Emissions Trading Scheme full of holes

The Government's proposed Emissions Trading Scheme is well designed but will take years to have much effect on our greenhouse emissions, and meanwhile world levels are skyrocketing to dangerous levels, Green Party Co-Leader Jeanette Fitzsimons says.

"There is no sense of urgency in this Bill. It is clever, and avoids a lot of fishhooks, but it does not reflect the sobering advice of climate scientists that we have just 10 years to put our emissions on a downward path to avoid dangerous levels of warming.

"Users of coal, gas and electricity get off scot-free till nearly half way through the first Kyoto commitment period, with no obligations till 2010, and the whole farming sector, which produces half our emissions, is totally exempt until after the first Kyoto period ends.

"The taxpayer does not stop subsidising emitters until 2025, and subsidises the highly profitable dairy sector 100 percent through the five years of our Kyoto obligations. This is a huge wealth transfer from ordinary households and small business to Fonterra, and to farmers who are already getting a large average windfall milk payment," Ms Fitzsimons says.

"It is incomprehensible that the only emissions for which New Zealand is accountable under Kyoto missing from the scheme are methane emissions from coal mining. This is a big handout from taxpayers to the coal industry, and gives lie to the claim 'all sectors, all gases'." "The Greens will vote for the Bill to go to select committee and try to remedy its defects at that stage." "Despite the scheme's good points, by the time it is fully operational it may be too late for the climate," Ms Fitzsimons says.

ETS - How will it work?

The proposed Emissions Trading Scheme creates an obligation for all emissions of climate changing gases to be covered by emissions units, known as NZUs, which will be remitted to government.

NZUs can also be traded between firms in New Zealand, and exchanged for Kyoto units for trading overseas.

Transport fuel importers will have to purchase 100 percent of their own NZUs from 2009 and will pass the costs downstream to users of the fuel. Thermal electricity generators will also face the full price of carbon when they enter in 2010.

Most other players, such as agriculture and waste which do not enter the scheme till 2013, will have NZUs partly gifted to them by the Government on a reducing scale over time. The good parts:

It puts a price on carbon emissions across the economy - but slowly.

It uses an absolute cap (the Kyoto cap) rather than being intensity based. Meaning that we are measuring the success of our efforts to reduce emissions against a fixed cap rather than in relation to GDP, at least for the Kyoto commitment period (KP1) of 2008-2012.

NZ units are fully backed by and exchangeable with Kyoto units so the price here will be linked to the world price. This makes it easier to make good financial decisions about managing emissions.

It sets the points of obligation correctly for efficiency and effectiveness. For example oil companies will have to manage the NZUs instead of the end user of their products.

It provides some disincentive for deforestation. The bad parts:

It has no sense of urgency, given the 10-year window to rein in emissions. The Greens' proposal, Kicking the Carbon Habit, would be far more effective in reducing emissions almost immediately.

Agriculture, which contributes half of New Zealand's emissions, has been given a 'get out of jail free' card, good for at least the next five years.

The Kyoto agreement covers the five years from 2008-2012. Yet stationary energy users are exempt from any responsibility for their emissions until the third year.

The hard decisions are left till after the election - it is proposed to pass the legislation before deciding which industries will be gifted units, and how many. This election year lollie-scramble will be highly contentious.

Taxpayers will continue to subsidise almost all emitters except the transport sector during the Kyoto period. Some of these subsidies continue until 2025. The taxpayer liability at the end of KP1 is only reduced from $680M (45.5Mt at $15/t) to $480M (32Mt at $15/t).

Because emitters are so far from covering the full costs to the taxpayer, there is no revenue to recycle into projects to mitigate the effects on the poor, or to assist in reducing emissions, such as improving public transport and helping farmers develop greener farming methods. (In fact there is nothing in the document on how vulnerable people will be helped, despite the Prime Minister's recent comments.)

The coal mining industry is exempted - apparently forever - from paying for the methane emissions that escape from coal mines during the mining process, known as fugitive emissions. New Zealand is liable for these under Kyoto, so taxpayers are set to subsidise the highly-profitable export coal industry forever. As fugitive emissions from bituminous coal mining are up over 450 percent since 1990, and are set to rise further with new mines being developed, they must be included in the ETS. How similar is this to the Green Party policy announced in March?

