JUST GOOD BUSINESS SUSTAINABILITY : ‘Slow Follower’ Response Makes NZ A Climate Change Laggard

The way New Zealand is managing climate change policy means we now risk slipping behind the world.
We have known about the need for policies to limit or reduce greenhouse gas emissions since the Rio conference in 1992 and signing the Kyoto treaty in 1999.
However, every measure to try and honour those commitments since has been rushed. None more so than the bill to amend the emissions trading scheme introduced in late September, following another 10-month hiatus caused by “review” of the scheme as part of the National-ACT minority government support agreement.
The result is that despite nearly 20 years of being on notice, our emissions are 24 percent above 1990 levels, and there is no broad cross-party support for the current response.
As this was being written, the public and business had been given 19 days to respond to the latest ETS amending bill. Even Treasury is worried that the rush to change has not been sufficiently thought through. It says (in introductory comments to the bill) that its specialist Regulatory Impact Statement (RIS) analysis team had formed the view that “the level of quality analysis presented is not commensurate with the significance of the proposals”. Treasury notes that the proposals represent major design changes to the (ETS) and “the RIS does not provide an adequate basis for informed decision making”.
It noted there was no clear analytical basis to align some aspects of the New Zealand scheme with yet-to-be passed Australian Carbon Pollution reduction scheme; and no clear transition path for firms over the medium-to-long term.
The fiscal analysis included in the bill appeared to cover only the “extra” costs to taxpayers of capping the price of carbon at $25 per tonne (already below market price) for three years until January 1, 2013. Meanwhile, it is offering those with excess emissions two tonnes of credits for the price of one tonne; banning international trade in New Zealand credits for three years (except for forestry); delaying the entry of agriculture until at least January 1 2015; and extending assistance to large emitters to beyond 2050.
Most importantly, the bill allows for production and emissions to rise, provided they are within the average intensity for an industry across Australasia. That is, if the carbon content per unit of product meets standard, emissions can rise without incurring an emissions charge provided they are produced to that standard. The bill proposes Australian industry averages are used. These may well be above the averages already achieved by New Zealand industry.
Effectively, there is room for unlimited emissions growth – without cap. As Treasury says in its comments on the bill, “more emissions intensive activities … will receive higher rate of assistance than less-emission intensive activities”.
This directly contradicts the reason for an ETS – which is to reduce emissions and move industry to lower-emissions intensity.
The industry intensity policy will pose significantly higher risk to the Crown (and taxpayers) to pay out more emissions subsidies, for up to 70 years because they are phased out at new slower rate of 1.3 percent year.
The extra fiscal cost (as distinct from the total amount in emissions credits gifted to large emitters) is put at $1.9 billion to $2.1 billion by 2030, assuming carbon price of $25 per tonne until December 31, 2012, and $50 tonne from January 1, 2013.
This represents major transfer of taxpayer funds to large emitters. It blunts the price signal to New Zealand industry to adopt lower-emission practices to avoid the carbon price and makes all of us poorer.
While it is aimed at protecting jobs in high-emission industries from unfair overseas competition, it does so at the expense of generating investment in new and more competitive clean economy.
Ironically we are returning to 1980s’ price control and long-term taxpayer subsidies for exporters and heavy industry – and run the risk of distorting the signals to New Zealand business to stay ahead of their international competitors when it comes to lowering carbon and competing.
We risk becoming very slow followers, not fast followers, as was the Government’s intention.
Exposing business here to true price at the margin for excess emissions has other major impacts on long-term investments in alternative fuels, early adoption of low-emissions farming practices, renewable energy projects, and measures to cut emissions by SMEs and households and the transport industry.
While other countries are heading to Copenhagen with incentives and programmes designed to drive emissions reduction, we are delaying the message to act in our largest emitting sector until 2015.
New Zealand’s response to date reflects triumph of vested interests over long-term national interest, compounded by poor policy development process, and lack of analysis on the impacts – denying the country chance to look at the real costs and opportunities.

Peter Neilson is chief executive of the New Zealand Business Council for Sustainable Development.

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