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The Carbon Challenge: NZ Emissions Trading Scheme

The Carbon
Challenge - New Zealand’s Emissions Trading Scheme by
Geoff Bertram and Simon Terry


The Carbon Challenge

New Zealand’s Emissions Trading Scheme

Geoff Bertram and Simon Terry

If climate change is the defining issue of our generation, and the emissions trading scheme (ETS) New Zealand’s central response, is it up to the job?

The Carbon Challenge provides a plain English guide to this question that cuts through what is kindly termed the ‘opacity’ of the ETS, while also delivering the detail for those that need to understand why it seems destined for fundamental reform.

That the ETS manages to achieve remarkably little in the way of emission reductions (they keep growing), is an immediate signal that all is not well. Part of the reason for this is a very unfair allocation of the costs arising from New Zealand failing to meet its emissions target under the Kyoto Protocol.

Households bear half the total costs resulting from the ETS during its first five years, when they account for just 19% of all emissions. At the other end of the scale, the 50% of emissions accounted for by pastoral farming are exempted until 2015, and the subsidies to major industrials are so extensive that there is next to no carbon price being felt, so there is no real incentive to cut their 20% of national emissions.

The most profound problem with the ETS is that it fails to collect more than a sliver of what is required to pay the liability that New Zealand’s excess emission are racking up. After all the delayed start dates, exemptions, rebates and compensation payments are totted up, the Government would receive just 12 million emission units net under the new ETS, with each unit accounting for a tonne of greenhouse gas emissions. When compared to the Kyoto liability of 69 million units, or $2 billion at a carbon price of $30/tonne, the ETS will reduce this by only a sixth during the Kyoto period from 2008 to 2012.

Over 80% of the Kyoto liability will be transferred to future taxpayers. Today’s polluters will pay nothing like today’s emissions bill.

The paradox is that New Zealand is unusually gifted with means to reduce its carbon footprint. Its wealth of renewable energy options is well recognised. Yet the bulk of the opportunities lie with changed land management – agricultural efficiency measures that cut emissions and the planting of permanent forests to newly store carbon.

Achieving a sustainable mechanism for recognizing the cost of emissions will involve more than just raising the level of ETS charges. Reform capable of adequately responding to emerging international pressures such as carbon border taxes and retail gatekeeper standards would involve a fundamental rethink of how to price carbon.

The crucial policy issue is who pays for the transition to a low-carbon economy, and how. Transferring the costs to a future generation is an inadequate response. Charting an equitable and effective path through the transition is the essence of the carbon challenge New Zealanders face.

Further information is provided by Simon Terry in the attached press release from the Sustainability Council.


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