Comments to the Climate Change Leadership Forum, 28 May 2008

Greenhouse Policy Coalition was surprised at the support the CCLF gave to the ET Bill on 29 April and I would like to take this opportunity to tell the CCLF that its views as presented in the 10 key messages do not represent those of the energy intensive sector and indeed, from sitting through the submissions to the Select Committee they do not reflect the vast majority of presenters – from any sector.  If any-one doubts this, then a quick check of written submissions will confirm my point.

Greenhouse Policy Coalition was heartened that Business New Zealand and the Chambers of Commerce distanced themselves from the statement.  We do not think it is helpful for the government to believe they have the support of the productive sectors for a particular policy if that is not in fact the case.  It is misleading for the government and misleading for the wider public and business community.

Things that need to happen to make the Bill workable.

  1. Take the time to get it right.  See what Australia is proposing to do and avoid ‘knee jerk’ reactions and quick fixes.  A bad process and lack of good information will result in bad policy design and unintended consequences as is already happening with the latest changes to the scheme.
  1. Revive NGA process.  This requires participants to operate at WBP on an intensity measure or face a price of carbon if they are above the line.  Incentivises continuous improvement and investment in new cleaner technology.  All the work has already been done.  The incentive to improve is that if they are not at WBP they face the cost of carbon.

Text description of graph

This graph outlines the ‘Start Point for a firms current emissions; the ‘Target Pathway for emissions reductions and a normalized pathway for emissions reductions. It shows that at the 2012 end point both the worlds best practice pathway and the Target path way end with the same emissions reductions.

  1. Any phase out of allocation should be contingent on what other countries are doing – not an automatic allocation or withdrawal of allocation set in stone in legislation.
  1. Think about a price cap or safety valve – how do you protect the economy from price shocks and volatility.  How much is too much to pay – and what is the strategy in advance?  Price has risen 165% in last 3 years.  The price of carbon is the result of a political construct in these early days of emissions trading, rather than the marginal cost of abatement.  High electricity demand and a cold winter in the EU can have a big impact on the price of carbon, as can the EU’s policy on restricting the amount of CER’s it will allow into the EU ETS.
  1. Allocation of 90% of 2005 levels – arbitrary and rigid and does not prevent leakage.  No recognition of early action.  Moving to an intensity WBP approach would get rid of this issue.  This is a critical issue and unless it can be resolved NZ firms will be incentivised to run old plant into the ground and new investment will go overseas.  Intensity targets within a cap do not work – merely spreads the jam more thinly, results in distortions when it comes to allocation and fails to prevent a loss of competitiveness.  Grandparenting provides protection for historical assets and does not prevent leakage.
  1. AAU’s – don’t rule out any credits or just adding to cost/risk of the scheme.
  1. Liquid fuels – should be included in free allocation, part of the cost of doing business like electricity and gas and coal.  What about fishing industry and those that use liquid fuels in industrial process??
  1. Need for better data and better institutional arrangements – Independent Commission to oversee a raft of issues.  Current scheme open to politicization and rent seeking.  Australia intending to take a much more rigorous approach.
  1. Need to be prepared to allocate free units from UN to NZ trade exposed sectors – not make windfall gains for the government at the expense of the productive sectors.
  1. Take heed of the NZIER economic analysis.  A scheme that hits the productive sectors hard will result not in opportunities but in contraction for all sectors; even the service sector.  Hardly any sectors benefit from the scheme and those that produce most of our economic wealth are hardest hit.  Not a smart move.  Taxpayers as well are worse off as wages are reduced and job opportunities are diminished.

Catherine Beard
Executive Director
Greenhouse Policy Coalition