Political consensus lacking on issue where adaptation is not an alternative to cutting gases

Just how far we still are from political consensus on climate policy was evident at a pre-election debate on the issue organised by Business New Zealand in Auckland on Tuesday.

The National Party's position, as put by Climate Change Minister Tim Groser, is that climate change is a global problem requiring a global response.

As New Zealand produces a "minute" fraction of global emissions, reducing them is pointless unless it is part of a global effort, Groser says.

He strongly agrees we should keep the emissions trading scheme. But with only about 7 per cent of global emissions as yet subject to a carbon price, our enterprises should not have to pay more than the "world price" for carbon.


We do not have many easy and cheap ways of reducing emissions, he says, but he is enthusiastic about the Government-spearheaded Global Research Alliance and the prospects of progress on methane emissions from livestock.

Essentially, then, National is content with the status quo in which we have essentially a placeholder for a meaningful price on carbon.

Last year and the year before, firms with obligations under the ETS could meet those obligations with cheap imported carbon credits costing a few cents a tonne (of CO2 emissions offset).

While this appeals to those who ask, usually rhetorically, why our businesses and farmers should incur costs their competitors do not, it ignores the temporal dimension to the competitiveness issue.

New Zealand has the fifth-highest emissions per head of greenhouse gases among 41 Annex I or developed nations. We do not, sadly, have the fifth-highest per capita gross domestic product, not by a long way.

That reflects the fact that ours is an emissions-intensive economy, with emissions per dollar of GDP a third as high again as the United States' and more than twice western European levels.

If that has not changed when the major powers finally get serious about tackling climate change and pricing carbon, it will be a serious drag on the country's international competitiveness.

In the meantime people are making decisions which will have a long-term effect on New Zealand's future emissions profile - about land use change, what buildings to erect and where, and about infrastructure. Those decisions need to be informed by a set of prices which includes a meaningful carbon price, not a square-bracketed, to-be-advised pretence at one.

Labour and the Greens differ on how a meaningful price can be delivered.

Labour believes the ETS can be repaired and rendered fit for purpose; the Greens would replace it with a carbon tax.

Labour climate change spokeswoman Moana Mackey said the party would restrict imports of cheap carbon units; phase out the current scheme's buy one, get one free provision; retain a high degree of free allocation for the most emissions-intensive, trade-exposed emitters (subject to five-yearly reviews) and progressively bring agricultural gases into the scheme.

She also talked about sector-specific mitigation targets and greater use of complementary or non-price measures.

This approach faces the problem that there is huge uncertainty about what the balance of supply and demand in the ETS looks like going forward.

A legacy of the Government's willingness to allow emitters untrammelled use of cheap imported carbon credits is that the system is awash with New Zealand units (NZUs) they have crowded out. Officials say there are about 140 million NZUs not held by the Crown in the registry. How much of that overhang is liquid and how much is held by businesses and forest owners to meet their own obligations is unclear. We can only hope a scheduled review of the scheme next year will bring some clarity.

The Greens, by contrast, believe the ETS is broken beyond repair. They would replace it with a carbon tax set initially (with some exceptions) at $25 a tonne but liable to be revised in light of recommendations from an independent Climate Commission, which they hope would depoliticise the issue. The proceeds would be recycled in a modest but universal cut to income tax and 1c in the dollar off the company tax rate.

The Greens expect at least half of the emissions reduction ahead will come from complementary measures, some of which might be facilitated by the Green Investment Bank they would establish.

"If we don't start the transition [to a low-carbon economy] fast we will be stranded economically and politically," said Greens climate change spokesman Kennedy Graham. "There will be a global agreement and a global carbon price will emerge."

The Greens' policy includes provisions for the transition from ETS to carbon tax, in particular how that can be done without expropriating the holders of NZUs. They are, after all, property rights whose owners have either bought them or incurred some opportunity cost in retaining them.

Act, which would also scrap the ETS but would not replace it with anything, does not seem to have turned its mind to the property rights issue.

Leader Jamie Whyte argues that, because the chances of a global agreement are extremely slim, unilateral action to cut emissions would be futile or even counterproductive from an environmental point of view, as well as costly economically.

But never mind, the costs of climate change itself might prove lower than we think.

He acknowledges that economists generally favour internalising external costs (the principle of polluter pays) but doubts there is any sensible consistent way of estimating those costs, given how much individuals' preferences and countries' priorities differ. Resources would be better spent on adaptation.

But adaptation is not an alternative to cutting emissions. We have no option but to adapt to however much climate change we face; how much there is - how inhospitable to our species we make the planet - is all about reducing emissions.

And free-riding does not look like a viable option for a country with a valuable (if rather undeserved) clean, green brand.