disconnection and Low Fixed Charges) Amendment Bill
Young Offenders (Serious Crimes) Bill

Bills Delayed

None

Bills Passed Second Reading

Electoral Finance Bill

Second Reading Negatived

New Zealand Bill of Rights (Private Property Rights) Amendment Bill

Bill Passed Third Reading

Principles of the Treaty of Waitangi Deletion Bill. Second reading not agreed to
Human Tissue (Organ Donation) Amendment Bill. Second reading not agreed to

Supplementary Order Papers

None

Bills Passed

None

Acts Assented

Appropriation (Continuation of Interim Meaning of Funding for Parliamentary Purposes) Act 2007
Employment Relations (Flexible Working Arrangements) Amendment Act 2007
Subordinate Legislation (Confirmation and Validation) Act 2007
Terrorism Suppression Amendment Act 2007

Regulations

Animal Welfare (Leg-hold Traps) Order 2007
Dairy Industry (Fonterra Levy) Regulations 2007
Civil Aviation Charges Amendment Regulations (No 2) 2007
Corporations (Investigation and Management) Order 2007
Customs and Excise (Rules of Origin for Australian Goods) Amendment Regulations 2007
Excise and Excise-equivalent Duties (Tobacco Products Indexation) Amendment Order 2007
Forests (Permanent Forest Sink) Regulations 2007
Income Tax (Family Tax Credit) Order 2007
Land Transport Management (Road Tolling Scheme for ALPURT B2) Amendment Order 2007
Mutual Assistance in Criminal Matters (Prescribed Foreign Country) (People's Republic of China) Regulations 2007
Parliamentary Salaries and Allowances Determination 2007
Securities Act (Fulton Hogan Limited) Exemption Notice 2007
Securities Act (ABN AMRO Australia Pty Limited) Exemption Notice 2007
Securities Act (Canterbury Building Society) Exemption Notice 2007
Securities Act (Canterbury Building Society) Exemption Amendment Notice (No 2) 2007
Securities Act (Credit Agricole S.A.) Exemption Notice 2008
Securities Act (New Zealand Post Limited Pre-paid Debit Cards) Exemption Notice 2007
Takeovers Code (Te Kairanga Wines Limited) Exemption Notice 2007
United Nations Sanctions (Al-Qaida and Taliban) Regulations 2007
United Nations Sanctions (Iran) Amendment Regulations 2007

Hearings Of Note

The Local Government and Environment Committee continues to hear evidence on the Waste Minimisation (Solids) Bill (submissions will focus on the new Supplementary Order Paper). Recent submitters include the New Zealand Retailers Association, Business New Zealand, and the Employers and Manufacturers Association.

The Government Administration Committee has been hearing submissions on the Gambling Bill, including from the Invercargill Licensing Trust. The Bill makes a number of changes to gaming machine regulation, including obligations as to how gaming machine proceeds can be handled, extending conflict of interest provisions amongst those who make decisions about how gaming machine proceeds are spent, enhancing regulations in order to better address the problem gambling issue, and allowing more flexibility

Financial sector regulation

Between now and Christmas, a Financial Advisers Bill and Registration of Financial Services and Consumer Disputes Resolution Bill are expected. A Trustees Supervisory Model Bill, which will strengthen the relationship between the Securities Commission and front line trustees, is expected to be introduced after the New Year.

Decisions on the reform of insurer prudential and market conduct regulation are expected soon.

Commerce Act Review

The Government has announced changes to the Commerce Act's regulatory control provisions. These include improved clarity about how regulation will occur, alternatives to price control, tailoring the regime to New Zealand's small size, and providing for incentives to invest in infrastructure.

Law Commission proposals on Public Inquiries

The Law Commission is proposing a new Public Inquiries Act, which would provide the framework for all commissions of inquiry and would do away with the need for royal commissions and commissions of other types (including ministerial inquiries). The Public Inquiries Act would provide for processes to establish inquiries into matters of "public importance".

Charitable donations

The Inland Revenue Department has issued a discussion document proposing a regime under which it would be easier for people to donate to charities and other non-profit causes. The system would enable donors to have donations deducted automatically from their pay and passed on to their chosen charity by their employer. They would receive immediate tax relief reflected in their pay, based on the amount they donate.

Patents Bill (rewrite of the 1953 Act)

This is the result of a three-stage review (that commenced in August 2000) of the Patents Act 1953, to take account of the social and technological changes since the Act was passed. 

Trade Marks (International Treaties & Enforcement) Bill

This Bill is expected to be introduced early next year. It will address the growing trade in illegal counterfeit goods by increasing Customs' powers at the border.

Other Bills to be introduced

Cabinet has approved a number of other Bills:

• Electricity Industry Reform Bill
• Customs & Excise Amendment No 3 Bill
• Children, Young Persons & Families Bill (update of 1989 Act)
• Resale Royalty Right for Artists Bill

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