SMELLIE SNIFFS THE BREEZE: A stinky climate deal

SMELLIE SNIFFS THE BREEZE: A stinky climate deal

By Pattrick Smellie

Sept 18 (BusinessWire) - No matter whether you're up or downwind of it, this week's political bargain on the Emissions Trading Scheme looks, sounds and smells like a dog.

In what appears to have been a victory of panic over pragmatism, let alone principle, the National-led Government has hatched a deal with the Maori Party whose most important details remain not only unknown but are also fraught with potential to derail the passage of legislation, while doing damn-all about climate change.

So, on its most basic measure, the amended ETS as an environmental measure stinks. Big greenhouse gas-emitting industries will, under this scheme, face no appreciable pressure to reduce their emissions. There is no threshold above which carbon prices will apply to them, as long as their emissions are below an industry average.

Instead, the bill for their increasing emissions will go straight to the taxpayer. This is what many New Zealanders have yet to work out, although the Labour Opposition is likely to be helpful on this point in the next few weeks.

While many voters might support a scheme to shelter New Zealand industries from climate change, there is no way for New Zealand as a country to escape its obligations to reduce greenhouse gas emissions under whatever new global climate change deal emerges after the December summit in Copenhagen.

What that means is that if industry doesn't pay, then we all do.

As a signatory to global climate change action, the country as a whole must reduce its emissions or buy carbon credits from somewhere else to offset its emissions growth. While New Zealand is unusual in its ability to offset a lot of emissions with plantation forestry, this is not a total answer. In fact, it's not even clear yet whether a gun-shy plantation forestry sector is willing to start planting again, despite this week's announcements meeting one of their key demands and clearing the way to trading their credits internationally.

So far, climate change policy machinations have left foresters feeling misled, angry, and out of pocket, or have encouraged them to fell rather than grow trees. They tore down forests all over the country in the mid-2000's because Labour's ETS proposals threatened to make forested land too hard to convert to other uses once the scheme was in place.

On top of that, foresters continue to fear that the rules will keep changing, making it difficult to confidently plant for a 30 year growing cycle. And given how unstable the National/Maori deal on the ETS looks, they are right to be worried. So, as an exercise in policy certainty, the ETS deal stinks.

It also stinks as an exercise in tax policy. By doing almost nothing to place direct pressure on major emitters to invest for a low-emissions world and putting the cost on end consumers and taxpayers, the ETS is little more than a new tax. Yet it breaks two basic tenets of good tax law: simplicity and fairness.

The ETS is a fearsomely complex solution compared with a carbon tax, and only justifiable if it fosters the behavioural change that would lower carbon emissions. If it won't do that, it is unlikely to survive a fairness test once citizens get their heads around how this deal lets big emitting industry off the hook while requiring the country to buy carbon credits wherever it can get them.

And if every country behaves as New Zealand has this week, sliding into weak, compromised climate change responses for short term political reasons, those credits are going to be hard to come by, which is going to make them expensive.

The estimated $400 million cost to the country of the ETS transitional period to January 2013 assumes carbon is worth $25 a tonne. That price may come quickly to be seen as a bargain in a carbon-constrained world.

So, from a fiscal persective, the ETS stinks as well. It commits governments in the future, who are already facing a dramatic rise in government debt, to open-ended, decades-long payments for the carbon emissions of large emitter industries - steel mills, aluminium smelters, cement and fertiliser manufacturers, and agriculture - particularly the dairy industry.

The rationale for this? That industries will either shrink, grow less or depart New Zealand if subjected to a scheme that makes them face even a marginal cost of carbon.

Environment Minister Nick Smith's favourite example is Holcim Cement. Its elderly Westport plant operates inefficiently and could be rebuilt to reduce carbon emissions per tonne of output, but the planed new plant would make twice as much cement and raise its total emissions by 60%, compared with the plant operating today.

Smith argues that if we don't allow those extra emissions to occur, the plant will go elsewhere, the cement will still get made, and New Zealand will lose jobs. Finance Minister Bill English said much the same thing when he challenged Labour's David Cunliffe to "go to Tiwai Point (aluminium smelter) and tell middle New Zealanders working there that he would rather they were working in a smelter in China".

The logic on dairy is the same. The dairy industry is one of the few economic bright spots, showing significant increases in productivity and potential for growth. The Government wants to avoid doing anything that might choke that growth off by exposing the industry to the international carbon price.

Put it that way, and it all sounds fair enough. Spin it round, though, and the outcome boils down to this: on the evidence available today, New Zealand is not serious about tackling climate change.

In the countries where serious efforts continue, it is accepted that the biggest sources of GHG emissions need to be tackled.

In New Zealand, that means agriculture, which accounts for half the country's total GHG emissions. Unless, of course, Australia can argue that it should be allowed to exempt coal from its ETS, even though the Australian economy runs on the stuff and gives Aussies one of the biggest carbon footprints in the world per head of population.

All of which leads to a bigger, scarier question: is the world capable of taking serious action on climate change?

In the same way that people will put a Greenpeace sticker on the car they drive to the airport to take a carbon-spraying overseas trip, this week's politics suggest the disconnect between accepting the problem and accepting the size of the solution is too great to be bridged.

In which case, maybe this week's deal just shows how little all the well-meaning efforts on climate change are likely to be, since human beings are likely to remain self-interested optimists whose best hope is that climate change will turn out to be some sort of overblown Y2K scare.

Given how little comparability there is between the two issues, and the growing evidence that unchecked global climate change will lead to wilder, less predictable outcomes, there may be only one sensible way for each of us to respond.

Quite simply: sell coastal land if you want to keep your feet dry, and think up a really good reason for your grandchildren as to why we were so collectively incapable of getting it together when we had the chance.

(BusinessWire)

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