New Zealand’s parliamentary Emissions Trading Scheme Review Committee, chaired by Peter Dunne, has issued its report, making recommendations to the government.
The existing emissions trading scheme (ETS) was put in place in September of last year by New Zealand’s previous Labour government. Under the legislation, the ETS was to be fully phased in by 2013 and to cover greenhouse gas-emitting activities in all major sectors of the economy.
In the subsequent election, however, the National Party campaigned on an amended, less-costly ETS. Then, after its election, in November, the National government established an all-party review committee to examine Labour’s scheme and make recommendations.
In August this year, the government itself announced an emissions reduction target range of 10% to 20% below 1990 levels by 2020, even though New Zealand’s gross emissions already exceed those levels by 24%. It was said that the target range showed that New Zealand was prepared to do more if other countries did the same, with a parallel aim of aligning New Zealand’s climate change policies more closely with Australia, its major trading partner.
The range of views found within the country when considering the complex range of climate change issues is reflected in the fact that, while the review committee itself made a total of 34 recommendations, there were also minority reports from four parties.
The Review Committee majority report recommends to the government that:
“New Zealand takes action now to reduce its emissions and sends a credible signal about the direction of future policy in order to protect our international reputation, particularly in the areas of trade and tourism.”
In particular, the majority report examined the relative merits of an ETS or a tax on carbon or energy, and concluded by signalling its preference for the former.
It stated that:
“A carbon tax might mean more certainty, especially in the short term, regarding the price of emissions if the government kept the tax rate constant. An ETS would provide more certainty over emissions reduction (by creating a financial incentive to reduce emissions). A level of price certainty for participants (but not the government) could be achieved under an ETS using a price cap.”
It was considered that an ETS “is more effective and is thus the preferable response for New Zealand. Our preference for an ETS sits in the context of New Zealand’s being a party to the Kyoto Protocol, which creates an international emissions trading framework.”
The report further noted that ETSs are emerging as the preferred response to climate change internationally.
The review was additionally of the opinion that:
“An ETS would be more economically efficient than a tax, because it would allow New Zealand to access the international emissions market which generates changes in emissions prices. Incentives to reduce emissions could thus respond far more easily to changes in the international price of emissions."
"Under a tax, there would be a lag while the regulator changed the tax rate, and the resulting mismatches between the international and domestic emissions prices would mean the New Zealand economy would either forgo economic emissions reductions units or take on uneconomic ones. The carbon tax process lacks transparency, because regulators cannot predict the international price of emissions with any certainty. An ETS would ensure that, in the long-term, should a fully liquid global market develop, New Zealanders did not overpay or underpay for their emissions relative to other countries.”
“Emissions trading,” it concluded, “offers more flexibility for emitters, allowing them to sell or bank units. Under a carbon tax, the emitters’ only options are to reduce emissions or pay the tax. An ETS would give emitters a choice of reducing emissions, surrendering emissions units already held, or purchasing units in a competitive marketplace, thereby funding less expensive reductions in emissions by other parties.”
Within the minority reports, the Green Party, while previously supporting the introduction of a carbon tax, were said to recognised the case for an ETS as an internationally agreed framework. The ACT and Maori parties come down in favour of a carbon tax.
The government has said that it will take its time to consider the recommendations before making any announcements.
New Zealand’s Minister for Climate Change Issues, Nick Smith, stated recently that: "The Government preference remains an amended ETS. It is our ambition is to go to Copenhagen in December with the policy and legislation for our ETS settled."
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