Wednesday, July 16, 2008

Climate change: weak

Last week, the Australian government released the Garnaut Report, an independent analysis of climate change and climate change policy, which recommended the rapid implementation of a broad-based emissions trading scheme. A key recommendation of the report was that the government should not hand out free permits to polluters or ease the impact on householders by cutting fuel excise taxes.

Today, the Australian government released its response in the form of a Green paper [PDF] (summary report here; overview of preferred positions here). In it, they back away from Garnaut's strong recommendations. In particular, they propose cutting fuel taxes "on a cent for cent basis" to reduce the initial price impact, 90% free allocations for "emissions intensive trade-exposed industries", and 60 - 90% free allocations for "strongly affected" (but not trade exposed) industries (coal-fired electricity generation is expected to be the main recipient). The net effect of this will be to substantially weaken the effectiveness of the scheme (at least around transport), while repeating the same mistakes that allowed the European ETS to turn into a giant lolly scramble which delivered windfall profits to polluters.

Still, at least they'll be including the majority of their emissions by 2010. Whereas New Zealand will only just be getting started. Far from "leading the world", we're behind the Aussies - the Aussies! - on this. Helen Clark should be hanging her head in shame.

Oh, and one other note: while the Australians want to link with international markets, they won't be linking with us. They will accept CDM and JI credit, and CERs created under the Kyoto Protocol, but they will not accept any Kyoto Assigned Amount Units (AAU) before 2013 due to concerns about Eastern European "hot air". Since our scheme relies on AAU for international transfers, then New Zealand firms will not be able to sell their reductions to Australians. Neither will they be able to buy reductions from Australia - they will not be backing their Australian units with Kyoto credit or allowing them to be converted for international sale. So effectively the Australians are creating an isolated market for themselves, with a one-way flow of credits in. They're probably big enough to do that, but its a very different path from the (almost) open market New Zealand is proposing.