Thursday, November 12, 2009

Climate change: Fiddling the books on the ETS

Who pays for the ETS? The goal of any such system, for both moral and economic reasons, is to ensure that polluters pay. But according to a new report [PDF] from the Sustainability Council, the government's modified ETS does exactly the opposite, dumping most of the immediate burden onto taxpayers and households rather than polluters, and pushing the ultimate cost - the Kyoto liability - onto our children.

On the former point, the Council has analysed the distributional impacts of the ETS - something notably absent from the government's work on the topic - and found that households, responsible for less than 20% of emissions, will bear 52% of the costs over CP1. Small businesses and transport operators, responsible for another 11%, bear 38% of the costs. Meanwhile, large industrial emitters and farmers, responsible for more than two-thirds of our emissions, would pay only 4%. The principle of "polluter pays" has been turned on its head, to subsidize National's donors and cronies.

The Council also attempts to measure subsidies, but here their work is flawed, focusing on apportioning the cost of national excess emissions, rather than gross emissions. Every credit given free to a polluter is a credit that could be sold. Thus, every ton of emissions a polluter does not have to provide credits for is a subsidy, and a real cost to the government. According to the Net Position Report, agricultural sector emissions are expected to be 184.02 million tons over CP1. At a carbon price of $30 per ton, that means an expected subsidy of $5.5 billion dollars - five times the amount estimated by the Sustainability Council. And that money comes straight out of your pocket and goes straight into that of a farmer.

Its the same story with industrial emitters. Stationary energy and industrial sector emissions are expected to be 113 million tons over CP1. At $30 per ton, that's a $3.4 billion subsidy over five years. And the subsidies are even greater after 2012.

These polluters are simply parasites, sucking money from the taxpayer to give a false veneer of profitability and enrich their foreign shareholders. And the National government is enabling this theft.

On the latter point, the Council points out that the use of forestry credits to offset present emissions is an illusory saving. Those credits must be repaid when the trees are harvested, meaning that such offsetting is effectively borrowing from the future. Our "surplus" now is simply a cost to future generations. Combined with the massive subsidies, this effectively means we are leaving 84% of the costs over CP1 to our children.

The Fiscal Responsibility Act was supposed to prevent such shenanigans by requiring the government to run honest accounts. But for some reason it doesn't apply to carbon credits. And so the government is able to get away with hiding the true costs of their morally and financially unsustainable policy.

This is simply not sustainable. The only morally and economically supportable position is for polluters to pay the full costs of their activities. And if this drives some of them to the wall, then so be it. If a business is "profitable" only through massive subsidies from the taxpayer, then we are better off without it.