Climate Change Leadership Forum backs emissions trading scheme

The Climate Change Leadership Forum, including 34 business and other sector leaders, has issued 10 key points of policy advice made so far to the Government and Finance and Expenditure Select Committee on the proposed emissions trading scheme (ETS).

The Forum and its working groups have been studying the ETS since being set up in late September last year by the Minister of Climate Change Issues, David Parker and the Minister of Finance Dr Michael Cullen.

The Forum's chair, Stephen Tindall, Founder of The Warehouse Group, said today the Forum was advising the Government that it was correct to have an ETS.

The Forum also considers a well-designed system should also have relatively modest economic impacts. However, there will be major adjustment costs in some industries and communities and these need to be actively managed by the Government.

The ETS should be a "key component" of a comprehensive suite of initiatives to reduce greenhouse gas emissions and encourage the use of low carbon emission technologies.

Mr Tindall said the Forum, which includes business leaders in many business sectors, and representatives of Maori, unions, NGOs, science, and local and central government, has decided to advise the Government the scheme should make sure all emitting firms face the cost of carbon at the margin from the outset.

"This is important for ensuring that the adjustment process begins as soon as possible," Mr Tindall said.

The Forum also supports the all gases, all sectors approach – "as we do not know where the next cost effective opportunity to reduce emissions will come from: The wider the base the greater potential for low cost abatement opportunities to be found."

It says of the scheme:

• The Government should allow New Zealand participants to import and export emission units, providing greater liquidity and price stability in the domestic market - and making sure the New Zealand carbon price is closely linked with the world price

• The nationwide economic impacts of a well-designed NZ ETS during the first Kyoto commitment period should be relatively modest. However, major adjustment costs in some industries and communities should be actively managed by the government

• There should be transitional protection for trade exposed industries under a defined cap. There should be an initially generous free allocation to avoid leakage (businesses relocating off shore to avoid a carbon price) so long as it does not reduce firms' incentives to reduce emissions (though Greenpeace noted an objection to this)

• There will be significant benefits from regular reviews, and, if necessary, adjustments to the phase out for free allocations as key information becomes available. (Under the current proposal most emitters are given credits for 90% of their emissions at 2005 levels, with assistance finally phasing out by 2025)

• The design and coverage of the NZ ETS can have a major influence on the architecture, coverage and rules of the post 2012 climate change agreement to the benefit of both New Zealand and the world's atmosphere.

• There will be substantial commercial opportunities arising for New Zealand in taking the lead in developing and adopting greenhouse gas reduction technologies.

• The government should use any additional net revenue from the auctioning of credits, above its Kyoto Commitments to either reduce the overall tax levels or invest in quality cost effective emissions reductions, or adaptation.

Mr Tindall says business has had the benefit of direct access to officials and Ministers to provide advice on making the transition to an ETS as smooth as possible.

"I thank people for taking part and for their support so far and look forward to that continuing."

While the ETS covers the regulatory market to help cut emissions, the Forum's work continues on developing the voluntary market for emissions reductions, the opportunities for investment arising out of putting a price on carbon, and the proposed strategy New Zealand should take in the post-2012 International Climate Change Agreement which will replace the current Kyoto Protocol.

The 10 key messages follow in full below, along with the current Forum membership list.

ENDS

The 10 key messages are:

TEN KEY MESSAGES on the NZ ETS from the Climate Change Leadership Forum

1 Some form of international Climate Change Agreement is likely to be in place after 2012 that includes an international carbon cap and trade mechanism. All New Zealand sectors should be preparing for this now. The role of government is helping New Zealand transition towards a "carbon-constrained world".

2 An ETS should form part of New Zealand's long term durable response to climate change. However, the proposed ETS should be a key component of a comprehensive suite of cost effective government policy initiatives to reduce green house gas emissions and encourage the uptake of low carbon emission technologies while maintaining overall environmental integrity.

3 The NZ ETS should be designed to ensure that all emitting firms face the cost of their emissions at the margin from the outset. This is important for ensuring that the adjustment process begins as soon as possible. However, the government may consider dampening the price signal in the transition by adopting intensity based allocation methods within a total fixed cap.

4 An all sectors – all gases approach is fairest and most efficient so long as it recognises the different challenges arising in each area. A NZ ETS should expose all sectors and gases to a price on carbon because this is likely to reduce the cost of the transition as we do not know where the next cost effective abatement opportunity will come from. The wider the base the greater potential for low cost abatement opportunities to be found.

5 A relatively unconstrained ability to import and export emission units helps to provide greater liquidity and price stability in the domestic market and will ensure New Zealand producers face a price of carbon that is closely linked with the world price.

6 The nationwide economic impacts of a well-designed NZ ETS during the first Kyoto commitment period should be relatively modest. However, there will be major adjustment costs in some industries and communities, and these need to be actively managed by the government.

7 The NZ ETS should include transitional protection for trade exposed industries under a defined cap. There should be an initially generous free allocation to avoid leakage so long as it does not reduce firms' incentives to reduce emissions.

8 There would be significant benefits from regular reviews, and, if necessary, adjustments to the phase out for free allocations as key information becomes available. This would include the nature and scope of the post 2012 international Climate Change Agreement, and the emerging level of exposure to a carbon price for competitors of New Zealand producers and also the likely future price of carbon. The long term aim is to move toward zero free allocation.

9 The design and coverage of the NZ ETS can have a major influence on the architecture, coverage and rules of the post 2012 climate change agreement to the benefit of both New Zealand and the world's atmosphere. There will be substantial commercial opportunities arising for New Zealand in taking the lead in developing and adopting greenhouse gas reduction technologies.

10 The government should use any additional net revenue from the auctioning of credits, above its Kyoto Commitments to either reduce the overall tax levels or invest in quality cost effective emissions reductions, or adaptation.

CLIMATE CHANGE LEADERSHIP FORUM MEMBERS
(At April 28, 2008)

Sector Member
Forestry
Peter Clark
David Anderson

Agriculture: sheep and beef
Mike Peterson

Agriculture: dairy
Henry van der Heyden
Charlie Pedersen

Energy
David Baldwin
James Hay

Transport
Peter Griffiths
Rob Fyfe

Industry
Phil O'Reilly
Peter Neilson
Charles Finny

Union
Peter Conway

Business, Markets, Finance, Economics
Stephen Tindall
Jonathan Ling
Mark Franklin
Nick Main
Julia Hoare
Mark Weldon
Suzi Kerr

Science and business
Sue Suckling
David Wratt

NGO
Bunny McDiarmid
Gary Taylor

Local Government
John Cronin

Maori
Timi Te Heuheu
Apirana Mahuika
Mark Solomon

Central Government
John Whitehead
Howard Fancy
Geoff Dangerfield
Murray Sherwin
Maarten Wevers
Alan Thompson

ENDS

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