National on ETS Bill

Some quotes and comments from National’s minority report (included in the select committee report):

The National Cabinet in 1999 decided that an ETS was the right way forward on climate change policy. We expressed concern when the ETS approach was dropped in favour of a carbon tax when the current Government took office. We promoted an ETS in our Bluegreen Vision document in 2006. We supported the Government’s decision, in principle, in favour of an ETS last year and voted for the first reading of this Bill. However, the rushed legislative process has resulted in a Bill that has major deficiencies.

I have to say that I am not sure a carbon tax wouldn’t have been the better short-term measure. The problem with the one the Government proposed is it was punishing people for their debits and refusing to give people anything for their credits (ie forestry).

The importance of getting this legislation right cannot be overstated. This Bill represents the most significant economic reform since the deregulation of the economy in the late 1980s. The NZIER analysis indicates that the ETS in its current form will cost 22,000 jobs and a loss of $900 million to the economy by 2012 and a loss of $5.9 billion in GDP by 2025. The Government’s own analysis by Infometrics concludes job losses of 50,000 from the scheme.

And unemployment is forecast to reach 6%, even without this.

Committee members received over 1000 amendments to this 237 page Bill only three days prior to its final deliberation. There has been no serious engagement by Government members on the critical issues to New Zealand in this Bill, as evidenced by the 24 different Government members that have subbed onto the Committee throughout the process.

Just like the EFA.

ETS should be designed around the more modest goal of ensuring New Zealand does its fair share in reducing global greenhouse gas emissions.

That is why National has advocated, in contrast to the Government’s goal of carbon neutrality, a 50% reduction in New Zealand’s 1990 greenhouse gas emissions by 2050. This goal is in line with that of the new Australian Government which is committed to a 60% reduction in emissions from 2000 levels by 2050, and that proposed by US presidential candidates. National believes our -50% by 2050 goal should be included in the purpose clause of the Bill.

There is zero benefit in being more pure than the rest of the world. We absolutely do not want to be a laggard, as there are serious trade risks with doing so. But punishing NZ families just so one canpick up UN awards is crazy.

National’s second concern is the windfall profits to the Government from the way this ETS is designed. Officials have advised the committee that the scheme will generate an estimated $21 billion in revenue to the Government from the sale of emission permits. This is double that provided in the Budget 2008 tax reductions.

He giveth with one hand and taketh away with the other. To be fair I think the $21 billion is over a longer period than the tax reduction costing. But nevertheless it should be revenue neutral in my opinion.

There are also additional indirect windfall gains to Government from its electricity State Owned Enterprises. Meridian has advised the Committee of an increase of $750 million in its valuation as a consequence of the ETS. Including Mighty River Power, the windfall gain to the Government from it SOEs will be in excess of $1 billion. This is significantly greater than the latest projection of New Zealand’s Kyoto liability at $481.6 million.

Down with the greedy power generator owners. Oh, wait – they’re the Government.

Climate change is not an excuse for the Government to profit at the expense of businesses and consumers who are already under budgetary pressure. The scheme can and should be redesigned to be fiscally neutral by transparently returning any windfall profits from the ETS to consumers and taxpayers.

Sounds a good principle

National’s fifth concern is that the Bill discriminates against SMEs that will not be eligible for free allocation of emissions units. New Zealand is very dependent on SMEs for its economic strength and the design of the ETS needs to better recognise them. The initial proposal of a 50,000 annual tonne threshold would eliminate all but New Zealand’s largest emitting industries. The Committee discussed a lower threshold but no decision was made and the question has been left to regulations. This issue is too important to the successful functioning of New Zealand’s ETS to be deferred. Parliament needs to take a direct interest in the competitiveness and survival of our SMEs.

Hmmn so Labour and Greens are supporting a bill which gives free allocations to big businesses but nothing to small businesses. Will Winston vote for this also?

