ETS review should keep support measures

Media Release

Uncertainty and lack of overseas action mean ETS review should keep support measures for business and consumers

7 April 2010

New Zealand businesses and consumers could face big risks from volatile carbon markets if Emissions Trading Scheme support measures are removed from the end of next year, the Greenhouse Policy Coalition says.

The ETS is being reviewed by a panel led by former Labour Cabinet Minister David Caygill, with key questions including whether the $25 fixed price for carbon and the unit surrender half-obligation (where liable companies have to surrender one unit for every two tonnes of emissions) should be removed on schedule from January 2013. Also at issue is whether agricultural gases should join the scheme from 2015.

“The removal of the pricing measures would raise a huge risk for New Zealand business – and also for consumers who would pay more for fuel and power. Direct costs to companies would shoot up. Further, the projected price for carbon in Europe’s ETS, as well as the proposed California scheme suggest our businesses could find themselves in a pretty scary market over the next few years. The European price is being talked about in terms of over 40 euros in 2013 [Bloomberg, 22 September 2010, European Union may triple by 2013 as gas recovers, UBS says.], while analysis suggests California’s price [Reuters, 17 February 2011, California carbon price seen $75: Point Carbon.] could hit US$75 by 2020. Exposure to these sorts of prices would have a real impact on New Zealand households,” the Coalition’s Executive-Director, David Venables, says. [Table 1 below shows the impacts on New Zealanders of various carbon prices.]

“It is also highly unlikely that our main competitors are going to have national carbon prices from 2013, which means we will not be competing on a level playing field. The EU has one, but they’re trying to jack up the price, Japan has shelved its ETS plans, Obama’s US is going nowhere fast on climate change, Australia says maybe next year, China might have something regional in the next few years. If our price controls in particular are not extended our productive sectors will simply end up having their profitability undermined, threatening jobs and promoting carbon leakage, where production is moved from New Zealand to countries with fewer or no controls on emissions.”

The Coalition has made a submission to the review calling for:

• The continuation of the $25 fixed price and half-obligation until the start of 2016, with both to be reviewed in 2014.
• The entry of agricultural gases into the ETS should be postponed by three years until the start of 2018, with their entry to be reviewed in 2014.
• The allocation of units to companies should be revisited to ensure an equitable allocation is given to New Zealand’s key food processing sector.
• Consideration should be given to zero rating fugitive emissions of methane from coal mining.

“The Government originally brought in the price measures to protect jobs and consumers while other countries caught up with us and developed emissions trading. Well, the other schemes aren’t there, and won’t be there in 2013. An unbending commitment to 2012 as the final date for price controls would undermine the Government’s stated rationale for supporting businesses and consumers. It would also undermine the Government’s commitment to a balanced approach in which New Zealand does its fair share.”

Mr Venables says as well as extending the life of the price measures, the review panel should also recommend changes to the allocation of carbon units to trade-exposed sectors like food processing. “Our biggest exporter, Fonterra, for example, gets an allocation covering less than 5% of its emissions despite being in fierce competition in tough markets like Europe. This is inequitable and needs revisiting. No other country would leave a major sector like this so exposed.”

The Coalition’s proposal to postpone the entry of agricultural gases into the ETS is fully in line with Government thinking about the sector, Mr Venables says. “Earlier this year, Climate Change Issues Minister Nick Smith [NZ Herald, 22 January 2011, Drawing a line on climate commitment.] made it clear a National-led Government would not include agricultural gases unless there were practical technologies that farmers could employ to reduce their emissions and there was significantly greater progress on carbon pricing by our key competitors than we have seen to date. Well, the technologies aren’t there yet and carbon pricing is moving at a snail’s pace. Imposing a carbon charge on farm emissions without abatement options being available would simply constitute a tax on our main export sector.”

Mr Venables says making the recommended changes to the ETS will not undermine the Government’s desire to see more renewable power generation and forest planting, as the Minister is satisfied this is happening under the current pricing regime. “We think the prudent thing to do now is iron out the inequities in the ETS and carry on the price measures for a few more years so our competitors can catch up on the carbon pricing front. This would also minimize the harm to business competitiveness and consumers.”

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Table 1: Impact of various carbon prices

/ NZ$12.50 / $25 / $50 / $100
Gas / 70 cents/GJ / $1.40 / $2.80 / $5.60
Petrol / 3.3 cents/litre / 6.6 cents / 13.2 cents / 26.4 cents
Diesel / 3.8 cents/litre / 7.6 cents / 15.2 cents / 30.4 cents
Electricity / 1 cent/kWh (5% rise) / 2 cents (10%) / 4 cents (20%) / 8 cents (40%)
Household cost / $165 a year / $330 / $660 / $1,320
Source: The $12.50 figures are from the Ministry for the Environment. Prices exclude GST.

ENDS

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