Opinion & Analysis
Stamping out the ETS rorts would be a lot simpler than axing the whole scheme.
OPINION: All the best opportunities for us in the global economy lie in the rapid shifts to resource efficiency, clean technology, renewable energy, environmental integrity and brand authenticity.
Those attributes underpin the most-sought after consumer goods, drive the fastest technology changes, earn the biggest price premiums and deliver all the other benefits of a low carbon economy.
Unfortunately, though, we're stuck playing the old game. Thanks to New Zealand's corporate strategies and government policies we're trying to squeeze ever-more cheap commodities out of our increasingly stressed environment.
The emissions trading scheme was supposed to encourage us to lock on to these global transformations. But the government doesn't believe in a low carbon economy so it has wrecked the ETS.
With all the giveaways, exemptions and rorts, the ETS sends a price signal of barely $1 a tonne of carbon. Worse, it is doing perverse things such as causing deforestation rather than tree planting, and more fossil fuel investment not less.
The World Bank is very blunt about our scam of a scheme in its latest review of carbon markets. Of the 26 ETSs in the world, we rank bottom. The Chinese schemes, which in aggregate are the second largest after the EU's, deliver a carbon price between five and 11 times greater than ours.
The top price of carbon in the world is Sweden's $201 a tonne. Phased in from 1991, the tax has helped Sweden cut its dependence on fossil fuels, benefited forestry through biomass as alternative energy and driven resource efficiency across the economy. These in turn helped the economy grow by 45 per cent from 1990 to 2006.
Similarly, British Columbia phased in its $33 a tonne carbon tax from 2008, triggering similar economic transformations. Use of petroleum fuels has fallen 16.4 per cent and greenhouse gas emissions have fallen 5.3 per cent relative to the rest of Canada, while the province's economy has grown slightly faster than the nation's.
We have pledged to the world we will cut our emissions. But government data and forecasts tell a different story. From 1990, the base year for our pledge, to 2012, our greenhouse gas emissions rose 25 per cent. The government forecasts they will rise 65 per cent by 2025.
This is far more serious than just breaking a promise and damaging our reputation. This is a measure of how profligate we are with our resources, how cavalier we are towards our customers and how resistant we are to beneficial change.
We need a game changer. Thankfully, the Greens' climate, energy and economic development policies are it. The basic principle is to tax a bad thing (carbon) to generate revenues to cut taxes on good things (profits and income).
To do this, the Greens would put a price of $25 a tonne on carbon for industry and consumers and $12.50 a tonne on agriculture, while giving forestry a $12.50 a tonne of carbon incentive to plant.
Revenues raised would pay for a one-percentage point cut in corporate tax, and a tax cut for consumers to more than compensate them for slightly higher prices.
The carbon tax would encourage companies and consumers to use energy more efficiently and to switch where possible to other energy sources and new technologies. The more carbon they saved, the more they would earn and keep.
Companies and households also need complementary measures to help them make the switch. The Greens propose the likes of insulating more homes, helping householders invest in solar electricity (which in many cases is now cost-competitive with grid electricity), and clean technology initiatives in industry, transport, non-fossil fuels, forestry and farming.
The Greens would also negotiate a break on the carbon tax for the hardest-hit export companies if they could make the economic case for them. But the break would be structured as a programme to help each company reduce its emissions, and thus improve its environmental and financial performance.
Such help would be transparent compared with the opaque arbitrage now with the ETS. Some companies are profiting from the carbon credits the government gives them, even if they do nothing to reduce their emissions.
The same logic for the carbon tax applies to farming. Sheep and beef farmers would not be taxed because their emissions have been falling since 1995. But dairy, which has almost doubled its emissions since 1995, would be taxed.
No surprise the biggest outcry is from dairy farmers. They say they can't afford a carbon tax of $12.50 a tonne, which would work out at 8 cents per kg of milk solids, equal to a 2 per cent increase in their on-farm costs. They say the tax could wipe out many of the bottom 10 per cent of farmers by profitability.
Government data on dairy farm profitability explodes that myth. The bottom 10 per cent have an average break-even point of $6.96 per kg of milk solids, while the median breakeven is $5.64, and for the top 10 per cent of farmers it is $4.79.
In other words, the bottom 10 per cent are seriously bad farmers. With a little help from their neighbours, co-ops and industry experts they could easily improve their environmental and financial performance, and pay the tax.
The tax would help incentivise all dairy farmers to use energy and nutrients more efficiently. Crucially, it would encourage them to close the nutrient cycle. Currently they waste a lot of nutrients to waterways and air, causing pollution in the process.
Farmers and scientists are working hard on these very difficult issues. The likes of FedFarmers and the co-ops already accept their members will have to farm within nutrient limits and environmental audits. To farm more profitably within those constraints they need to use nutrients more efficiently and earn a premium for their environmental performance. The carbon tax will incentivise them to do both.
Of course there is a simpler way. The National-led government and business could show they genuinely believe in all this by stamping out the ETS rorts. Then the ETS would deliver a real price on carbon, incentives to change and revenues to allow other tax cuts. This would be a lot simpler than axing the ETS.
But business and government won't do so. They are happy to perpetuate the scam, sham and shame of the ETS to the detriment of our economic future.
- Sunday Star Times