Date submitted: Friday 19 February 2016
0.0 Executive Summary
This submission sets out the Green Party’s view of the New Zealand Emissions Trading Scheme (ETS).
Notwithstanding paragraph 8 in the terms of reference, this submission will comment on (1) the review process itself and (2) whether the ETS is the most appropriate tool for responding to climate change in New Zealand.
The Green Party considers it unlikely that the fundamental problems with the ETS can be fully resolved by the reforms outlined in the discussion document.
We believe that, even if the proposed reforms were to be implemented, New Zealand’s net greenhouse gas emissions will continue to rise. This will obviously fail to meet New Zealand’s targets for falling emissions.
New Zealanders would be better off, and the environment and economy better served, by the Government abandoning the ETS and replacing it with a revenue-neutral carbon tax.
1.0 The Review Process
We wish to highlight two areas of concern regarding how this review process has been approached:
- The discussion document does not provide the public with sufficient information to make an informed submission (skewing the costs and hiding the impacts);
- The review excludes agriculture — a sector that accounts for almost half of New Zealand’s total greenhouse gas pollution.
These are outlined in further detail below.
1.1 Skewing the Costs and Hiding the Impacts
No information is given in the discussion document about what impact the proposed changes would have on New Zealand’s emissions.
This is extraordinary, both given that the principal objective of the ETS is to reduce pollution, and that the driver for this review was to consider how the Government would meet its new climate target agreed in Paris.
The ETS discussion document does not provide sufficient information for the public to make an informed submission.
The focus of the paper is exclusively on the costs associated with implementing more rigorous emissions reduction measures.
It fails to provide any analysis in the discussion document of:
- Countervailing information on the economic and social benefits of reducing pollution, of shifting to more energy efficient practices, and investing in new clean sectors of the economy;
- The cost of continuing with current policies. Taxpayers will face substantial costs if current policies are maintained, including the current government guarantee to purchase surrendered units at $25 per tonne, and the two-for-one deal.
1.2 Excluding Agriculture
Like many New Zealanders, economists, and businesses we firmly maintain that the option of pricing agricultural emissions should be included in this review.
We ask that the Government reconsider its approach, and include this in the second stage of its ETS review.
The premise that there are currently no solutions available to farmers to reduce their high levels of greenhouse gas pollution is simple incorrect.
Many farmers have found ways to reduce climate damaging pollution.1
By failing to send agriculture the same price signals that are being sent to rest of the economy, we reduce the incentive for much-needed private investment in research and development that will find solutions to reduce on-farm pollution.2
In the absence of a price on agricultural pollution, farmers are incentivised to continue to invest in high-emission forms of production.
This will make it harder for farmers to reduce pollution in the future when they are inevitably required to do so in the face of market and international pressure.3
In the absence of a price on agricultural emissions, other sectors of the economy will be unfairly burdened with paying for the cost of reducing pollution in order for New Zealand to meet its Paris commitments.
This amounts to an implicit subsidy, paid by taxpayers and other sectors of the economy, to cover the pollution of the agricultural sector.
By excluding agriculture now, the Government is simply pushing the problem down the road to the next government, and the next generation.
2.0 The Emissions Trading Scheme
2.1 Current Performance
It is widely accepted that the ETS has failed in its primary purpose of reducing greenhouse gas emissions.
This failure is now clearly articulated in the Government’s own evaluation of the scheme.4
Under current ETS settings, there is no longer any incentive for businesses to reduce emissions5 and, in fact, net greenhouse gas emissions in New Zealand are expected to increase to 96 percent above 1990 levels within the next 15 years.6
This is significantly out of step with New Zealand’s already inadequate target of reducing emissions by 11 percent below 1990 levels within the next 15 years.
The scale of this failure, suggests that the limited scope for changes to those settings, as outlined in this review, will be completely insufficient and that the ETS needs a complete overhaul, not just tinkering at the margins.
2.2 Necessary Changes
All the evidence points to the fact that this review should be much more wide-reaching than what is proposed, and include the question of whether the ETS is still the best tool for the job of reducing our carbon pollution and securing a stable climate.
Transitioning to a low carbon economy is going be one of the most important undertakings for New Zealand this century.
