Time to Scrap the ETS

New Zealand Centre for Political Research

The New Zealand Centre for Political Research is a web-based think tank that takes a research-based approach to public policy matters and encourages the free and open debate of political issues.

Last week, the government announced it was going to set up a taskforce to tackle ineffective rules and regulations “that have been brought in over the decades, that were no doubt well intentioned, but end up being confusing, onerous and costly, while failing to deliver any real public benefit”.[1] The long-term aim is to cut unnecessary bureaucracy and scrap “loopy” laws.

While the focus appears to be on local government, which few would dispute is a bastion of loopy laws, it should also cover all central government legislation. At the head of the queue of “well intentioned” general laws that are “confusing, onerous and costly, while failing to deliver any real public benefit” would surely be the Emissions Trading Scheme (ETS). With Australia having just abandoned their carbon tax, because of the damage it causing to the economy, isn’t it now time the New Zealand government repealed the ETS?

New Zealand’s emissions trading scheme was the brainchild of the previous Labour Government. Former Prime Minister Helen Clark ratified the Kyoto Protocol in 2002 and wanted to see New Zealand to lead the world in sustainability. She set the agenda in 2007: “My annual statement to Parliament this year is a call to action on sustainability. Complacency will not do. I believe New Zealand can aim to be the first nation to be truly sustainable. I believe we can aspire to be carbon neutral in our economy and way of life. I believe that in the years to come, the pride we take in our quest for sustainability and carbon neutrality will define our nation”.[2]

It was this extreme ideology which led the country into an ETS.

National was elected to government in late 2008, just after the ETS had become law. As Australia didn’t have an emissions trading scheme at that time – although one was planned – there was a great deal of concern that Australian businesses would gain a competitive advantage over the New Zealand business sector. As a result, politicians wanted to align the schemes, in order to prevent either country from unfairly gaining the upper hand in trans-Tasman trade and common export markets.

A Regulatory Impact Statement, prepared in 2009, explained: “Australia is New Zealand’s principal export market – 22.9 per cent of New Zealand’s total exports were to Australia in the year to June 2008 – and New Zealand is Australia’s sixth largest export market – 5.6 per cent of its total exports were to New Zealand. Australia and New Zealand also compete in third markets. Of the top ten export markets for each country, New Zealand and Australia have six in common. Differences between the emission trading schemes of both countries, particularly levels of protection, could have a large impact on levels of trade between the two countries.”[3]

The report estimated that a price on carbon could put at risk 10 per cent of New Zealand’s trans-Tasman export trade and around 15 per cent of Australia’s. In addition, the very real possibility of ‘import substitution’, if Australian businesses became more competitive than New Zealand’s domestic producers, was raised.

While the original intention was for Australia to adopt an emissions trading scheme similar to New Zealand’s, it was a carbon tax that was passed in 2011. Now that their tax has been repealed, Australian businesses stand to gain a huge competitive advantage over Kiwi businesses – which are still weighed down with our ETS millstone around their necks.

According to the Wall St Journal, the carbon tax was a significant “cost facing Australian exporters competing in global markets; one that does not exist for international competitors”. Repealing the “misdesigned” carbon tax was seen as “very important in increasing Australia’s competitiveness at a time when companies selling exports have faced challenges including a historically high Australian currency”. Airline operators were said to have been “hurt badly by the tax”, since intensifying competition in Australia’s domestic travel market had driven down ticket prices and “made it impossible to pass costs onto passengers because of stiff competition”.[4]

When the ETS was introduced in this country, New Zealanders were told that the price of electricity would increase by 5 percent and the cost of petrol and diesel by 4 cents a litre. It was very clear that the impact was going to fall heavily on households and businesses as the power and fuel increases forced up the cost of all goods and services in the economy. The ETS was going to erode the profitability of New Zealand businesses and cost jobs, as well as undermining the international price competitiveness of our key export sector.

Fonterra warned that by 2015, the ETS would have forced up the cost of processing dairy foods by over $100 million a year. Meat processors predicted their costs would increase by $20 million a year by 2013. Federated Farmers estimated that the direct costs to farmers from the power and fuel price increases alone would be around $87 million a year, but the indirect costs on the whole sector would be in the order of $200 million.[5] It was clear that families were going to face the brunt of these cost increases in the supermarket.

Meanwhile, in Australia, Tony Abbott’s Liberal Party campaigned to abolish the carbon tax. The issue became so highly politicised, that it helped him to win last year’s general election to become Prime Minister.

In the repeal debate in the Australian Parliament on July 17, the Minister for the Environment, Hon Greg Hunt, explained, “The Australian people have already debated the carbon tax and they decided ten months ago on 7 September 2013 that they did not want: higher electricity prices; higher gas prices; higher travel costs; or higher food costs.

“The Australian people did not want to support a measure that did not do the job, was not working and did not have a mandate. The carbon tax increased the costs of everything it touched. It punishes households, business, schools, hospitals, nursing homes, charities, churches, council swimming pools and community centres. It hits each and every group and individual who use energy—and that was always its goal: to make electricity and gas more expensive. The purpose, the intention, the construct of a carbon tax is to increase the cost of living, most specifically the price of electricity and gas, for Australian families. And that is why the Australian people voted to get rid of it.”

