The ETS has always exempted agriculture, and even if agriculture is to enter the scheme in 2025, it will pay only 5 per cent of what its emissions cost New Zealand. That's due to old political deals for which Winston Peters claimed the credit – deals that ought to be obsolete by now.
Almost all other main emission sources, except motorists, are also given large scale free allocations of emissions in the ETS, from 90 per cent for NZ Steel down to 60 per cent for tomatoes and cucumbers produced in fossil fuel-heated greenhouses.
So when the NZ Initiative advocates for just using the ETS, it is not moving New Zealand toward the least cost solution to the climate change problem. Rather, it is promoting a wealth transfer from ordinary Kiwis to certain privileged sectors.
This matters for two reasons. First, the transition to a climate-neutral New Zealand cannot be accomplished without thinking about inequality and providing support for less well-off New Zealanders. As the carbon price rises, they cannot be expected to subsidise privileged sectors.
Second, allocating free emissions for privileged sectors makes it more difficult to achieve New Zealand's emissions target in many areas of the economy. New homes and apartments are an example of this.
The materials they are being built with – especially steel, cement, glass and aluminium – embody high emissions in their manufacture. These materials benefit from free allocations under the ETS, and the effect is to crowd out a much more climate-friendly material: wood.
As New Zealand finally starts moving back into house-building mode, we need price signals – or other Government support - that give the market advantage to climate-friendly materials like timber and laminated veneer lumber.
Of course, there was originally a reason for giving high emission sectors some free ETS allocations. It was to protect them from offshore competitors, based in countries doing little or nothing to face up to their climate responsibilities.
But with so many countries playing the same game as New Zealand has been – that is, lax emissions targets and free allocations – the overall result has been a race to the bottom and no reductions in global emissions.
A better solution to this issue is now in sight. It is the use of so-called "carbon border adjustments" by countries which operate their own ETSs.
The adjustment is a charge on the carbon content of imports, fixed at the same rate as the importing country's ETS, less any emissions charges that may have been paid in the countries of origin.
The European parliament has strongly supported this mechanism and in the United States, President Biden is reportedly wanting to apply it too – albeit in a properly co-ordinated way with Europe.
A declaration supported by more than 3600 US economists, including leading advisers to the Republican Party, is supporting the same approach. So a new era is opening fast. The Commission should recommend this mechanism, too.
Meanwhile, it's unfortunate that not just the NZ Initiative but also the Climate Commission have developed what are, in effect, rich people's plans for the climate transition.
Both entrench special privileges for farmers and for people who can afford electric vehicles. Neither have enough to say about how low-to-middle income people will be able to get to work in future.
Both their plans claim that carbon emitters would get their emissions down to net zero while emitters of biogenic methane (mainly farmers) would be grand-parented the right to continue emissions at close to their existing level.
In a recent report the Australian Academy of Science said: "Limiting climate change to 1.5 degrees is now virtually impossible… acting early and urgently reduces the scale of the impacts and can save many lives and livelihoods."
It is thus surprising that the NZ Initiative and the Climate Commission, who both claim to support the 1.5 degree target, assume there is no urgent need for steep cuts in biogenic methane before 2050.
After all, measured on a 20-year timescale, which is all the time we have, reducing a tonne of methane emissions has 84 times as much impact as reducing a tonne of carbon dioxide.
New Zealand signed the Climate Convention in June 1992. After 29 years of delay, the time has come for both carbon emitters and methane emitters to pull their weight. The ETS will not be sufficient.
The Tahuna Group's submission to the Climate Commission includes detailed recommendations for transport, buildings, agriculture and forestry, that would provide for a faster and more equitable transition to a climate friendly economy.
• This opinion was prepared by Guy Salmon and Jim Sinner on behalf of the Tahuna Group, a network of scientists, economists and policy professionals committed to evidence-based and equitable environmental policy in New Zealand.
