Jeanette Fitzsimons

What’s wrong with the National-Maori Party ETS?

by Jeanette Fitzsimons

While we haven’t seen the bill yet, Monday’s announcement makes it clear that this is the sort of ETS you have when you think climate change is a hoax. It imposes a considerable bureaucracy and compliance burden on the economy with no benefit to the climate.

Basically, it’s less obligation for everyone, and more delay. Taxpayers pick up the cost. It seriously weakens the scheme we have now, and will do little to reduce emissions.

There are serious problems with entry dates, a price cap, free credits to big emitters for the rest of the century and a two for one deal that halves the price signal.

However the worst feature of the new proposal is none of these. It is the proposal that free credits be allocated on the basis of how much a firm produces. It’s called “intensity based” or “output based” allocation. It means there is no limit ever to NZ’s emissions; they never peak and start to trend downwards; and the incentive is to grow our most polluting industries. It works like this.

Suppose a cement plant (or steel, or aluminium) currently produces 100 tonnes of product and emits 500 tonnes of greenhouse gases. Under the existing law, let’s assume the same numbers were true of 2005. They would then get free allocations for 90% of this pollution, or 450 units, and have to purchase 50 units. If they managed to become more efficient and reduce their pollution they would have less to purchase. If they grew their production to 150 tonnes at the same energy intensity and therefore emitted 750 tonnes of carbon dioxide equivalent, they would still get only 450 free credits.

So when they did the financial analysis about whether to expand production, the cost of carbon credits they would have to purchase would be part of the calculation. There would be a strong incentive to find new technology that emitted less pollution per tonne of product, or to invest their capital in something with lower greenhouse gases per dollar of value created. This is how a country can transition to a low carbon economy. At the same time, cement, steel and aluminium become more expensive and new technology is developed to build strong buildings using less cement, and in some circumstances to substitute strengthened timber for steel or concrete.

But that was last year’s scheme, which is about to be cancelled. Under National’s new scheme, the plant gets a free allocation for every tonne of product they make. If the starting  point is 450 tonnes for 100 tonnes of production, when they expand to produce 150 tonnes of product they get 90% of 750 units, or 675 units. When considering whether to expand, the firm never faces the full price of carbon on the next unit of product. They only ever face 10% of it. This leads to an economy where our most carbon and energy intensive industries grow and there is little reason for new technology or low carbon production or switching from high to low intensity materials. It is an economy stuck in the past, unable to transition to the new, hi-tech, climate-friendly future.

There is also a provision that the allocation will be related to the industry average emissions for that level of production. This raises more problems than it solves. It is unclear at this stage whether the industry average is international or NZ, and how it is determined.

Of course, if the plant expands its production and raises its emissions, that becomes part of New Zealand’s obligation under Kyoto. As a country, we have to purchase units overseas to balance out that extra 250 tonnes. The difference between 450 free units under the old scheme, and 675 under National’s proposed scheme is picked up by taxpayers.

In short hand, the more you pollute the bigger the subsidy you get. It’s not polluter pays, it’s pay the polluters.

I’m going to Copenhagen in December. I’m thinking of a large sign round my neck: Ashamed to be a New Zealander.

Published in Environment & Resource Management | Featured | THE GAME by Jeanette Fitzsimons on Fri, September 18th, 2009   

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