Monday, August 31, 2009

Climate change: Finally reported back

The Emissions Trading Scheme Review Committee has reported back [PDF] on their inquiry into the ETS. Highlights:

  • Every party but ACT agreed that the IPCC Fourth Assessment Report should guide policy and that any uncertainties were around how bad it was going to be (with a note that the worst case projections are already being realised).
  • Every party except ACT and the Maori Party supported an ETS in preference to a carbon tax.
  • The all-sectors, all-gases shape of the ETS was confirmed. In the case of agriculture, they specifically recommended placing the point of obligation on processors rather than at the farm gate, to reduce administrative and transaction costs.
  • They push direct regulation around energy efficiency, vehicle fuel economy, renewable energy and other "specific activities with high emissions", starting with a full analysis of US and EU measures. A step away from the free market ideology of a single, perfect market solution?
  • They do not consider "carbon leakage" - firms shifting pollution to pollution-friendly jurisdictions - to be likely on any significant scale (and yet, they support free allocation to polluters to prevent it - go figure).


  • They recommend a full regulatory impact analysis before any amendments to the ETS. Which means delay, which will in turn be used to justify pushing back entry dates.
  • The committee supported international trading, but "[t]here may also be good reason to limit international linkages in the short term while the New Zealand emissions trading market matures".
  • While they do not explicitly recommend a price-cap, they say that "a case can be made", and focus on conditions for one rather than in saying "this is a stupid idea". So, it looks like we'll be subsidising polluters even more than we are now.
  • The government and its allies recommend intensity-based allocation for industrial polluters without any cap. In English, this means that we provide free units to polluters according to the amount they pollute, and the more they pollute, the more they get. In other words, a direct subsidy for pollution. This is a straight-out wealth transfer, from ordinary taxpayers, to (mostly foreign) shareholders in polluting firms. This could easily cost us a billion dollars a year. But National's donors and cronies will be laughing all the way to the bank.
  • They say nothing about sectoral entry dates for electricity, industry, or transport, and cautiously sidesteps the topic on agriculture. There is no guidance on whether they think entry dates should be delayed, or brought forward.
  • The committee expects emissions to keep growing until 2045. Which tells us that policy simply isn't strong enough.

Minority reports:

  • Labour favours keeping the scheme generally as it is, with a stronger 2020 target.
  • The Greens favour strengthening the existing ETS and requiring the Auditor-General to report on wealth transfers due to the scheme.
  • ACT are still in deep denial.
  • The Maori Party opposes the ETS as ineffective. They oppose the proposed changes (price caps, pollution subsidies, restrictions on trading) as making it more so. They would prefer a high carbon tax instead (given that they may be called upon to support exactly those measures, you can see why they wanted that pulled).

And so now the negotiation begins. From the look of it, the government does not have a majority for the pro-polluter changes it wants. Which means the current ETS simply continues, with electricity and industry entering it in January next year. Given that they want to weaken it, that seems to be the best option available.