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Disappointing ETS review - major issues in air

August 31, 2009

Media Release

Business: Disappointing ETS review leaves most major issues up in the air

The report of the select committee which reviewed the emissions trading scheme (ETS) is a disappointment which still leaves the country with no broad cross-party agreement on climate change policy to provide investment certainty.

Meantime, investment blight continues.

The review doesn't narrow the gap between parties on key issues, come up with much-needed detailed policy - and fails to underpin investment certainty for business.

It has succeeded in delaying action - and prolonging investment blight - for nine months, the New Zealand Business Council for Sustainable Development says.

It leaves huge issues, requiring detailed policy, up in the air.

The Business Council's Chief Executive, Peter Neilson, says:

"If the Government was waiting for clear recommendations on exactly when agriculture should enter the scheme, whether firms can increase emissions without a limit, if there should be a cap on the carbon price and ban on trading New Zealand carbon credits internationally, it will be sorely disappointed."

The review means deals will still need to be done on significant policy details upon which billions in industrial, forestry, energy and other investments will hinge.

Other detailed agreements will still be needed on how much taxpayers are going to provide in free credits for heavy emitters (currently 90% of 2005 emissions for the first four years), and what will should be done exactly to further encourage forestry investment and allow better use for our land.

The report, however, does show that:

• An ETS is the preferred over other financial instruments by parties with 112 votes in the Parliament. Parties with 10 votes oppose
• Agriculture should be included (122 votes to 10)
• A short term price cap and ban on internationally trading New Zealand emissions units is opposed by parties with 62 votes and supported by National and United Future with 59.

The report fails to deliver a firm recommendation or a consensus on a significant issue: whether industry can continue to increase their emissions at a best practice level, but without any overall cap.

Allowing industry to continue to increase emissions, at a certain intensity per unit of production, without a cap would get 64 votes, if ACT votes for this. It won't pass unless ACT firstly votes for an ETS, which we understand it opposes, and this change. The Treasury should be asked to cost this potentially generous and open-ended taxpayer subsidy to emitters

The free trade in New Zealand credits on a global market lets New Zealand firms find the best prices if they are both selling and buying units.

This is recognised by the committee. It also knows that imposing a price cap and international trading ban will harm forestry investment.

After nine months, the committee also has no detailed answer on how to treat Maori farming and forestry interests.

Maori now own 36% of all forests and possibly 60% when more are returned under Treaty of Waitangi settlements. However, they face a carbon price if they cut pre-1990 forests to use the land for other activities providing better returns.

"If Maori-owned carbon sink forests, planted before 1990 are cut so the land can be used for more economic uses, does it mean the Government will pick up the carbon cost?" Mr Neilson says. "And how much is the resulting bill to taxpayers?"

The committee also recommends other measures to reduce emissions to run alongside the ETS, but fails to provide any real detail. The Business Council put 19 possible complementary measures before the committee, ranging from incentives for farmers to use nitrogen inhibitors, to vehicle owners getting cash to scrap middle aged vehicles, to new funds to rapidly commercialise world-leading New Zealand emission cutting technology.

"While we're pleased the ETS is favoured, we're disappointed the report takes us no further after hearing the views of more than 182 submitters, plus official advice.

"After nine months hundreds of millions in forestry investments remain postponed, eight million seedlings are going to rot, and investment blight continues. After 14 years of considering policies to reduce emissions, it's a small and sorry result which is too long in the making," Mr Neilson says.

"We trust a significant multi-party agreement can now be reached to quickly usher in a fair ETS - before Christmas. Both National and Labour support at ETS. They have a duty to reach an agreement that's in New Zealand's best long term interests."


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