by Bruce Goldsworthy
Next month, on July 1st, our emissions trading scheme (ETS) will ‘put a price on carbon’ so businesses can trade in carbon credits. Energy prices will go up and electricity and gas companies have already sent customers notices to this effect.

Petrol will go up by 4 cents a litre and power to business and other consumers alike will rise about 1 cent a KWh (on average $5 a month for electricity per household, according to Vector).

The ETS has already introduced rewards for ‘carbon sink’ business sectors to do things that remove greenhouse gas emissions from the air. These include forest-planting, and foresters are getting credits for this that they can sell or put aside to trade off against the ‘negative’ effects of cutting down their trees to sell for building materials, furniture and so on.

But according to our surveys of members there’s no business support for New Zealand leading the world with our ETS.

In response to them we have been asking for its delay, at least until Australia introduces theirs. As it stands, from July 1st large emitters will be expected to take responsibility for their emissions by buying credits from people like foresters, with the hope there will be more trees planted and less emissions.

By doing this over the longer term the ETS is intended to incentivise New Zealand firms to produce lower carbon products and services, and hopefully these will be profitable, given the growing global appetite for such goods. Implementing our ETS will supposedly help offset our trade disadvantages, including distance, from international markets. These are some of the reasons why both Labour and National Governments agreed to an ETS in the first place.

Unfortunately, before businesses can invest sufficiently to make such products and capture markets for them, many could find their competitiveness significantly undermined by the ETS, with margins down, jobs lost, and investment capital heading elsewhere.

Seriously lacking is an assessment of the cost to New Zealand of the transition from our present reliance on producing goods and services that result in carbon emissions to circumstances where we can capitalise on making low carbon goods.

Meanwhile our situation is very different from Australia’s: Australia has never had an ETS and it has delayed introducing it relatively easily.

But there are signs that other countries are heading towards putting a price on their carbon emissions. Many governments have signalled their intention to restrain emissions using economic tools.

Practically all developed, and many developing countries are now associated with the Copenhagen Accord that accepts the need to limit the increase in global temperatures to 2°C, though this not a target as such. The Accord says human activity can reverse the dangerous effects of climate change it caused, and emissions trading will do that. However, no targets for emissions reduction have been agreed.

While this is encouraging, New Zealand business did not expect to be an ETS leader; rather they expressly sought the role of fast follower, and the fear is they will be losers under the scheme.

Farmers, high energy users and small businesses will be disadvantaged by higher prices on the domestic and offshore markets and these extra costs will not be borne by our trading competitors. Even our largest company Fonterra will feel the effect to the tune of $38 million or more next year.

Despite the pleas for a delay the Government has ruled it out. Having come to power on the election promise of improving on Labour’s ETS, the National Government’s mandate is not to ditch or delay the scheme – only to improve it, and they remain confident they’ve done that. But the jury is still out whether the improvements are enough.

So we want the review of the ETS which was scheduled for next year, to be brought forward to this calendar year. Improving the scheme’s design is essential.

Problems to fix include the affordability of energy costs, the impact on consumer confidence, its impact on small firms, and insufficient protection for trade-exposed firms. These need to be fixed sooner rather than later.

In addition, if it is to proceed, business needs to see serious moves to offset its cost on our international competitiveness.

We need to be alert too, to what’s happening here and overseas regarding related environmental, market and economic issues, and holding the Government to account on its promise to deliver an ETS that’s fit for purpose, one that actually reduces emissions, and that gives us an international advantage, not disadvantage.