Working its way through Parliament is a law to set up New Zealand’s emissions trading scheme – the Climate Change (Emissions Trading and Renewable Preference) Bill.

It is a very flawed piece of legislation being rushed through with the goal of passing it as early as possible this year.

It is literally full of holes – large parts of the design of the emissions trading scheme are not spelled out in the draft law, the plan being for regulations to be tacked on later.

It sets us up to have some extreme emissions rules. As currently drafted it will be the only scheme in the world where the competitiveness of domestic firms will not be fully protected.

It would result in New Zealand companies having to pay higher energy prices than companies in other countries, harming our competitiveness.

The Bill contains an ‘absolute’ target: to get emissions below business-as-usual levels. But absolute targets are not in New Zealand’s interests. We are a high-energy (but energy-efficient) processor of primary products – processed dairy food, pulp and paper, aluminium and so on. An absolute target would punish us for the high energy use in these industries, while ignoring our energy efficiency.

BusinessNZ believes the Bill should use efficiency measures instead of absolute measures – not just how much carbon was emitted but how much was produced per amount of carbon emitted, e.g. grams of carbon per pound of butter.

Efficiency measures are fair to everyone and deliver reduced overall emissions – the only sustainable way to reduce global emissions is to allow the most energy-efficient producers to succeed and not to artificially prop up energy-inefficient producers.

The Bill also needs to be amended to protect property rights and keep flexibility of land use, to encourage investment, avoid deforestation, and capitalise on opportunities regarding carbon sinks, biofuels and so on. The emissions trading bill as currently drafted will damage the property rights of many New Zealanders and New Zealand businesses, not only relating to land but also to significant investment in capital equipment that companies have made in good faith over many years. They will need to be recompensed for this diminution of their property rights and this can’t be done just by giving free credits.

We should use an independent body to administer the scheme and determine credit allocations. Australia’s draft scheme will build in checks and balances to prevent corruption, including an independent body to perform key administrative task but here, the plan is to give the power to Cabinet Ministers. We would like to see an independent body used instead so that fairness is seen to be done.

It will be important to keep the cost of emissions manageable in order to keep energy prices down. The Government has several options for this:

• It could ‘manage’ carbon prices and stop credits just being sold off by preventing the sale of New Zealand credits overseas (‘one-way trade’);
• It could manage the balance of liabilities between consumers and firms;
• It could buy overseas credits wholesale and auction them here, using its buying power as a government to bring cost savings.

We should build these features into the legislation now rather than regulating for them at a later date. It may require a bit more time to get the legislation right.

Fundamentally, the big issue is energy prices. Paying for emissions will make petrol and electricity prices for everyone in New Zealand considerably higher – by at least 25% by 2010.

Economic modelling by Infometrics, NZIER and the Australian Bureau of Agricultural and Resource Economics show the proposed emissions trading scheme having the result of shrinking important sectors (depending on the eventual cost of carbon) up to:

Sheep farming -32%
Wool -28%
Dairy farming -28%
Dairy processing -14%
Metals -31%

An Infometrics study shows (at a carbon price of $25) a loss of 52,000 jobs falling most heavily in wholesale and retail trade, services and accommodation and hospitality.

These potential results are not consistent with the Government’s claim that the proposed scheme will have a negative impact of less than 1% of GDP.

These are just some of the issues in this complex undertaking.

BusinessNZ will continue to advocate for improvements to the design for an emissions trading scheme for New Zealand.

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