New Zealand’s Emissions trading gamble
Submitted by climaterealists on Tue, 13/07/2010 - 17:03
CIS Digest 9 July 2010
by Luke Malpass
Prime Minister Julia Gillard has indicated her desire for Australia to price carbon by 2012. Lucky for her she now has a policy guinea pig, as New Zealand enacted an emissions trading scheme on 1 July.
Not that New Zealand needed to stress too much – accounting for only 0.2% of total global emissions. Even New Zealand’s Environment Minister Nick Smith conceded that an ETS would do nothing at all to help combat climate change, but he argued that it was necessary to enhance the country’s clean, green reputation. Was this really a good enough reason certain economic pain for little environmental gain?
Leading up to 1 July all New Zealanders received a letter explaining that electricity prices would be rising. It was already widely understood that petrol and diesel prices would be also be going up, as would the cost of living across the board.
Many taxpayers are understandably resentful of subsidising big emitters to such a large extent. However these ‘polluters’ provide the electricity that heats homes, petrol that powers cars, and food that feeds people. Ipso facto: if polluters ‘pay,’ so will consumers.
The fact that New Zealand forged ahead with an ETS in the absence of action in Australia, and a lack of meaningful international agreement, raises several questions:
* What happens if New Zealand’s carbon market is not matched by one in Australia, which may well be dependent on actions emerging in the United States, India and China?
* As an exporting nation, what will happen to New Zealand’s competitive advantage as transitional arrangements are phased out and comparative cost structures rise?
* If the international political consensus on pricing carbon collapses, what will happen to New Zealand’s scheme? Will it be scrapped?
* If the scheme is scrapped, what will happen to the value that will be destroyed, i.e. the property rights inherent in carbon permits?
These questions are perhaps too pessimistic but they should be asked nonetheless. It was, after all, Prime Minister John Key who advocated the ‘fast follower’ approach to climate by which any New Zealand scheme would be tied into whatever Australia adopted.
It really leaves a final question: how much will this piece of symbolism end up costing New Zealand?
Luke Malpass is a Policy Analyst with the Centre’s New Zealand Policy Unit.
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