The Bill fails to resolve the issue of how to deal with the uncertainties in the estimate of animal emissions that officials advised may vary from 50% above or below estimates. A market cannot function efficiently with this level of estimate uncertainty. The Bill fails to resolve the issue of whether the point of obligation is to be at farmer or processor level. This is a fundamental design issue that needs resolution by Parliament rather than being deferred to regulations. It is as though New Zealand wants the international accolades for a comprehensive ETS when it is just a shell with none of the necessary machinery to make it function. It is all very well in theory to have agriculture included in the ETS but the detail needs to be worked through so Parliament can be confident it will work in practice.

In other words we just want to pass the law before the election, even though vital details are being left undecided.

New Zealand’s fishing industry exports 92% of its output, earning $1.3 billion per annum. It is an energy intensive sector with fuel making up around 40% of the operating costs of vessels. The Bill provides for an allocation of units to sectors such as dairy, meat, cement, steel, forestry and aluminium, but excludes the fishing industry. This arbitrary exclusion does not seem well justified.

A further concern is the incentive to use foreign fishing vessels that will not face the cost of the ETS for imported fuel. The 1980s and 1990s saw a decline in the use of foreign fishing vessels and crew to New Zealand’s advantage. This has reversed over the last five years. This Bill may inadvertently encourage ongoing job losses for New Zealanders and the replacement by foreign vessels. The last minute amendments to address this problem are inadequate.

Our ETS is going to be great news for foreign competitors.

Electricity is a sector in which the Government’s climate change policies have failed. Far from moving New Zealand towards the goal of 90% renewables, the proportion has fallen from 72% in 1999 to 66% in 2007.

Yep.

National’s first concern is security of supply. Many submitters from industry believed the moratorium would put this in jeopardy. That these provisions are being advanced in the middle of a winter power crisis defies common sense.

Repeat after Mr Parker – there is no crisis.

The distinction in the Bill between new power stations being either base load or peak load is nonsensical. Ironically, New Zealand’s biggest greenhouse gas emitter, Huntly, was built as a peak load station in 1987, and technically another could be built under the exemptions in this Bill.

The Greens have said much the same thing, even though they support the ban.

National sees no place in New Zealand for any new coal generation until such time as carbon sequestration technology becomes viable.

Makes sense.

The smart way to provide an incentive for renewable energy over thermal generation is through the price signal of an ETS. That is why we have consistently advocated that electricity be the first sector to be introduced to an ETS. It provides a signal every day to the electricity sector to favour renewable over thermal, and not just when building. It avoids the artificial distinctions between peak and base load stations. The ETS will encourage substitution for more efficient thermal generation where possible, and for the earlier retirement of old, dirty technology. It is noteworthy that renewable generator Meridian and the Parliamentary Commissioner for the Environment have rejected the moratorium.

The trouble is having a ban fits much better on a pledge card.

National supports the 90% renewable energy target. We have confidence that the pricing signal of the ETS, as well as National’s proposed reforms of the Resource Management Act, will give the impetus to new renewable generation without the arbitrary and inefficient moratorium proposal in this Bill.

Once the RMA is reformed, then renewable energy projects can be built quicker, and that will be the best way to reduce demand for thermal power.

This Bill requires substantial amendment if New Zealand is to have a workable emissions trading scheme. National cannot support it in its current form. The Government decision to defer implementation by two years means there is time to get this legislation right without having to delay implementation.

Exactly – there is no rush.

The correct way forward is for the Government to table a substantive amending SOP in Parliament to address the major concerns with the Bill. These amendments should be sent alongside the existing Bill back to the Select Committee for submissions, careful analysis and final deliberation. The Bill should then be advanced through its second and third readings. It would be possible to conclude this process prior to the General Election but it is more likely to be done properly in the less politically charged post election period.

Politically it would be easier for National to have the ETS passed under Labour as it could blame them for anything that goes wrong.

National will proceed with an ETS amended in line with this minority report if we are successful at this year’s general election. We would work as co-operatively as possible with other political parties to achieve this. Our objective is a widely supported and robust ETS that will deliver on New Zealand’s ambitions for a responsible approach to climate change and a strong economy.

Even if Labour passes the ETS before the election, it would make sense for National to amend it afterwards to cover those areas of concern such as Government profiteering from it.