The scheme is integrated with the Kyoto scheme and NZ units are essentially Kyoto units, which is what we proposed.

We proposed that the 'point of obligation' be fuel supply companies and a few large users rather than most users. The government has adopted this proposal. For example, Fonterra is likely to be the point of obligation for most dairy farmers, as we suggested.

We proposed that companies who could not pass on the cost of carbon because they compete with overseas companies who do not face a cost on carbon should have some protection. The Government proposes this too, but has left the detail for after the election and may in fact not require them to pay anything much at all.

We proposed that farmers be responsible only for the growth in their emissions above 1990 levels, as they have few options for reducing emissions. This is similar to the Government's proposal to make them responsible only for 90 percent of their 2005 emissions - 1990 levels were 87 percent of 2005. However the five year delay before they have to do anything at all makes this a huge subsidy for the dairy industry in particular - dairy being the main area of emissions growth.

We proposed that Kyoto forest credits should be ring fenced for the benefit of the forest industry as a whole. These should be used to give pre-1990 forests a replanting incentive to encourage them to leave their land in forestry, and to give post-1990 forests a carbon payment for the carbon they store 2008-2012.

The Government has adopted our idea of a replanting incentive, but it will be taxpayer-funded as all the Kyoto credits are to be gifted to forests planted since 1990. This is giving in to the most vociferous lobby group who have been arguing they 'own' the credits, but will hit any older forests who change land- use very hard, because they will be subject to the full cost of deforestation.

The following sections test the proposals against the principles developed by the Green Party: How much will carbon emissions be reduced by the ETS?

The short answer is not very much during the five-year Kyoto period.

Some deforestation will be prevented by the deforestation liability.

A small amount of new forest may be planted because they are awarded credits.

Agricultural emissions will continue to grow throughout KP1.

There will be a tiny effect on transport emissions for four out of the five years, because they will pay the full cost from 2009. However, this reduction is calculated to be only 0.3 percent less than Business As Usual. The reason being the demand for transport is relatively constant and any reduction will struggle to be less than the rate of growth in the sector. A greater impact may be felt if it works in unison with rising oil prices and the regional fuel tax.

No emissions will be reduced for the first two years from stationary energy use because energy users are not included till 2010. It is impossible to tell how much will be saved in the following three years as no decisions have been made about which industries will be protected and to what degree.

It is worth noting that the New Zealand Energy Efficiency and Conservation Strategy, the result of Green Party legislation in 1999, and which uses regulatory and information mechanisms like efficiency standards for appliances, homes and vehicles, will remove far more carbon from the atmosphere than the ETS in the short to medium term. Will the revenue be recycled?

There will be no revenue to recycle. Revenue to the government from the sale of units will nowhere near cover the government's liability in 2012. Most of this will still be paid by the taxpayer. There will therefore be no fund from which to pay for projects like insulating homes, building better public transport, developing renewable energy - except by using general taxation. Will the most vulnerable people be helped?

The Prime Minister has said they will be, but there is nothing in the documents to provide for this and no revenue stream from the ETS to pay for it.

The Green Party believes the best assistance is to lower people's power bills by improving the energy efficiency of their homes, and lower their petrol bills by providing options like better public transport so they can use their cars less. We would also support doing it by taking a hard look at pensions, benefits and the minimum wage. It should NOT be done by directly rebating power and fuel prices. What does the Green Party want?

• Review the 2002 Memorandum of Understanding with the farming sector to see whether they are on track to meet the voluntary reduction of 20 percent below business-as-usual by 2013, as the agreement provides. If not, bring them into the ETS in 2009 at the same time as transport and energy. Gift them units equal to their 1990 emissions to start with, and continue this until there are technical options for reducing methane.
• Bring forward the energy sector's obligation - or most of it - by a year.
• Include anthropogenic coal seam methane from 2009 along with other energy emissions.
• Provide a dedicated fund to help low income people offset the impacts to their fuel and power bills through energy efficiency grants and better transport options.

ENDS

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