KEY POINTS:
When a greenhouse gas emissions trading system was announced last September, it was generally well received. Energy Minister David Parker had taken his time consulting the interested sectors and the scheme was much as expected. Seven months later it is being assailed from all sides.
One side says
it will impose too heavy a cost burden on New Zealand's economy and its exports. Another side says households, small business and road users will bear too much of the burden and that the scheme is too generous to the country's biggest contributors to global warming. Who are we to believe?
The business case has been made in a report by the NZ Institute of Economic Research which assesses that the cost to the country of forcing industries to trade emission rights would be about four times the cost of simply paying for emission reductions out of taxation. Furthermore, the institute says, a simple subsidy for emission cuts or the purchase of carbon offsets from other countries would do more to reduce global emissions than a New Zealand trading scheme would do.
The other side, represented in a report issued by the Sustainability Council, agrees that the trading scheme will make little difference to the country's greenhouse gas emissions in the first Kyoto commitment period to 2012. The country's largest contributor to global warming, agriculture, will not face the emissions cap and trading regime until 2013.
If the Government keeps its nerve, the scheme will be introduced for transport fuels next year and electricity from 2010. But producers will receive a free allocation of rights to cover 90 per cent of their 2005 emission levels. Those allocations would not be phased out until 2025.
By then, the NZIER estimates, emissions rights will be costing the economy more than $4.5 billion and hurting the country more than necessary. That view assumes that emissions trading will remain largely limited to the developed economies that are already designing schemes, plus the United States where all three contenders for the presidency are committed to market measures to combat climate change.
Worryingly, no other country seems to be planning to include agriculture in its emissions control system and the institute warns that farming will be unable to reduce its emissions quickly. With reduced earnings from agriculture and extra costs on fuel and electricity, the institute predicts the policy will reduce GDP growth by $6 billion, along with lower living standards and fewer jobs than would otherwise be reached in that time.
It is a sobering report but it can probably be taken with a grain of salt. The private sector habitually takes fright at state-imposed costs even when they are a fraction of market price fluctuations. Oil price rises over the past year or two surely exceed anything that might come from emissions trading. Much of the fear among big emitters might be put down to uncertainty about the price that will be set. Estimates range from $15 to $50 a tonne.
Many uncertainties will persist until an international agreement is reached for the years beyond 2012. Much of the Government's proposed pace of change seems intended to impress international laggards. If this country risks getting too far in front of global developments the pace will probably be revised.
The Climate Change Leadership Forum, a business panel with the Government's ear, continues to support a trading regime open to international emissions markets but with a regular check on others' progress. That seems the wisest course.