A trans-Tasman ETS?

Yesterday our PM announced with Australia’s PM that officials would be starting work to align the eventual Emissions Trading Scheme (ETS) across the ditch with our own.

Julia Gillard seems however to have received some misinformation about our ETS:

Gillard said Australia needed to catch up with New Zealand on pricing carbon, saying New Zealand’s ETS was “working successfully”.

I guess it depends on how you define success. We do have an ETS and the Government has managed to avoid the negative political fallout that Labor seems to be facing.

But, our ETS is certainly not going to reduce Greenhouse Gas Emissions much.

It’s unlikely to stimulate much low carbon economic development as the costs will be mostly borne by households and taxpayers, as opposed to polluting businesses.

It does do a bit for forestry, but even foresters have been reluctant to take up the scheme (PDF) because they risk having to pay a much higher carbon price in the future when they harvest their trees.

It may even subsidise the development of lignite coal in Southland, which would significantly increase our emissions.

Fortunately, the Greens hold the balance of power in Australia, and they are working hard to get a real price on carbon from July 2012. What will this mean for New Zealand?

If the Aussie Greens are successful in holding the line and getting a realistic price on carbon next year, it will be New Zealand who will have to play catch up.

By 2015 when the Aussie ETS is meant to be operational and presumably integrated with our own, the economic benefits of a higher carbon price in Australia should be kicking in.

Low carbon business in Oz will reap the benefits, while kiwi polluters will have to pay.

The alternative is that we drag our larger neighbour down to our level, and a trans-Tasman ETS benefits the coal industry while households are left to foot the bill.

One thing is for sure, Australia’s commitment to climate change mitigation is further evidence that the world is moving in this direction. The sooner we act to transition our economy away from fossil fuels, the less it will cost us.

7 Comments Posted

  1. Rimu – your statment is true, a litle, and is in fact the basis of how the ETS is supposed to work; the idea is that consumers will respond to price signals and vote with their wallets for the cheaper goods and servies which have a lower carbon charge.

    The trouble is, business didn’t get that memo.

    Assume buisness B discovers how to make some good with significantly less carbon content than business A produces the same good for, and so the production cost for B is 40% less than A. Will we get that good a lot cheaper?

    The way the ETS (and your argument) works, is that businesess uses a “cost plus” pricing, and thus the reduction of price will percolate along the entire value chain and the customer will benefit, so we’ll buy the much cheaper product from brand B, and brand A will wither and die.

    Trouble is, most businesses us the “what the market will bear” pricing model, and thus that 40% decrease in production cost means 1% less for the consumer, and 39% more profit. For 1% most consumers wouldn’t even notice the difference or shift brand loyalty, and in many markets (eg supermarkets) the “specials” pricing scheme might reverse such a small difference anyway.

    The establsihed brand A has set the benchmark price for the good, and any competitive manufacturer will price there or there abouts, content in the knowledge that for every unit sold they are making more profit that Brand A. And that is what the business is there to do.

    Like I said: the dice are loaded against us; we wont get the opportunity to make much of a difference by voting for change with our buying habits. The current (and other proposed) ETS is just another wealth transfer scheme.

    I’m convinced my variation would make a difference though, as it changes the impact of ETS to a place where a difference can be made, and there is an incentive to make a difference.

    And my scheme will never be adopted, precisely because it would work; the exiosting ETSs aren’t actually designed to work in the way an environmentally conscious person might expect them to.

  2. Taxpayers and consumers are not the same thing.

    I can choose what I consume, how it is made and by who. I have little say about the tax I pay.

  3. Yes, but… the argument is one about semantics; does the taxpayer pay or does the consumer pay? Oddly, those two groups are actually the same group, so by arguing for “a real price on carbon” you’re just arguing for a price rise, and, as you note, not actually make a jot to the amount of pollution, because the end user (that us, call us a consumer or a taxpayer) can’t actually make choices that reduce carbon tax and thus pollution; the dice are loaded so we can’t even break even, let alone win.

    I’ve suggested what I see is the only way to reduce pollution and that is to alter investment decisions; business owners (shareholders, partnerships, or sole owners) should be the ones required to pay the carbon tax. Investers in business will soon find the more beneficial options, whch will be the ones that emit less carbon. The others will go to the wall.

  4. A trans Tasman approach is a good idea and ironically it seems this is one area where National and Greens can agree (National want international co-operation to over-ride ACT opposition to their ETS and obviously there is some hope Oz Greens can lead some improvement on our ETS).

  5. I liked this in todays Dom Post from Tony Abbot: “In his speech welcoming Mr Key to Parliament, he congratulated the National Leader for “dramatically watering down” the former Labour government’s emissions trading scheme…”

    Even if he is a bit evil about climate change policy at least he says it like it is for NZ!

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