Winners and Losers in the ETS

Only when low profile becomes high profile, do the politicians sit up and take notice. The Feds with their anti-fart tax campaign and the forest industry with its campaign to allow owners of Kyoto forests (planted post-1989) to participate in the ETS are the only cases where Labour was willing to contemplate major changes to its version of the ETS.

Unlike other business groups, the NZ Business Council for Sustainable Development (NZBCSD), supported from the kick-off an ETS involving all gases and all sectors. As a result it has an impressive number of policy wins to its credit.

Its greatest success, however, was in moving many businesses from an attitude of denial and ‘do nothing’ to one of constructive engagement with something that was about to become a reality. It also helped build acceptance among businesses and the major political parties that an ETS would be more effective than a low level carbon tax in delivering the emission reductions required.

However, any hopes that it would achieve cut-through with the public appear to have been groundless. Since Kyoto became a buzzword, the TV news channels have refused to engage with the climate change debate at anything more than a bumper sticker level.

On both sides of the Tasman, the public supports the notion that big business should reduce its emissions, so long as the public doesn’t end up paying for it through increased prices. Clearly there is little understanding of how a carbon pricing mechanism works.


Farmers’ featherbed not as thick as it appears
Of all business and primary sector groups, the NZBCSD was the most gung ho about the inclusion of farming in an ETS. However, it went too far for Fonterra and some of its other corporate members when it released research that showed that a large majority of the public were unhappy with National’s ETS changes which would make taxpayers pick up a bigger tab for emissions from trade-exposed energy intensive businesses and farmers.

These changes were widely criticised by the Left and by environmental groups led by Greenpeace, for weakening Labour’s ETS. Commentator Rod Oram went further, saying the changes were a “shambles” that made an “utter mockery” of the ETS.

They were wrong. The desperate last minute deal struck with the Maori Party to get the legislation through the House, certainly deserved those descriptors. But as for the substance of the amendments, the critics protest too much.

Meat, wool and dairy processors will pay significant emissions charges. Fonterra estimates this will cost them an extra $115 million a year by 2015, a cost that will be sheeted home to farmers, if the government sticks to its timetable.

The energy sector will be liable for 50% of its total GHG emissions between 2010 and 2012, and for 100% of its total emissions from 2013 onwards. After providing free credits for trade-exposed energy intensive industries, the government estimates that industry will need to buy 32 million NZ emissions units each year. At a conservative $25 a tonne, that’s $900 million a year – hardly an insignificant sum.

Whether it will be sufficient, along with emission charges on agriculture that cut in 2015, for New Zealand to meet its (conditional) target of a 10-20 per cent reduction in 1990 emission levels by 2020 remains to be seen. Despite the rhetoric from green groups, these targets are a major challenge.

As the Greenhouse Policy Coalition points out, “The high percentage of renewable electricity generation, the high percentage of agricultural emissions, and [with many] industrial emitters already near “world’s best practice” in energy efficiency, means mitigation options are very limited and will be high cost.” In its 2007 publication, Framework for a New Zealand Emissions Trading Scheme, the Ministry for the Environment said much the same thing.

In this context, Greenpeace’s call for a 40% reduction target (in 2008 it was calling for a 30% reduction) was akin to asking New Zealand to commit economic suicide. Clearly it couldn’t be achieved without a dramatic reduction in emissions from the country’s largest source of emissions, livestock farming. So let’s give them full marks for honesty – their recipe for low input, low intensity farming would undoubtedly result in a dramatic reduction in emissions. It would also mean the end of the dairy industry as we know it, while being the death knell for sheep farming (the biggest source of farm greenhouse gas emissions).