Farmers unhappy at shouldering a big portion of ETS burden

Out of all the main income-earning sectors in the economy, agriculture has done the best job at controlling its emissions, writes Don Nicolson.

New Zealand embarks on the second phase of the emissions trading scheme today. The ETS is supposedly a market mechanism. It is supposed to drive efficiencies by pricing the sources of greenhouse-changing gasses in such a way that industry will have no choice but to improve.

It's a nice argument and sounds convincing, except the ETS is a controlled market. It's heavily regulated and depends on the mandatory participation by every New Zealander. I have travelled extensively around New Zealand and have asked restaurant staff, hotel cleaners and those usual fonts of knowledge, taxi drivers, what they know about the ETS. The response has largely drawn blank faces.

From today, anyone who uses electricity or land transport fuels - which is everybody - will pay more to cover the cost of emissions units needed to meet the greenhouse gas emissions produced.

It is estimated that retail electricity prices will soon rise by 5 per cent and it will add about four cents a litre to the cost of petrol and diesel.

If people are confused why farmers have been so grumpy, considering biological emissions don't kick in until 2015, it's because we are also users of electricity and fuel. According to work done for the Agriculture Ministry, New Zealand's farmers face $92 million in added costs from today.

This year's Budget reserved $1.06 billion of taxpayer dollars for the allocation of emission units. The ETS doesn't come cheap. Yet trying to get a straight answer is, well, trying.

On the morning of Budget 2010, in May, the office of the minister of climate change dismissed out of hand Federated Farmers' estimate that the ETS will cost society $527m. Instead, some unnamed official put up $350m as a cast iron sum. When asked for a detailed breakdown by The Dominion Post, the minister's office went to ground, where it remains today.

A few hours later, in the Budget itself, the ETS' cost went from this "cast iron" $350m to $378m. The public deserves to see how these sums have been calculated.

We now see Government MP's running a sales and marketing drive, telling their constituents and the media, that the cost per household is a palatable sounding $3 a week. This is also where it becomes a bit Yes Minister.

Using $3 per week over New Zealand's 1.7 million households, you end up with the ETS costing households $265m. Is the Government truly saying the total combined fuel and electricity bill for New Zealand's 477,000 businesses is only between $85m and $113m a year, dependent on whether you use figures put out by the office of the climate change minister or those of the finance minister?

Farmers are understandably displeased to find they're shouldering 26 per cent of the ETS' year one burden or virtually the entire business component. When you produce 64 per cent of New Zealand's export earnings, that's golden goose territory.

More so when out of all the major income-earning sectors in the economy, agriculture has done the best job at controlling its emissions. You don't hear that said much.

Rural MPs are using the smallest denominator to lessen the ETS' apparent impact. Six cents per kilogram may not sound like much, but when you are a sheep farmer making a profit of just over $9 a lamb, that adds up to $1.08 on a 18kg animal. The ETS wipes out 12 per cent of your profit - to achieve what exactly?

There are no ETS success factors. I cannot recall the last time a major piece of public policy had so little scrutiny, by so many over so long a period.

No-one can tell us what success looks like. Is it 10 to 20 per cent below 1990 levels? Not according to the prime minister, who said that would be a "hard ask."

We are pouring more than $1.5b of our dollars into an immeasurable policy and no-one overseas much cares.

Those selling our agricultural products overseas told Federated Farmers last week that international buyers don't know about our ETS, don't particularly care and most importantly, won't pay a cent more for it.

Searching the New York Times for mention of an ETS brings up two hits, both related to the European scheme. Searching Britain's Daily Telegraph over the past four years returns three passing references to New Zealand's ETS.

BUT Federated Farmers isn't bereft of solutions. We are looking to the recent work of the London School of Economics and the University of East Anglia. The Hartwell Paper, issued in May, paints a post-Kyoto vision. Its authors are not "deniers" but are scathing about the wasted political capital invested in Kyoto.

New Zealand is seemingly heading in the wrong direction, so it's time for fresh thinking. The Kyoto agreement lapses in 2012 and the Hartwell Paper suggests the future will be likely to focus on research, not emissions trading.

It will focus on developing the global economy instead of keeping the poorest in shackles. It will focus on community resilience instead of trying, like King Canute, to order back an ever-changing climate.

The time has come to switch off the ETS and switch on to a whole new approach.

Don Nicolson is the president of Federated Farmers.