The future of the New Zealand carbon market was in doubt as NZ Management went to press. There are even suggestions that carbon tax might be back on the table – an idea which drew so much opposition when it was put up by the Labour government that it was scrapped in 2005 in favour of an emissions trading scheme (ETS).
Within hours of the new National-led Government announcing on November 16 that it was putting New Zealand’s emissions trading scheme on hold and reviewing the future of the scheme, $125-million forestry investment was cancelled and major world carbon market player indefinitely postponed plans to set up in New Zealand.
Trading in NZUs (New Zealand Units) ground to halt.
The announcement, by Prime Minister John Key, was part of the National Party’s support agreement with the Act Party, and took markets by surprise. National had consistently said that while it did not support the ETS in the form passed by the Labour government last September with support from the Greens, New Zealand First and Progressives, it did support an emissions trading regime as the best way in which to use market signals to reduce New Zealand’s greenhouse-gas emissions. The party’s climate-change policy said that it would not repeal the ETS, but would amend it.
However, Act leader Rodney Hide – sceptic on human-induced climate change – made getting rid of the ETS one of his party’s three election planks, and secured far-ranging review as part of Act’s support agreement with National.
The review includes going back to look at the science of climate change, and considering the option of carbon tax instead of an ETS.
The new Climate Change Minister, National’s Nick Smith, is continuing to stress the importance of an emissions trading regime in getting New Zealand’s greenhouse gas emissions down, but has downgraded the commitment to have the scheme in place by January 1, 2010, to preference to do so.
Key, meanwhile, is telling reporters that the commitment to look at carbon tax was made in good faith and will be considered alongside an ETS.
The move threw the carbon markets into confusion. Brokers say they have no idea what was going on, but that trade in NZUs from New Zealand forests has halted and they don’t expect it to start again anytime soon.
London-based EcoSecurities, one of the world’s largest players in carbon development mechanisms (CDMs) and with offices in 20 countries, had been about to announce its arrival in New Zealand. But with international executives in Auckland for the launch, it cancelled its plans and instead began round of lobbying to try and find out what is going on. It says it is still confident the New Zealand Government will move to an ETS and that it is used to dealing with unexpected regulatory changes, but privately admits it is very surprised by the move.
Mark Franklin, the chief executive of TZ1, the New Zealand-based international carbon registry and trading platform, told me the move came from left-field and confused everyone, including owners of NZUs who no longer know if the credits they own are worth anything.
He says that to review the ETS is one thing, but to go as far back as reconsidering the science on climate change and questioning whether New Zealand will have an ETS is hugely damaging to our international reputation, especially with 190 nations moving towards emissions trading.
“This is not the way for New Zealand to win place at the table,” he said.
The decision is also said to have caused an Asian company to can planned $125-million, 25,000-hectare forestry investment which would have created scores of jobs in rural New Zealand. Kyoto Forests Association chair Roger Dickie says the investment is not viable without the value of the carbon credits from the forests, and predicts more forestry deals will fall through.
Just few days before the announcement, both Alasdair Thompson of the Employers and Manufacturers Association and Phil O’Reilly of Business New Zealand had confidently told me that the ETS would go ahead, despite the protestations of Hide, because the business and financial cost of scrapping the scheme was too high.
Thompson warned that New Zealand would face huge international trade backlash if it was seen to be failing to take appropriate action to reduce carbon emissions.
It seems highly unlikely that, at the end of the day, the new Government will favour blunt instrument like tax over market system. The likelihood of pulling out of Kyoto altogether is so remote it’s not even on the horizon.
The most likely explanation for what’s happening is that National has agreed to the review to keep Act quiet, but will quietly opt for an amended ETS as it has said it would do all along.
But damage will have been sustained. Investment has already been lost, and our reputation as country that doesn’t make policies lurches with regime changes dented.
Let’s hope that’s the worst of it.
Adelia Hallett is regular contributor on sustainable business to NZ Management, and is the editor of the twice-weekly national publication Carbon News (www.carbonnews.co.nz).