The lack of credibility, the uncertainty, and the complexity associated with the ETS will make it incredibly challenging for this tool to be effective at driving emissions down.
The ETS is complex and lacks transparency. Previous reviews of the ETS found firms had been taking advantage of the scheme by charging customers a much higher carbon price than the firms themselves were having to pay.7
This means that consumers can end up paying a carbon charge upon which polluting firms are profiting.
The ETS’s integrity (domestically and internationally) has been undermined by the decision to allow cheap foreign carbon credits, of dubious integrity, to enter the scheme.
There is mounting evidence showing these credits do not result in real reductions in pollution.8
As a result, the legitimacy of the ETS has been eroded, both in the eyes of New Zealanders as well as internationally. It’s time for a clean start.
2.3 An Alternative Way Forward — a Revenue Neutral Carbon Tax
The Green Party supports transitioning away from an ineffective ETS to a revenue-neutral carbon tax — a climate tax cut. We believe such a policy would be easier for both
households and businesses to understand and implement, and would drive the necessary changes in our economy to lower our high levels of carbon pollution.
A carbon tax would return generated revenue back to businesses and households — in the form of a company and income tax cut — giving all New Zealanders and businesses a stake in reducing climate pollution.9
All businesses will enjoy a tax cut, and low-carbon businesses will enjoy a competitive advantage over their high-carbon competitors who will face increased costs under our plan.
The Green Party of Aotearoa New Zealand believes that the Government's review of the ETS suffers from at least two deficiencies.
First, it does not provide the public with sufficient information to make an informed decision.
Specifically, there is no analysis provided in the discussion document of the economic and social benefits of reducing carbon emissions, nor is there a consideration of the costs that will be incurred by the continuation of current policies.
Second, the review of the ETS does not include the option of pricing agricultural carbon emissions. This is unfair to the other sectors of the New Zealand economy as it represents an implicit subsidy.
It also misses an opportunity to signal to the agricultural sector to invest in the development of lower-emission practices that will eventually be necessary for New Zealand agriculture to remain competitive internationally.
The Green Party also believes that the ETS has been undermined to the degree that it is unlikely to be an effective tool for controlling carbon emissions and transitioning New Zealand to a low-carbon economy.
We believe New Zealand should instead implement a revenue-neutral carbon tax for these purpose.
Thank you for your time and consideration.
James Shaw MP
Spokesperson on Climate Change Issues, Green Party of Aotearoa New Zealand
1 There is growing evidence farmers can cut pollution and increase profitability by avoiding overstocking and the associated demand for inputs like Palm kernel. Encouraging organic farming would also reduce pollution and increase the price farmers receive for products like milk powder which can be five times higher than conventional milk powder on the international market. For more detail see page 20 of the Green Party plan for reducing climate pollution: https://www.greens.org.nz/sites/default/files/policy-pdfs/Yes%20We%20Can...
2 Westpac (2016), The Paris Agreement: What it means for the New Zealand economy, p6. Retrieved from: bit.ly/217edtD
4 Ministry for the Environment (2016), the New Zealand Emissions Trading Scheme Evaluation 2016, available at http://www.mfe.govt.nz/publications/climate-change/new-zealand-emissions...
5 Ibid, see p.28 of this report.
6 See page 38 of the Ministry for the Environment (2016), New Zealand 2nd Biennial Report under the United Nations Framework Convention on Climate Change, available at https://www.mfe.govt.nz/sites/default/files/media/Climate%20Change/secon...
7 Pattrick Smellie (2013), Z Energy in stoush over cost of ETS, NBR, February 5, 2013. Ministry for the Environment (2011), Doing New Zealand’s Fair Share: Emissions Trading Scheme Review Final Report.
32. Retrieved from: http://www.climatechange.govt.nz/emissions-trading-scheme/ets-review-201...
8 Brian Fallow (2015), Carbon Cuts Just an Illusion, available at http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1151...
9 Analysis by BERL estimated that with a carbon tax set at $25 per tonne of CO2e (and $12.50 per tonne for dairying) enough revenue would be available to introduce a new income tax-free threshold of $2,000 and provide for a one percent cut in the company tax rate.