New Zealand's ETS Start-Up Raises Prices

by Mary Swire, Tax-News.com, Hong Kong

02 July 2010

The commencement of New Zealand’s emissions trading scheme on July 1 has already caused price rises for consumers, and drawn substantial criticism of its method of operation.

The ETS, which was finally passed in parliament in November last year, had been subject to amendments. Entry dates were then delayed to July 1 this year for the transport, energy and industrial sectors and January 1, 2015 for agriculture, while a transitional phase was also established from July 1, 2010 until January 1, 2013 in which emitters will only have to meet 50% of their obligations.

The government claimed that the amendments it had made were aimed at making the ETS affordable, by reducing costs to households and the impact on employment, particularly during the transitional period.

In a statement to mark the start-up of the scheme, Climate Change Minister, Nick Smith, said: "New Zealand's emissions per person are among the highest in the world and are growing at one of the fastest rates among developed countries. The ETS is the most efficient and least cost way to bring emissions under control, meet our international obligations and protect New Zealand's clean, green brand.”

"The ETS means those who emit carbon dioxide into the atmosphere from a vehicle, power station or factory will pay NZD12.50 (USD8.60) per tonne from tomorrow,” he added. “Those who plant trees and absorb carbon dioxide receive NZD25 per tonne. The benefits of the ETS are that it will drive investment in renewable electricity, forestry and energy efficiency, and reduce New Zealand's emissions by 19m tonnes by 2012.”

At the same, he confirmed that the changes made in November “halved the power price impact from 10% to 5% and the cost of petrol and diesel from 7 cents to 3.5 cents/litre. The total cost for the average New Zealand household is NZD3.17 a week or NZD165 a year.”

However, Consumer NZ, the independent consumer information group, foresaw a range of secondary price increases to be suffered by the consumer, as fuel and power costs flow through to the retail prices for other goods.

It also pointed out that New Zealand has agreed to reduce its greenhouse gas emissions to 1990 levels by 2012. However, it said, gross emissions are now sitting 22% above 1990 levels and the best estimates are that the ETS will reduce that by only 1% by 2012.

On the other hand, Smith concluded that "it is important New Zealand does its fair share on climate change, but we don't want to get out of step with the rest of the world. That is why there will be a review of the ETS next year, and at regular intervals thereafter, so we can reassess our approach relative to international progress and the latest science.”

The critics have replied that, following the decision by the Australian government to postpone its carbon tax earlier this year, New Zealand’s government is already “out of step”. It has been calculated that 85% of New Zealand’s trade is with countries that do not operate an ETS, or its equivalent.

The Greenhouse Policy Coalition would support the government proceeding with an early review of the ETS before the end of 2011 as “New Zealand companies competing in overseas markets where there is no price on carbon, or competing internally against goods from those countries, will be at a clear disadvantage.”

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