Taxpayers Will Subsidise Polluters Under ETS Changes- Parliamentary Commissioner for the Environment

By Dr Jan Wright -

Posted on Sept. 14, 2012. Listed in:

This is from Dr Jan Wright's( Parliamentary Commissioner for the Environment) submission on the ETS

"Climate change is the biggest environmental challenge we face.

Despite the weaknesses in the current scheme, I continue to believe that an ETS is the right mechanism to price carbon. It possesses the flexibility and potential to drive efficient reductions in greenhouse gas emissions. The ETS, which is the main tool the

Government is using to combat climate change, has already been significantly weakened by amendments.The changes proposed in this Bill will further weaken the ETS.

This is because the carbon market cannot operate without an effective price signal to incentivise changes in behavior.

Changes in this Bill mute the price signal by shifting the burden of cost even more from the polluter to the taxpayer.

Indeed, by making taxpayers subsidise the cost of pollution indefinitely, the

amendments distort the market and limit the incentive to reduce emissions. Thus, they undermine the purpose of an ETS – the economically efficient reduction of greenhouse gas emissions.

Future international agreements are uncertain as the first Kyoto commitment period

ends this year. Nevertheless, at Copenhagen New Zealand set a target of a 10-20 percent reduction in greenhouse gas emissions below 1990 levels by 2020.

The Government has also committed to a 50 percent reduction in greenhouse gas emissions below 1990 levels by 2050.

Even in the absence of a financially binding international agreement, meeting

these targets will require emissions reductions within New Zealand or buying credits offshore. If polluters do not pay for this, then the taxpayer must.

The Ministry for the Environment has estimated that the direct cost to the taxpayer of the proposed changes is around $330 million over the next four years. There are two things to note about this figure.

First, it is based on a carbon price of $6/tonne. However, at the price carbon was just over a year ago ($19/tonne) this figure would be a billion dollars. Second, the Ministry for the Environment estimate accounts for just the changes proposed in this Bill, not the full cost of a billion dollars. Second, the Ministry for the Environment estimate accounts for just the changes proposed in this Bill, not the full cost of all subsidies under the ETS.

Such an approach is locking New Zealand into a high carbon future, weakening incentives for innovation and green growth, and risking New Zealand’s clean, green reputation"

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