What business says about ETS changes

Last updated 12:51 21/09/2012

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Submissions on the Parliamentary website show the Government has won support from big business for its proposed watering down of the carbon Emissions Trading Scheme, but not all economic interests are pleased.

Indeed, so watered down is the Emissions Trading Scheme (ETS), that one carbon broker predicted the carbon price could fall to near zero.

The ETS was supposed to provide a market mechanism to put a price on carbon in order to drive businesses, which have to buy and surrender carbon credits each year depending on their emissions levels, towards a lower carbon future.

A dramatic crash in carbon prices thanks to the global economic slowdown has rendered the ETS ineffective in doing that, but the Government has proposed to weaken the scheme still further through the Climate Change Response (Emissions Trading and other Matters) Amendment Bill, arguing it would be madness to risk jobs until bigger economies do their bit.

Among the measures proposed in the bill are extending the "transitional" measures designed to limit the cost of the scheme for business indefinitely, and to allow the Government to create and auction carbon credits, usually referred to by the dry designation of "units", at will.

Despite giving business and the public just 15 days to submit their thoughts on the proposed changes to the ETS over 800 submissions were made.

Those submissions were posted on the Parliamentary website this week, and while businesses are largely supportive, there remain some key concerns, including the persistent belief that electricity companies are raking in windfall profits by passing on carbon costs at $15 a tonne when they are paying less than $5 for the carbon credits they have to surrender each year as a result of their emitting.

Here's what business is saying about the proposed changes to the ETS:

The Meat Industry Association is largely pleased with the planned changes saying: "the vast majority of overseas competitors face no carbon costs whatsoever", but it was not alone in claiming that electricity users were being rorted by the electricity wholesalers.

"We would note that, in the view of our members, energy wholesalers have already included in energy prices the full cost of $25 units at half obligation and are now profiting from the low carbon price by not passing those saving on to their customers. In our view, phasing-out the 50% obligation or increasing the fixed price option would have provided energy sellers a pretext for another round of profit taking."
The vast majority of credits surrendered under the ETS are dirt-cheap imported credits, many of a dubious quality. Critics, including foresters and Maori, argue this has killed the market for carbon credits created by planting trees resulting in the total collapse of new tree planting.

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Forester Roger Dickie said: "At present carbon prices of less than $5 we have no interest from investors in new planting and where possible investors are cancelling plans to plant next year. This Bill allows the import of low priced carbon credits from overseas and this will guarantee a continued low price for NZUs which in turn will ensure that there will be little if any new planting in the future."

Carbon traders, who earn their livelihoods from buying and selling carbon for clients, are also angered. Nigel Brunel from OMFinancial told Parliament: "The Russians & the Ukrainians have indicated they will issue a lot more than expected over the next few years."

"The impact on us from the above avalanche of offsets is simple. We only have demand for about 15 million a year and given these offsets number almost in the billions - the price of carbon risks going to as close to zero as you can get it."

Businesses do not even have to reveal what credits they are surrendering, so the public can't know if they are supporting Kiwi foresters or simply buying foreign hot air.

But most businesses support cheap carbon, saying it is madness to lump costs onto businesses not faced by overseas competitors. Voicing the majority business opinion,

Business New Zealand submitted that limiting businesses from buying overseas credits was: "akin to saying that despite being able to import cheaper cars, consumers should be forced to buy locally made cars despite the fact that they are more expensive".

There are calls from some, including Maori, for the creation of special carbon credits for indigenous forests that recognize their unique biodiversity. These would, it is believed, have a premium value as businesses would buy them seeking to woo customers with their green credentials. The Government appears to have no plans to create them.

Many businesses support the idea that the Government could create and auction carbon credits for businesses to surrender, something that could help keep carbon prices down in New Zealand. But not all agree.

The Employers and Manufacturers Association told Parliament: "We do not support the Bill's provisions enabling regulations which will permit the Government to auction NZUs and introduce a cap. The EMA believes these moves will, with justification, alter the public perception of the ETS and cause it to be seen as an energy tax. Auctioning powers will convert the Government role from regulator to beneficiary."

It would be wrong to use the ETS to generate "revenue to flow to the consolidated fund for general Government expenditure" which would, it argued provide successive Governments with continuing incentives to find ways to increase the revenue flow. Vector supported auctions, but was concerned at the discretion given to the minister, and wanted to see more detail.

While there were few complaints from business about the Government's plans to weaken the ETS, there are concerns about future tinkering. Origin Energy told Parliament it was particularly concerned about the ability future Governments have to change the ETS.

