Climate change: Subsidised pollution

The government has announced its preferred amendments to the ETS. The most important ones:

• Revised entry dates of 1 July 2010 for transport, energy and industrial sectors and 1 January 2015 for agriculture
• A transitional phase until 1 January 2013 with a 50% obligation and $25 fixed price option for the transport, energy and industrial sectors
• A production-based industry average approach to allocations for trade exposed, emissions intensive businesses

Together these amount to massive subsidies from the taxpayer for pollution. The cap is bad enough - it is only marginally above present Treasury estimates, and will likely kick in if there is any increase in price or unfavourable shift in exchange rates. But the 50% obligation is worse. Those sectors were responsible for 38.3 million tons of emissions in 2006, and you and I will be picking up the tab for 19.15 million tons of that. At current carbon prices, that amounts to a subsidy of $428.2 million every year, straight into the pockets of polluters' (mostly foreign) shareholders. It will also mean that emitters do not face the full marginal cost of emissions - meaning a much lower incentive to reduce pollution, while the production-based allocation for industrial polluters means allowing emissions to increase without limit.

From the press release, it seems the Maori party will be supporting this. Given that just a week ago they were saying that agriculture entering the ETS in 2011 was "a bottom line", and they've now agreed to it being delayed until 2015, they seem to have shifted rather a lot. I guess their environmental rhetoric and tough stance in their minority report was simply hot air.

After Charles Chauvel's speech, I cannot imagine Labour supporting these proposals. Which means the door is open to toughening the scheme in the result of any change of government. Polluters expecting to profit from National's subsidies may want to take that into account in their investment decisions.