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Molesworth & Featherston (Weekend) – July 8th 2006

Molesworth & Featherston - Weekend Update edition

Business and Political News
July 8th 2006

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Long term path not much clearer

Terms of reference for an energy strategy were a disappointment to anyone looking for a fresh steer on how the government is going to handle climate change. The government still has no solid idea how to put a price on carbon.

The Cabinet paper on the subject gives a broad indication ‘long term’ solutions will be favoured over short term fixes to address the $500 million-and-rising net shortfall on our 2008-12 Kyoto obligation. A narrow carbon tax on big polluting thermal generators may be one way - which we knew in November. But will likely wait till after 2012 to put in place a carbon tax. The government also moots making the vehicle fleet more efficient, possibly by curbing the age of imports or banning the import of the least efficient in each vehicle class.

The more government tries to mitigate using a price to reduce industrial use of carbon, the less it will reduce carbon use. Likewise, the more it removes carbon-credit earning industries (like forestry) from the benefits of credits, the less incentive there is to plant more trees; this is compounded by threats foresters will have to pay to change their land use from forests, which has had the backlash effect of accelerating deforestation.

There is some wiggle room - thus the talk of bumping the mainly government-owned energy companies from carbon use to all-renewable.

The government needs to find a way that provides enough incentives to change behaviour and gives certainty to business making plans over the long haul. Unfortunately, the terms of reference released this week don't get us very far along towards the choices that need to be made.

The overall strategy gives Labour's political opponents ammunition, since it looks very Kyoto-lukewarm. The Greens should have a field day but have been relatively muted so far. That probably reflects both the Greens’ strategic ambivalence; it also reflects the cautious content of the terms of reference.


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