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NZ ETS: Dodgy performance and uncertain outlook

The New Zealand
Climate Science Coalition
2 August 2011

NZ ETS: Dodgy performance and uncertain outlook

The address by the Minister for Climate Change Issues, Hon Nick Smith, to the 7th Climate Change and Business Conference in Wellington, has drawn criticism from a retired scientist member of the New Zealand Climate Science Coalition, Ross Muir.

“When you break down Minister Smith’s speech, which he titled ‘Performance and Outlook’, you find dodgy performance and a very uncertain outlook,” said Mr Muir.
He has taken extracts from the speech (NS) and attached his own comments (RM):

NS: We need to do our fair share.
RM: So why are we leading Australia (who we promised to follow) and also making much fewer exemptions and exclusions than nearly all the other countries or regions?

NS: Nor do we see any sense in undermining New Zealand’s competitiveness only to have industries grow in other countries that are less emission efficient.
RM: Our TRUE levels of ETS/Carbon Tax, whatever it is called in the various regions, is more severe. Even Australia has exempted fuel. We are loading our manufacturers and producers unfairly and have already caused a shift offshore.

NS:This reflects both the high rainfall in 2010 enabling lower electricity emissions, power companies managing their resources to minimise the use of thermal generation given the ETS costs, and some recessionary impacts on overall activity levels.
RM:‘…and some recessionary impacts on overall activity levels.’ Naturally, generation will favour hydro etc sector, at the same time keeping such stations as Huntly on line as much as possible but with reduced output, since under these conditions they may charge the higher ETS rate whilst generating bigger windfall profits from the “non-polluting” stations.

NS: The aluminium, steel, pulp and paper, and cement industries make up only 10% of participants but received 90% of the units.
RM: Pity the primary producers, who support the country’s earnings, but do not get any incentives.

NS: 2010 also saw a record high 79% in the proportion of New Zealand renewables. While this was in part due to a wetter year, it is also clear by the behaviour of generators that the ETS had a conscious impact on minimising the use of fossil-fuelled generation made more expensive by the ETS.
RM: At least they admit that the ETS has impacted costs in all sectors, even though the effect on climate change cannot be measured.

NS: Eleven new stations, totalling 1340 MW have been consented in the first year of the ETS, made up of 59% wind, 26% geothermal, 13% hydro and 2% tidal.
RM: 59% Wind – but how is power supplied when the wind either does not blow, or is too strong to have them on line? 59% wind backed up by a total of 41% ‘other’ means that the effective added generation is a lot less than the 100%.

NS: The terms of reference make plain our Government’s objectives for New Zealand to be well attuned to international developments – particularly amongst our key trading partners, of which Australia is our closest and largest.
RM: ‘Attuned to ?’ We lead most other nations or regions when one considers all the exclusions and exemptions that most have, and others are not even within a country mile of our aspirations.

NS: It is worth noting in this context the level of similarity between the New Zealand and Australian approaches.
RM: One similarity that stands out is that both incumbent Prime Ministers stated categorically before the elections how ridiculous and damaging to the economy ETS was, and then after being elected on that platform promptly reversed their stand and brought it in. They have both shown themselves to be unreliable, regardless of how one dresses up their statements.

NS: The most complex part of any ETS Scheme is how its industrial allocations work for businesses that are trade exposed and emissions intensive. Our decision to adopt the CPRS approach means we are well synchronised – albeit the Australian model is slightly more generous.
RM: Admits that the Australian model is more generous. After reversing their election platform, John Key and Nick Smith both promised that we would follow the Australians. How is having a more damaging scheme ‘following’?

NS: A key Trans-Tasman difference is the clear position of the Australian Government to exclude agricultural emissions. This is the most difficult issue on this side of the Tasman.
RM: Particularly difficult since we rely so heavily on agriculture for our overseas earnings, whilst Australia has mineral resources to ease the burden. Also, our farming sector in particular is hit by the fuel ETS costs, while the Australians do not have this added burden.

NS: I can categorically rule out any cross-party agreement in New Zealand on this.
RM: Since Labour have promised to make the ETS costs even more severe – who do we vote for? ACT? Will they maintain their position or will they become “politically expedient” to be part of a coalition?

NS: It is a marginal call to include agriculture given that no other country is doing so and the limited mitigations currently available to farmers.
RM: Marginal? yes – after all, regardless of any promises made pre-election to get some favour with the farming community, we know how much one can trust Key’s promises when balanced against currying favour with trading partners even when those trading partners themselves bow less to the climate change mantra.

NS: The ETS is not intended as a cash cow or a new source of revenue. Nor do we want to reduce New Zealand production only to have the goods produced elsewhere less efficiently.
RM: Just who do they think they are kidding? That is total rubbish.


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