The Labour Government has just unveiled its market-driven Emissions Trading Scheme, which has the support of other political parties such as National and the Greens. Increasingly it seems that all the parliamentary parties are ‘blue-green’ parties – combining concern for the environment with trivial market-based ‘non-solutions’ to the problems of climate change. [Read more below]
The Green-Labour-National solution to climate change is a cap-and-trade system whereby polluters are encouraged to take financial responsibility for their carbon emissions rather than necessarily reduce them.
Labour has been very successful in dealing with the public’s concern about climate change. Minister for Climate Change, David Parker is positively reported as bringing in a ‘Kiwi solution’ to climate change; the NZ Herald has labelled it ‘an epoch-making change’. And Labour’s plans have gained a new cross-party consensus in Parliament. In fact the carbon trading scheme has been warmly embraced by virtually everyone – including the industries of farming, forestry, as well as business in general.
However amid all the backslapping and congratulations, it is working people that will suffer the most. And it’s climate change that is probably not going to be effectively dealt with.
How the Emissions Trading Scheme works
Supposedly the ETS is about making polluters take financial responsibility for their emissions. The 200 biggest emitters will be able to pay for their emissions through the purchase of carbon permits, which can be traded domestically and internationally. Business will also be able to sell their permits if any reductions are calculated as being achieved.
It is a market-driven mechanism premised on the value of the permits providing an incentive to pollute less. A marketplace will be established whereby all the trading can take place, together with its own unit of exchange - the New Zealand Unit (NZU), which will be linked to the global price of carbon.
A scheme for the rich
The ETS favours business and the wealthy. Essentially, those that can pay the cost can maintain or increase their emissions by buying units. Those that can more cheaply reduce their emission, or who plant forests, will be able to profit by selling their carbon emission permits, regardless as to whether they are a still polluting. As Greenpeace has argued, ‘Major polluters can expect windfall profits under the scheme from free pollution credits’ – see: Taxpayers pay for big business to pollute
Owners of forests will do particularly well out of the scheme because Labour has decided to freely hand out substantial carbon credits to them for their post 1990-planted forests. This is despite the fact that it would have been quite feasible to have retained the carbon credits in a socialised form. These are essentially tax breaks or subsidies for the rich, which arguably should be used for spending in other areas such as climate change research or alleviating poverty. This is why some commentators have suggested that there’s been a lot of carbon horse-trading by Labour to arrive at this business-friendly ETS.
Rich dairy farmers are also getting off scot-free. They are exempt from the scheme until 2013, and even after this date they will be mostly subsidised: the government will pay 90% of their carbon costs. The free credits are the equivalent of tax breaks. This means that the taxpayer will subsidise and protect the current record payouts to farmers. Greenpeace has commented on such generosity to these polluters:
Big energy users will also benefit from free subsidies in the scheme, with the cost picked by the New Zealand taxpayer. Free credits will weaken the credibility and effectiveness of the scheme. "Free credits are the emissions trading equivalent of tax breaks. Every free credit that goes to industry is money in shareholders pockets while consumers not only subsidise the polluting sector through their taxes but also pay increased prices.
However, sometimes the argument is made that farmers should indeed be exempt because they can’t do anything about their emissions. This is erroneous, first, because, the ETS is not designed primarily to encourage reductions, but for polluters to take financial responsibility for them. Second, farmers can in fact reduce their emissions. Farmers’ nitrous oxide emissions – as opposed to their methane emissions – ‘make up about a third of agricultural emissions and, therefore, a sixth of total emissions - roughly twice those from the electricity sector. "And there is quite a lot you can do about nitrous oxide." See: Farmers off hook, for now. In fact, Labour’s carbon trading package doesn’t even seem to mention the nitrogen levy (or nitrification inhibitor subsidy) previously proposed.
An attack on the poor and working people
The carbon trading policy is going to hit the poor the hardest – which is in line with other Labour-Green-National policies. Transport, food, and electricity costs will rise significantly under the scheme. Power bills will rise by up to 10%. Petrol will cost up to 6 cents per litre more.
While the wealthy will be able to easily absorb these cost increases, average-to-poor income earners won’t. And the fact that Helen Clark has made some very vague noises about protecting the poor from the increases, history suggests that the poor shouldn’t feel reassured by that promise. One way or another, the simple fact is that the cost of living will rise for us all, and working people will bear a greater ratio of this burden than the rich.
(Incidentally, it’s worth noting that Labour is also currently supporting Green MP Nandor Tanczos’ Waste Minimisation and Resource Recovery Bill, which is going to push up the cost of residents’ rubbish collection. The bill deliberately seeks to raise the cost of rubbish bags).
An ineffective ‘solution’ to climate change
We have been led to believe that climate change is as serious as the environmental changes the wiped out the dinosaurs. Apparently according to the Prime Minister, the current climate change is akin to the previous challenge of averting nuclear war. Similarly, Finance Minister Michael Cullen says climate change is now the greatest challenge facing the human race. If all this is true, then it’s hard to believe that the mild market measure of the ETS is capable of solving New Zealand’s apparently huge contribution to the problem.
There are a number of aspects of the new carbon trading policy that indicate that it’s an extremely trivial response to this environmental problem. Undoubtedly, the scheme is intentionally pragmatic, in that it’s designed to avoid controversy, and to avoid a backlash from the markets and from farmers. It’s a extremely softly-softly approach to industry.
Not only are forest owners being awarded millions of dollars of credits and farmers being mostly exempted, but bizarrely, the coal mining industry is exempted from paying for fugitive emissions - the methane emissions that escape from coal mines during the mining process. This indefinite exemption is occurring despite the fact that NZ’s Kyoto obligations require that the government pays for these emissions. So yet another taxpayer-funded subsidy for business is being given at the expense of one of the most environmentally destructive processes (despite the fact that we already have the science to deal with these emission).
Not only are the heavy emitters in the agriculture sector not required to join up until 2013, and then are subsidised, but the Government’s background targets for emission reductions are incredibly low. Labour has pushed out any really tough emissions targets until 2040, which some commentators say is so far away as to be virtually meaningless. These targets don’t even meet those goals that the Government signed up to achieve under the Kyoto Protocol, which would have reduced our emissions to below 1990s levels. Labour now admits that they will miss the target by a country mile. The Government originally claimed the Kyoto Protocol would actually reward New Zealand with a $500 million credit, yet the country now looks to have to pay this amount as a fine.
There’s also still a lot vagueness in Labour’s policy package. For example there’s still no forecast or details on when New Zealand will meet Clark’s declared goal of carbon neutrality. As the NoRightTurn blog has pointed out, if Labour are trying to make out that their ‘carbon neutral NZ’ now excludes agriculture, then the National Party actually has a much stronger climate change policy with their goal of a 50% emission reduction (including agriculture) by 2050.
Upcoming blog posts will elaborate on the problematic nature of attempting to use market mechanisms to address environmental issues.