O’Reilly on ETS

I agree with the sentiments expressed by BusinessNZ CEO Phil O’Reilly:

In business there is a wide range of opinion stretching across the spectrum, from zealous green through to emissions denial. The most common reaction has been concern about increased energy costs just as businesses start to recover from the recession.

Why not delay it, they say – especially since Australia is now pulling back from its earlier commitment to emissions trading. The answer is probably that delay wasn’t a feasible option.

New Zealand’s situation is very different from Australia’s. Australia has never had an emissions trading scheme, so delaying the introduction of one would have been relatively straightforward.

To delay it in New Zealand would mean introducing amending legislation under urgency and ramming it through Parliament without even going to select committee. This would be Labour’s wet dream – National breaking its election promise and doing an u-turn, and even worse forcing it through under urgency to over-turn previous legislation that had been the subject of three years or consultation and debate.

If National did this, they would be suffer much the same fate as Kevin Rudd just has (fallen behind in the polls for the first time ever), but arguably even more.

But New Zealand has been committed to it since the trading legislation passed in 2008 by the previous Labour-Greens Government.

The present Government came into power that same year, on an election promise to improve the scheme passed by Labour and the Greens. Their mandate wasn’t to dismantle or delay it but to improve it.

The failure of Copenhagen has happened since then, and we should respond to that failure. But scrapping the entire scheme is daft and would lead to higher Government debt.

Had the Government sought to dismantle or delay it we would have had a fourth parliamentary/select committee process in as many years, with even more divisive, rancorous debate.

With Labour committed to returning New Zealand to the previous draconian emissions scheme and the Greens unwilling to compromise on their climate change stance, the issue would have become a long-running, festering sore.

Labour’s scheme had less protection for trade exposed industries, and would see greater costs on businesses, despite their competitors not having them.

Taking the longer view, it’s hard to deny the certainty that the world is headed towards a price on carbon. Whether it’s by way of carbon taxes or emissions trading schemes and whether within two years or 20, the clear intent of Governments around the world is to restrain emissions using economic tools.

I agree a price on carbon is almost inevitable. Even if you do not believe the claimed indirect warming effects of carbon emissions (which there is debate about), even the direct warming effects (which there is almost no debate about) makes a price on carbon sensible.

Official figures show New Zealand is on track to meet our 2012 Kyoto target. In 2012 our gross emissions will be 23 per cent higher than in 1990, but this will be more than offset by forests planted since 1989, with many New Zealand foresters actively receiving tradeable carbon credits.

This is key. Forestry is already in the scheme. You can not simply scrap a scheme that has already started. Forest owners are owed hundreds of millions of dollars for their forests under the scheme.

The fact that we already had the legislation as far back as 2008 and the kinds of decisions made by other Governments over the last year have led to the situation where New Zealand is now a leader in taking action on emissions, rather than our desired position of fast follower.

And this is a concern. But the answer is not to scrap a scheme that has been in place since 2008. It is to use the 2011 review to decide whether to amend the rate at which businesses get exposed to the full cost of carbon, and when sectors such as agriculture enter the scheme.

We are scheduled to have a review of the scheme before the end of next year. Business NZ believes this review should be brought forward starting no later than the end of this year.

The review should cover issues like the cost impact on consumers and businesses, competitive disadvantage issues and the position of agriculture and other sectors within the scheme.

Positions need to be developed based on current economic and international considerations.

We should all keep in mind the fact that the world’s consumers are increasingly seeking low-carbon goods and services and our trading scheme is the vehicle for nudging our producers on to a profitable low-carbon path.

And we shouldn’t forget that taking action to reduce emissions and look after our environment is, in the long run, the right thing to do.

I think it would be useful to wait for the Mexico conference, and see if that is as unproductive as Copenhagen. If it is, then the review of the ETS should look towards slowing or delaying the impact of the ETS in trade exposed sectors especially.