The ETS Review

It is 132 pages long and can be read here.

The main recommendations are:

1. Accept IPCC 4th assessment report as consensus of the science, noting there are uncertainties but not enough to delay action
2. The point of obligation for agricultural sector should initially be at the processor, not the farm gate, as administratively too costly to do for now
3. An ETS is preferred over a carbon tax as it can better link up internationally.
4. That all sectors be included in the ETS long-term
5. Important to have certainty legislated for forestry asap to ensure further planting not inhibited
6. Consider a price cap in the short-term while the market matures
7. Agriculture to be in the ETS but no date specified
8. Will support changing rules to allow offsetting for forestry, but need international agreement

Labour, in its minority report says:

1. Supports an all gases all sectors ETS
2. Are against capping the price of carbon initially
3. will support delaying entry of stationary energy, industrial and transport sectors until 1 July 2010
4. all other sectors to enter by 1 Jan 2013 (status quo)

Greens say:

1. Used to support carbon tax but ETS now preferable
2. ETS should be all sectors and gases
3. Against a price cap

ACT say:

1. says response to climate change should be based on actual measurable change, not projections of future change
2. If one has to respond, prefer low rate carbon tax to ETS
3. Much of NZ emissions come from producing food for export, not domestic consumption.
4. Does not accept there is a strong chance of trade reprecussions, as seen by Singapore and Hong Kong

Maori Party say:

1. Against ETS as won’t sufficiently lower domestic emissions
2. Prefer carbon tax

To my mind there are no big surpises here. And from what I can see, the ETS will proceed. It will be amended from what Labour and passed, but not in a fundamental way. The three big issues appear to be:

1. Do you have an initial cap on the price of carbon? I actually tend to favour the Labour/Greens view that you should not.  A price cap will make the ETS less effective, and more importantly may not get the forestry sector sufficient incentives to increase plantings.
2. What date do sectors enter the ETS.  The big two sectors politically are transport and agriculture. The first will put up the price of petrol and the second will see an increase in costs for the agricultural sector. And if you bring agriculture in too soon, you risk merely exporting the emissions overseas making it a lose-lose. Remember that when Labour/Greens demand a 2013 entry.
3. How many free allocations in each sector? A sector will be given an allocation of credits initially, so that you don’t have sudden and massive price shocks. Key issue is how big that allocation is, and when does it run out.

The ball is now clearly in the Government’s court. There is little doubt we will have an ETS – in fact we already have one – passed into law. The Government will want to make some changes to it. ACT look unlikely they will support changes as they don’t want an ETS at all. However they might be reluctant to vote against (for example) a delay in Agriculture entering the ETS.

Labour and Greens are relatively happy with the current ETS and unlikely to want to vote for changes. So this means the Maori Party is pretty important for getting any changes made.

It is possible National will not be able to get agreement on any changes. Unlikely, but possible. If that happens it does not mean there is no ETS. It means the one passed in 2008 will continue.