Greenpeace has released a report [PDF] criticising the government's Emissions Trading System as fatally flawed. Unfortunately, I'd say the same of the report itself. The chief criticism - that the ETS sets no cap on domestic emissions - ignores the fact that such a cap would be meaningless until the ETS is fully implemented. That isn't expected to happen until 2013, at which stage we will have a cap reflecting our post-2012 obligations. Until then, what we really have is interlinked sectoral caps - one for deforestation, one for transport fuels (post 2009), and one for stationary energy and industrial emissions (post-2010) - each of which can be offset by reducing emissions in another sector, or by buying credits on the international market. For some reason, Greenpeace regards this as a flaw:
The proposed New Zealand ETS does not limit the number of permits that can imported into New Zealand and does not include any domestic emission reduction target; that is, the ETS places no requirement on New Zealand firms to reduce their emissions in any way. If they wish to continue as they are, or increase their emissions, they will simply be required to purchase permits from within New Zealand or offshore. Most will need to be purchased offshore as there will be very few permits available within New Zealand.But this is how an emissions trading system is meant to work: if you can't reduce your emissions, you buy permits off someone who can. As for international trading, it's the same principle. Provided its a real reduction - and the government is planning on barring some of the dodgier types of international units to preserve environmental integrity and allow full linkage with the EU ETS - then it doesn't matter. A ton of carbon is a ton of carbon, and what matters is the overall reduction - not who makes it, how or where. I'd have expected a global organisation like Greenpeace to take a global perspective on the problem. Sadly, they seem wedded to a parochial puritanism.
The second criticism is around allocation - that the government's plans to grandparent up to 90% of 2005 emissions to some industries and firms (notably the agricultural sector, but also some industrial emitters whose competitiveness is judged to be at risk) - undermines the effectiveness of the scheme. This is false. As I've pointed out before, allocation doesn't matter from an effectiveness point of view. What matters is the creation of a marginal price for emissions (and hence a price signal for savings), and this is done by the creation of an obligation and permits. It doesn't matter if we auction the permits, give them away, or run a scavenger hunt for them - provided there are permits and an obligation to redeem them to cover emissions, then there will be a price and emissions reductions. While emitters with grandparented allocations may be less interested in buying reductions, the ability of firms to sell credits overseas (and contrary to Greenpeace's assertions, they will be able to do exactly that) will still create a financial incentive for reductions (including from those companies with grandparented allocations). Again, this is how an emissions trading scheme works, and given their qualifications and background, I'd expect the people who wrote this report to be aware of it.
(Allocation matters for other reasons of course, and I don't want to dismiss those. Our free allocation to the agricultural sector amounts to a $0.5 - $1 billion a year subsidy for a pack of polluters who show no interest at all in cleaning up their act, even when its financially advantageous to do so. These are not people I want to reward, and there are far better things I would like to do with that money. But if its what it takes to finally get policy implemented, then it's probably worth doing)
Greenpeace's final complaint is the slow implementation. Again, I'd agree, but if it means we finally get some working policy rather than having none at all, then it's a price I'm willing to pay. The ETS isn't perfect, but it will do something useful. Failure to implement policy while we aimed for a "perfect solution" has been a persistent problem in New Zealand, and one we seem finally to be overcoming. By contrast, Greenpeace's suggestion of going back to the drawing board and imposing a carbon tax in the meantime just seems to offer more of the same.