"The ability to review the scheme at any time gives rise to significant investment uncertainty resulting from increased political risk. Constant tinkering with scheme rules means that the market does not have the opportunity to stabilise. Appreciating that the Government wishes to have more flexibility to review the scheme, we would be encouraged to see a limiting clause introduced e.g. 'The Minister may not initiate a review of the operation and effectiveness of the emissions trading scheme within two years of initiating the previous review.'"
Fletcher Building spoke for many saying a tougher ETS would drive manufacturing offshore resulting in greater emissions.

"We believe that a gradual transition to full emissions pricing is necessary, with the pace of transition determined by the rate of uptake of similar policies by other countries," it submitted.

"An ETS is not 'watered down' by ensuring that transition measures enable industrial operations to maintain international competitiveness. Conversely, unilateral exposure to the full price of emissions is likely to lead to global increases of emissions, as manufacturing shifts to more emissions-intensive plants in countries without a carbon price, and transport emissions are increased."

CarterHolt Harvey Pulp and Paper agreed: "Our principle concern as an export focussed business is to maintain competitiveness."

Pacific Aluminium said: "When sufficient economies have operating within them a price of carbon equivalent to that in New Zealand, there will be no need for such transitional provisions and they can be amended. As Pacific Aluminium has previously argued, a useful metric might be eighty percent of global emissions being covered by an equivalent price of carbon. This would cover all of the major economies and therefore almost all of New Zealand's competitors."

The agri-sector is pleased to be largely excluded from the ETS for the foreseeable future, saying many foreign competitors face no carbon costs.

Not all business is impressed though. Carter Holt Harvey Pulp and Paper said: "The proposal to remove a specified date for the entry of agriculture into the Scheme and the new pre-1990 offsetting rules may well combine to discourage forestry activities on land that may not be appropriate for agriculture in the long term."

It submitted: "This distortion could have serious consequences for wood fibre and bio-processing facilities like ours and have a negative impact in general on the use of wood as a renewable raw material."

Some businesses believe the Government is missing a golden opportunity to use the ETS to develop low-carbon technologies.

Fonterra believes there is a strong case for direct support for projects which will reduce emissions but which need some contribution to be viable. "The Government contribution could be in dollars or a one-off allocation of units having the same value. This could mirror the Clean Technology Food and Foundries Investment Program proposed in Australia."

Malcolm McAll from Ecos Homes NZ Ltd said: "This Bill is a deliberate attempt by the Government to destroy the price of carbon and kill off our clean energy sector in favour of an energy agenda that threatens our very survival. The Government is re-writing environmental legislation to suit our biggest polluters at the cost of ordinary New Zealanders. This is irresponsible. The Government must send a clear message to industry that they must move to a cleaner, smarter way of doing business."
The New Zealand Forestry Institute was not alone in worrying about the removal of the "fast fix" rules. The rules mean a forester's carbon liability at harvest could never be more than the amount they earned from selling carbon credits allocated to them. Their removal could mean that a forester having sold 300 carbon credits could end up having to buy and surrender 800 to compensate for the sudden release of the carbon sequestered in their trees.
Miners, including Solid Energy, complained that because mining companies were not allowed to include emissions from fossil fuels used in mining equipment they fail the threshold tests to be classed as "moderately or highly emissions intensive" and therefore were ineligible to get some free allocations of carbon credits from the Government.

Mining industry body Straterra said: "As a consequence, if and when global carbon prices increase, some gold and coal producers and exporters will find themselves trade exposed compared to jurisdictions where there is no carbon price. Obviously, that is inequitable, compared to other EITE industries in New Zealand, and a deterrent to globally-mobile investment in the resource sector in New Zealand. Such an outcome would run counter to the Government's economic policies."

Fonterra made similar claims for its business.
The giant dairy coop fears the imposition of extra costs on a "trade-exposed" industry and is upset the Government is not providing it the same protection as the European Union is for its dairy industry which gets free carbon credits to ensure milk powder production does not shift to countries with no carbon costs.

Fonterra told Parliament: "The major component of Fonterra's manufacturing business in NZ is milk powder production. The European Union (EU) identified production of both whole milk powder (WMP) and skim milk powder (SMP) as activities at significant risk of leakage.

As a result, EU firms which carry out these activities will receive an intensity based allocation from January 2013. The EU operates the world's largest ETS and is a significant competitor to NZ's export industries."

"Fonterra is disappointed that eligibility criteria comparable to those applying in the EU have not been adopted. As an alternative Fonterra suggests that the Minister's discretion on eligibility as set out in Clause 161A (3) be extended to consider an activity's eligibility in all competitor jurisdictions and not just Australia."

- © Fairfax NZ News


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