KEY POINTS:
The Rudd government across the Tasman has opted for a softly, softly approach to emissions trading to minimise the impact on the cost of living for Australian consumers and businesses.
The aim seems to be to ease them into emissions trading with as little pain in the
pocket as possible for the first few years, recognising that the effects of putting a price on carbon will be "profound" and on a par with some of the biggest economic reforms ever made.
In New Zealand, there has been an attempt by politicians to play down the impact of the proposed emissions trading scheme, despite the fact that comparisons with other schemes show it to be the most comprehensive and expensive approach in the world.
This suggests that if the Government does manage to get small party support for the current emissions trading bill, it will not have a long life. It is hard to imagine how long a scheme would last in New Zealand if our businesses and consumers are facing increases in the price of fuel and energy at the international price of $40-50 a tonne of carbon dioxide, while Australia has capped the price of carbon at $25 a tonne of CO2.
So while a representative New Zealand motorist will be facing an additional $358 per year from the carbon cost on petrol (at $40 a tonne) and the higher priced biofuel, Australians will not face any increase in fuel costs because they will be offset by matching reductions in fuel excise tax.
Environmental lobbyist Simon Terry argued in a recent article that the proposed emissions trading bill was flawed for a number of reasons, including that the level of free allocation to industry and agriculture will mean that households, road users and small to medium businesses are meeting the majority of the payments. However, this view ignores a couple of important points.
The first is that consumers will pay no matter how the scheme is designed. Putting a price on all greenhouse gases is a new cost which makes a large range of inputs across the economy more expensive. Those costs are passed on to business and are in turn passed on to consumers. If business cannot pass on the increased costs and their profit margins disappear, then they will close down completely or leave to set up in a country where they do not have to face the price of carbon. If this happens then consumers/taxpayers are even more disadvantaged due to fewer jobs and lower wages.
Most countries looking at implementing emissions trading are concerned that they don't make their trade-exposed sectors less competitive against industry in countries that do not price carbon. They accept that in the transition to a level playing field, it is sensible to maintain the competitiveness of their own industries, particularly when they are efficient and low carbon producers.
New Zealand is in the fortunate position that we do have energy-efficient producers. Many of the big industrials, particularly in the pulp and paper sector, have already reduced their emissions close to or below 1990 levels - which is what the country committed to achieve under the Kyoto Protocol. The growth in emissions has come from other areas of the economy, notably transport, electricity generation and population growth.
Independent studies have shown that our agriculture is a world leader in terms of low carbon production, due to our natural gas-based system.
The best way for New Zealand to assist the world in emission reductions is to implement a system that encourages investment in new, cleaner technology. If New Zealand industry can produce goods that have a lower carbon impact than a competing country, then our production should be able to increase, displacing the more carbon-intensive production from other countries. That could be achieved if we removed all caps and made companies face a price of carbon if they were above world's best practice in emissions.
By imposing a historical cap on emissions, New Zealand companies will increasingly become uncompetitive and the result will be fewer jobs and an increase in global emissions if our more carbon-intensive competitors take up the slack.
Another major difference between the New Zealand approach and the Australian approach to emissions trading is that the Australian Government has promised to recycle every cent of revenue collected from the emissions trading scheme. There has been no such promise on this side of the Tasman, and the Government here stands to make around $400 million from the emissions trading scheme by 2013, by having it cover more emissions than those above 1990 levels.
* Catherine Beard is the Greenhouse Policy Coalition's executive director. The group represents the energy-intensive sector on climate change policy.