Australian carbon scheme does not mean NZETS needs to lose its emissions half-obligation

25 July 2011

Australia’s decision to introduce a carbon tax from next year does not mean the half-obligation mechanism that applies under the current NZ Emissions Trading Scheme should now be dropped, the Greenhouse Policy Coalition said today.

“This moderating provision was brought in to reduce the costs imposed on New Zealanders through the introduction of our scheme, and the details of the Australian carbon tax provide sufficient justification to retain this provision,” says Coalition Executive Director David Venables.

Prime Minister Julia Gillard has announced that Australia will begin pricing carbon from 1 July 2012, starting with a carbon tax of $A23 a tonne with a plan to move to an emissions trading scheme from 2015.

“Some commentators here are simply looking at the similarity between the headline rate of tax in Australia and the price cap in the NZETS and from that drawing the conclusion that our Government should now drop the half-obligation whereby emitters are required to surrender one carbon unit for every two tonnes of emissions. A closer look, however, shows this suggestion doesn’t stack up. In fact the half-obligation needs to be retained in order for the cost impact of the two schemes to be comparable,” David Venables says.

“First, the surrender half-obligation has been put in place primarily for the benefit of the general public – consumers. When the Government brought in the half-obligation it cut in half the price rises for fuel and electricity that would have otherwise come with the NZETS. Remove the half-obligation and the costs to consumers, businesses and industry will increase ahead of Australia. In Australia, the Government plans to compensate households via tax cuts, benefit changes and by leaving transport fuel out of the carbon scheme altogether. In New Zealand, the Government has effectively compensated households to a lesser extent – via the half-obligation.

“Second, removing the half-obligation would see the largest emitters in Australia getting significantly more support than those in New Zealand. In New Zealand, trade-exposed industries are partially compensated for carbon pricing by receiving a 60%, and in some cases 90%, free allocation of carbon units; in the Australian scheme assistance will be provided to trade-exposed industry at the rate of 66% or 94.5% together with other targeted assistance provided to other industry sectors. If you factor in the half-obligation in New Zealand, the net impact on industry at 90% free allocation is very close to the Australian 94.5% level. In some cases Australian businesses are even better off due to other assistance measures. If you remove the half-obligation, the impost on New Zealand businesses at the 90% level will be significantly greater than it will be for their Australian counterparts.

“The two schemes are quite different, but they are designed for different economies with different challenges and different emissions profiles. The Greenhouse Policy Coalition believes a thorough comparison of the costs imposed under the respective schemes supports its argument that moderating provisions introduced with the NZETS need to be retained beyond the current expiry deadline of December 2012.

“Any changes to the NZETS should be made on the basis of what is good for New Zealand’s economy and to ensure we remain in step with, but not race ahead of, what the rest of the world is doing to tackle climate change,” David Venables says.

ENDS

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