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Life after the ETS

New Zealand will have an emissions trading scheme. That much, at least, is supported by the major parties
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New Zealand will have an emissions trading scheme. That much, at least, is supported by the major parties.

Which means part of the cost of emitting greenhouse gas will pass from all taxpayers to emitters and consumers. The arguments are now about the timing and the details.

As it stands, the proposed ETS is good for all concerned. Research company Infometrics commented in a report to the Emissions Trading Group of government officials working on the scheme in April this year:

  • The ETS does not cause loss in economic welfare;
  • It is a way of addressing the cost of the Kyoto and future international commitments;
  • By 2025, with a higher carbon price, the ETS will be a more efficient way of meeting these commitments than having no domestic carbon price and the government buying emissions rights from offshore—paid for by higher income taxes; and
  • Higher energy prices and lower taxes are better than higher taxes.

As we debate aspects of the proposed scheme, a decision of great importance will be the country’s emissions cap after 2012, when a new international climate change agreement will replace the Kyoto Protocol.

The latest science indicates the world may not be putting the brakes on greenhouse gas emissions fast enough to avoid major and extremely costly climate changes.

In 2007 Sir Nicholas Stern, now Lord Stern, galvanised policy makers, arguing that failing to invest in cutting emissions would result in an economic catastrophe on the scale of the Great Depression, with up to 20 percent of global gross domestic production being lost. He concluded that one percent of global GDP would have to be invested in transitioning toward a low-carbon economy if levels of carbon dioxide were to be kept between 450 and 550 parts per million (ppm)—the level scientists claimed would be required to reduce the risk of temperatures rising by ‘dangerous’ levels. Now Stern says the latest science suggests the new limit should be fewer than 500ppm.

The ETS will give emitters an incentive to avoid costs—and cut emissions. In turn, that will stimulate or underpin more than $12.3 billion in low-carbon economy investments from new industries in biofuels, biochar and wave energy, to major investments in geothermal and wind power. We will also see huge changes sweep through businesses and households, delivering greater energy efficiency through new design and technology.

In a few years an early and enthusiastic start on the ETS—and the changes that will be triggered—will be seen as a godsend. Not a threat.