ETS better than carbon tax

An emissions trading scheme is a better option for New Zealand than a carbon tax, Environment Minister Nick Smith told a National Party Bluegreen forum at Totara on Saturday.

He said an ETS is better able to recognise forests which play a critical role in offsetting emissions and in our economy; it’s better able to recognise limits rather than just setting a price as a tax would; and it keeps us in step with most of our major trading partners. Europe and the United States already have an ETS and, in spite of the debate going on across the Tasman now, Australia is likely to have one soon.

He likened an ETS to the quota management system for fisheries. Companies will be able to buy and sell carbon units in the same way they buy and sell fishing quota.

The government had been very mindful of the problem of carbon leakage when designing the scheme.

It would be easy to reduce emissions if a company moved its production somewhere else but that wouldn’t do anything for global emissions. If for example Holcim moved cement production to China, New Zealand’s emissions would go down but it’s likely global emission would increase because environmental standards wouldn’t be as high there as here.

“That would have done nothing for the environment and would costs New Zealanders’ jobs,” he said.

Dr Smith also stressed that the ETS was not an excuse for the government to take money from people.

“This is not a cash cow for the government to profit from. The scheme is fiscally neutral . . . foresters will gain, other people will pay, but it’s fiscally neutral for the government.

Agriculture produces about 6% of emissions in Britain and 14% in Australia but it accounts for around 50% of emissions in New Zealand.

“Every country under Kyoto has to cover for agriculture but when it’s minor the government covers. In New Zealand where it’s 50% of our emissions doesn’t have that choice.”

However, he said that emissions per kilo of milk fat and lamb had been reducing by 1% a year over the last 10 years.

Around 90% of the increase in emissions have been from developed countries but in the next 30 years 97% of the increase will be from developing countries.

“Even if developed countries stop all emissions, climate change will increase because of the developing countries.”

Most developing countries have a high proportion of emissions from agriculture, for example in Uruguay it’s 80%. The Global Alliance to support research will enable developed countries to share research with developing ones to help them reduce emissions.

Dr Smith acknowledged that most farmers were unhappy with the prospect of an ETS but not doing anything would endanger trade.

“Agriculture is an export industry and we trade on the basis of being clean and green. We can’t compete on the basis of being the cheapest.

“We are not going to be a leader but we can’t be a lagger because other countries will not allow access if we aren’t carrying our fair share of the burden of climate change.”

National’s Dunedin list MP, Michael Woodhouse, also stressed the risk to trade from doing nothing.

“Even if you don’t believe in global warming, consumers in our markets do and we will face barriers to our produce if we aren’t seen to be doing something,” he said.

Of all the information I’ve heard on the whole global warming issue that’s the most compelling.

Regardless of the science, the politics and emotion demand action.

5 Responses to ETS better than carbon tax

  1. murrayg1 says:

    just watch the authenticity issues erupt, re ‘sinks’.

    There ain’t enough sink on the planet anyway, there will be a squillion rorters out there (Somalia will be planted in forest cover three times over, and those will be sold three times over each. When you google-earth Somalia, though, there will be no change…) and not enough verification. And the verification will be corrupt, for two reasons. One is that they are out for the bucks, of course. The other is that the first world wants to continue business as usual, and will accept the rort if it eases their collective conscience.
    Somewhat like accepting Cherry Farm and Seacliff, or the Tahuna outfall. Ticked off mentally, but not done properly.

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  2. PaulL says:

    Unfortunately, Nick Smith is wrong on an ETS v’s a carbon tax.

    Fishing quota is a great example. It works well for local species – those that don’t migrate. It works incredibly poorly for migratory species like tuna, as other countries simply ignore the quotas.

    Pollution is much the same. A trading scheme worked well in the US for sulphur, as that is largely a local emissions problem. It won’t work well for carbon, as that is a global problem.

    Nick correctly identifies that a cement plant shutting down in NZ and reopening in China would net increase global emissions. He doesn’t explain what about the ETS would actually deter that from happening – as currently designed it would be profitable for a company to do exactly that. The giveaway of permits makes it even worse, not better, as the company can close down the plant and sell the permits.

    If the ETS is net neutral for the government, who is making the money? There are definitely some people paying more, so somewhere there are people making profits. Who and why? The government is creating new opportunities for rent seeking and market distortion, and gifting windfall profits to sectors of the economy. It is incredibly bad policy.

    A carbon tax has few of these disadvantages. The one problem with a carbon tax is that it sets a price rather than a volume – so it’s possible that we would under or overshoot our kyoto targets. Of course, with an ETS it is also possible that we would under or overshoot, as it isn’t all encompassing and we gave so many carve outs. I’d argue this isn’t a real disadvantage.

    In short, both Labour and National have gone with the wrong policy. It has a lot of support from large businesses, as they can make profits from it. But in the medium term it will harm the NZ economy as compared to the main alternative policy, a carbon tax.

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  3. PaulL nails it. Worse, the allocation of permits locks in any errors in the system: if it turns out that carbon isn’t as bad as we thought, all owners of permits will lobby hard against any increase in total quota because it would hurt their permits’ value.

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  4. XChequer says:

    Great post, Ele.

    “Regardless of the science, the politics and emotion demand action.”

    Great line. The politics of perception mean that we have to take action lest we be “pinged” on our exports and the natural profitability of our country undermined.

    Given the blizzard of “secret emails” from members of the IPCC, both sides yelling about falsified data and scaremongering, one could be forgiven being a little confused on the whole issue (see http://thenzhomeoffice.blogspot.com/2009/11/ets-far-removed.html).

    Whether a cataclysm is descending on us or not, it seems to me that given our issues as a species (over-population, over-crowding, lack of resources etc), cleaning our act up is a good thing regardless – if done sensibly and the process managed well.

    I think Key has spotted that there is a narrow line to be tread and is dancing for all he is worth to be seen to be doing something – all the while giving us and our exporters (namely agriculture) the time needed to use technology to be a world leader in sustainable and efficient agriculture while maintaining a competitive advantage.

    I agree that the ETS is a pig of a piece of law. And as a consumer and taxpayer, I’m gonna get it in the neck. But we are all going to have to pay somewhere down the line (I don’t doubt, PaulL, that the rorters are lining up, slavering over the options).

    Speaking to a friend in AgResearch the other day, he said a low methane producing cow (don’t laugh, it’s true and NZ research is leading the way in the world on this, funnily enough) is still a few years away and would need at least 10 years to make a sizable infiltration of the national herd – and therefore our agricultural emissions. Time we now have.

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  5. J.R.M. says:

    It doesnt get away from the fact that the so called scientists have and are rorting the system. Grave doubts do exist,many of the public are not convinced of the falibility of carbon being the cause of global warming ,sorry climate change is the latest term.Scientists have just been caught out manipulating what evidence they have even hear in NZ SHONKY!! Any opposition views are shut out from the media rather rely on the dicredited shyster Al Gore.TO top it all off we are letting the funds be controlled by the UN to further the aims of WOrld Govt.Socialiist and non democratic of course, Lookwho is number 3 leader NZ ex PM ,we have reason to be wary!

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