frogblog

While the select committee struggles through the deluge of submissions on the ETS, the rest of us who are interested are forced to wade through the plethora of reports released this week in honour of our first serious attempt to tackle CO2 emissions. The report card? Not so good. The one thing that all the reports agree on, which the Greens have studiously pointed out since its release in October, is that it simply does not reduce emissions enough.

The NZIER report states the obvious - that the ETS will cost money. What a shock that keen insight is and a great contribution to the debate. We’ve all known since the Stern report roughly how much doing our bit would cost and the NZIER report added nothing to that knowledge. It’s a baldface pitch to let all businesses off the hook for their emissions and force the taxpayer to foot the bill for their mess. Hot Topic has a good post on the NZIER report so I won’t spend any more time on it. His post says pretty much all I would say anyway. It’s good.

Then there was the Cawthorne Report, commissioned by the Emissions Trading Group to scope out the environmental impacts of the ETS and recommend what further research is needed to understand said impacts. The key message from this as far as I am concerned is that agriculture comes in far too late and that this is a significant missed opportunity. The other recommendations are important and worth considering. Most seem obvious on inspection but thank god someone bothered to ask the questions!

Then there was the Sustainability Council’s report, which I must say pulled no punches concerning who the major benefactors are going to be under the ETS as currently designed. I’m two-thirds of the way through it and it is definitely worth the read. Are there any reporters reading this? You need to read this report! I have personally invested a great deal of time getting to know and understand the vagaries of the ETS, and I still learned a great deal from this report. There is so much to quote, I will have to contain myself. Please forgive the excessive quoting!

The ETS has so little effect on emission levels partly because of the proposed exemptions and corporate-welfare arrangements. Two-thirds of all emissions are exempted through delayed or absent coverage, on top of which rebates are to be granted to selected sectors.

The scheme can be expected to gather in $5.1 billion during CP1, though net proceeds are just under $4.4 billion. Assessing the impact in cash terms alone, losers under the ETS pay out net about $4.4 billion to the winners. Large industrial emitters pay $0.2 billion and agriculture pays $0.2 billion, while $4 billion is paid by road users, households, and small and medium businesses. Those last three groups make 91% of the net payments but account for only 34% of the nation’s emissions.

Beyond cash costs and gains lies the question of the extent to which each sector is being overtaxed or undertaxed, relative to an equitable allocation of the burden. If notional “fair shares� are based on the widely-accepted “Polluter Pays Principle�, then the implicit cross-subsidies resulting from sectors not paying in proportion to their emissions can be calculated. These implicit subsidies arise from a combination of exemptions from the ETS and the gifting of NZUs.

The economically efficient way to meet New Zealand’s Kyoto commitments is to set up incentives that bring forward the required emission reductions at least cost. The ETS does not set up a mechanism for least cost abatement during CP1. It exempts entirely the sector with the largest amount of cost-competitive abatement potential (agriculture) while bringing in first, and taxing the most heavily, the sector exhibiting probably the least ability to abate during this period (transport).

The Government’s arguments for adding extra complexity and opacity to this basic design are unconvincing. The chief attribute delivered by creation of the NZU is the ability to obscure the provision of off balance sheet subsidies to favoured sectors. Take away the blanket subsidies and the rationale for the NZU vanishes.

Both National and Labour Governments have taken important stands internationally that commit New Zealand: signing the Framework Convention on Climate Change in 1992, agreeing to a Kyoto target in 1997, and ratifying the Protocol in 2002. Both major parties have accepted that a “price on carbon� is an essential feature of any serious climate change response package. However, attempts to introduce such a price via a carbon tax or similar instrument have repeatedly been abandoned in the face of strong lobbying by major emitters and their supporters. When the Protocol came into force in January 2008, New Zealand still had no comprehensive set of climate-change policies in place – only a blueprint proposal for one.

The New Zealand Government’s failure to make progress towards emission reduction during the 1990s, and in particular the abandonment of tentative moves towards even a minimal carbon tax, reflected the vulnerability of the Government and MfE to regulatory capture by large industry, whose lobbying successfully diverted policy away from economic instruments and emission-reduction targets and into the safe but ineffective backwater of “voluntary agreements�.

So, in a nutshell, despite the NZIER’s pleading for a full taxpayer subsidy of all of New Zealand’s dirty industries, it appears from the Sustainability Council’s report that in fact a full 66% of NZ’s dirty industries are already due to be subsidised by the taxpayer under the current regime.

What are they complaining about???