The Minister explained the cost to the Australian economy: “The carbon tax has been a $15 billion hit on the economy over two years. It is a $15 billion hit on jobs, a $15 billion burden on investment and a $15 billion slug to families, pensioners and small business owners, which they do not need because it simply does not do the job. These bills get rid of a tax which does not work, which is not doing the job and which is not achieving its outcome. Ultimately, repealing the carbon tax will reduce the cost of living, make jobs more secure and improve the competitive position of our country.”[6]

The New Zealand Emissions Trading Scheme, which remains the world’s only country-wide scheme outside of the European Union, was designed to force businesses and households to reduce greenhouse gas emissions. The forestry sector entered the scheme in January 2008. The liquid fossil fuel, stationary energy and industrial processes sectors joined in July 2010, and the waste and synthetic greenhouse gas sectors in January 2013.

The problem for New Zealanders is an emissions trading scheme like ours is not suited to a rural economy where almost half of our greenhouse gases are generated by a natural process, namely, the digestion of cows and sheep. These emissions cannot be reduced by technology. In addition, over three quarters of our electricity is already generated from renewable energy sources such as hydro, geothermal, and wind. That means any attempt to significantly increase the renewable percentage, would involve harnessing unreliable power sources that would further drive up the cost of electricity.

Emissions trading schemes were designed for industrial economies like the European Union. However, their scheme covers only carbon dioxide emissions and targets just 43 percent of heavy industries, excluding the transport sector, households, small businesses, agriculture, construction, and waste.

In comparison, the bureaucrats and politicians who constructed New Zealand’s ETS used a far more punishing approach. Our scheme covers “all” gasses, even though they knew it would be impossible to reduce emissions produced by livestock. The scheme also covers “all” sectors, even though the architects knew the burden of price increases would fall heavily on householders and small businesses.

Quite why New Zealand governments have wanted to penalise households and small businesses, with an ETS that is far more onerous than that of the European Union, is not clear – especially when our country is one of the cleanest and greenest on earth, with human habitation covering less than one percent of our total land area.

New Zealanders are told that although our greenhouse gas emissions are small on a global scale at 0.2 percent, we are one of the world’s highest per capita emitters. This is because, while the calculation includes livestock emissions, it doesn’t include the absorptive capacity of farmland – even though almost 40 percent of New Zealand’s total land area is in grasslands.

In some regions of the US, grassland farmers get paid for producing pasture, in the same way that foresters in New Zealand have been paid for growing trees. As the Ministry for the Environment explained, “For the Kyoto period to 2012, the Government will receive $955 million from business emitting, but pay out $1,775 million, mainly to foresters, leaving an $820 million shortfall for the taxpayer.”[7]

In 2013, National announced that agriculture’s entry into the ETS was postponed until “there are economically viable and practical technologies available to reduce emissions; and, our trading partners make more progress on tackling their emissions in general.” This was to be reviewed in 2015.

Given that there are no viable ways to reduce livestock emissions and that our biggest trading partner has now scrapped their scheme, surely it is time for National to pull the plug on the ETS.

This week’s NZCPR Guest Commentator, Bryan Leyland, a consulting engineer and energy specialist, agrees that New Zealand should now repeal the ETS:

“The Emissions Trading Scheme has distorted farming and forestry, increased electricity and fuel prices and done little or nothing towards reducing carbon dioxide emissions. The scheme is open to massive fraud because huge amounts of carbon dioxide and money are traded on the basis of inaccurate information. Nobody really knows how much carbon dioxide farming, forestry or even power generation emits or absorbs to any reasonable degree of accuracy. There is considerable evidence that, overall, farming absorbs carbon dioxide.”

In his article Bryan explains how attempts to fight climate change have led to ‘energy poverty’ and an enormous waste of money. He concludes, “The Emissions Trading Scheme was introduced in spite of a promise that we would do nothing in advance of Australia. Now that Australia has abandoned its carbon tax, we should abandon the Emissions Trading Scheme and everything else associated with it.”

I couldn’t agree more!

THIS WEEK’S POLL ASKS: 

 In light of Australia abandoning its carbon tax, would you support a new government scrapping our Emissions Trading Scheme?

Click HERE to vote – and look on the right hand sidebar     

 

Read this week’s poll comments daily HERE  

 

Click HERE to see all NZCPR poll results

 

FOOTNOTES:

1. Paula Bennett, Taskforce to tackle loopy rules and regulations
2. Helen Clark, Prime Minister’s Statement to Parliament
3. Treasury, Regulatory Impact Statement Climate Change Response Amendment Bill
4. Wall St Journal, Australia Becomes First Developed Nation to Repeal Carbon Tax
5. Muriel Newman, Time to Make a Stand
6. Parliament of Australia, Second Reading Carbon Tax Repeal Bill
7. Ministry for the Environment, ETS for Householders

 
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