One giant step backwards

BY ROD ORAM
Last updated 05:00 20/09/2009
rod
Photomontage: Dominion Post
John Key wants taxpayers to sign on to an Emissions Trading Scheme that could cost us billions, and our international reputation.

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OPINION: TO understand how the government is destroying the Emissions Trading Scheme, it's important to remind ourselves why we need an ETS in the first place.

Governments representing a majority of people on the planet believe climate change is happening. So they're taking steps to reduce their nation's emissions of greenhouse gases. Some have entered into international commitments to do so. Many more will do so in coming years.

In 1997, New Zealand committed to cut its emissions during 2008-12 to its 1990 levels. However, they are currently 24% above. So the National-led government has upped the ante with two new targets: a 10-20% reduction below 1990 levels by 2020 and a 50% reduction by 2050.

To achieve them, we need to invest heavily in new energy and carbon efficient technology for electricity generation and transport and processes in industry and agriculture. And we need to maximise the potential for our forests to act as profitable carbon sinks.

To do that we need to:

Put a price on emissions to incentivise change. We chose an ETS as the most effective price signal, a decision shared by virtually every other price-setting country.

Put in place a big set of powerful complementary measures such as financial incentives for households and businesses to adopt new technology, plus standards and other mechanisms to foster the take-up of technology.

Persuade other countries in international climate change negotiations to give forestry the regulatory framework it needs.

The three are inextricably linked. A good ETS sets a price signal and generates revenues that government and business can invest in the changes we must make. Those are exciting business opportunities which stand to improve the economy and our environmental performance.

In the meantime, revenues help fund some temporary relief for households from the cost of migrating to energy and carbon efficiency. And an effective ETS increases our international negotiating power in forestry.

If these are the virtues of an ETS, how would you destroy them if you were politicians in the clutch of heavy emitters?

How would you achieve an ETS so bad it sets a weak price signal and delivers little revenue, or better, neither? Then households and businesses would carry on with their old technology and ways. The government (ie, taxpayers) would then have to buy credits to cover emissions above the target volume the country has committed to.

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Thus, in a bad ETS, we taxpayers pay to perpetuate our current technology while much of the rest of the world plunges into better technology. We become less competitive and badly damage our international trade and investment accounts, not to mention our reputation. Over time we get poorer.

If this were your political agenda, you'd do nine things:

1. Place no limits on how much greenhouse gas a company exposed to international competitors can emit for free. To give business such a valuable break, you set a very arbitrary measure. If a company emits no more greenhouse gases than the average for its industry based on tonnes of gas per million dollars of sales revenue, you let it keep growing its emissions without having to pay for them.

Instead, the government keeps supplying it with free emission credits. But there's no such thing as a free credit. Under the Kyoto treaty, each country is allowed to emit for free up to its commitment level, in our case 1990 volumes. Above that, somebody has to buy credits to emit more. If business doesn't, then the government does out of taxes.

And this concept of intensity-based allocations of credits has other failings. For example, the industry benchmark is local and thus it won't hold most sectors to international best practice. Again, this locks us into old technology rather than incentivise investment in new.

This is exactly what National intends to do.

2. Slavishly follow the ETS in Australia, a small neighbour and international laggard struggling miserably to deliver one.

Even better, cut our ETS off from America's. After all, the US is only the biggest market for carbon credits and the biggest source of investment in and markets for clean technology.

Easy to do. Section 728 of the Waxman-Markey bill on climate change passed by the US House of Representatives explicitly bans the US from linking its ETS with any country that shuns volume caps in favour of intensity-based allocation.

This is exactly what National intends to do.

3. Keep giving free allocations as long as possible. This again reduces the incentive on businesses and households to change. For example, phase out allocations at the rate of 1.3% a year, rather than 8% in the ETS approved by parliament last year. That's nonsense. No technology remains current for 75 years.

This is exactly what National intends to do.

4. Place a $25 a tonne cap on the price of carbon until at least the end of 2012. This mutes the price signal and thus the business incentive to change.

It also creates another big subsidy for business that taxpayers will have to fund when the government goes shopping for credits. The higher the international price, the bigger the subsidy.

Also, halve emitters' obligations over the same period. Let them surrender only a credit for one tonne of emissions for every two tonnes of gases.

This is exactly what National intends to do.

5. Allow forest owners to sell their carbon credits overseas. It's absolutely fair they should get the best price they can. But if there's a price cap here, they will sell lots of our home-grown credits overseas. So when the government has to buy credits to meet New Zealand's obligations, it will have to buy more overseas.

This is exactly what National intends to do.

6. Buy off a minor party to secure the votes to demolish the ETS. Promise to plant some trees together, waive the possibility of increased beneficiary payments and enshrine some other special treatment in legislation.

The Maori Party is a willing accomplice. For these few favours, the Maori Party has repudiated its sustainability, climate change, economic and social justice principles it articulated in its minority report in the recent select committee report on the ETS.

Among other things the Maori Party said then:

It opposed emissions trading because it "allows sectors to pollute and trade up to the Kyoto target (and) does not include incremental emission reduction targets in its design."

"We are also deeply concerned about protection in the form of intensity-based allocation and subsidies, which distort the market model by allowing protected businesses to increase their emissions without penalty, and to be rewarded for it."

This is exactly what National intends to do.

7. Axe complementary measures such as fuel efficiency standards for cars and minimum volumes for biofuels.

That is exactly what National has done.

8. Keep households and businesses dependent on taxpayer subsidy. Sow the seeds of dependency now by giving in to special pleading. This will make it even harder to remove price caps and other favours later.

This is exactly what National intends to do.

9. Create uncertainty for business. Do so by passing legislation that does not have broad political support. Even better, devise an ETS that will require subsequent governments (even ones led by your own party) to radically overhaul it to stem the ballooning taxpayer subsidies and to impose at last the disciplines and incentives that are needed to drive change.

The government admits these nine actions will cost taxpayers at least $400m by 2013. The NZ Business Council for Sustainable Development, whose 63 member companies' annual sales of $59 billion equate to about 43% of GDP, says its expects the costs to "run into billions of dollars".

There's no knowing how big the bill will be. But the dynamics are obvious. National's changes would drive up emissions, perpetuate old technology, necessitate ever-greater subsidies and reduce New Zealand's international competitiveness and reputation.

This is exactly what National intends to do.

- © Fairfax NZ News

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