Put a proper price on carbon or we’ll pay a proper price

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As long as governments have a completely free hand, and are backed by vested interests with deep pockets, they’ll screw up carbon policy. They’ll do it at every opportunity. So let’s take some of the levers out of their hands, and give them to someone with a legislated requirement to act in the best interest of all New Zealanders.

Last weekend’s big political news was the Green Party’s unsubtle shift on climate policy. After years of supporting the NZ emissions trading scheme (ETS), they have now decided that it is so irretrievably broken that it should be ditched and replaced by a carbon tax, with — astutely — a matching carbon tax cut for taxpayers and business.

It’s a cleverly constructed alternative to the mess that National has made of the ETS introduced by the last Labour government, but most surprising has been the support the policy has received from right wing commentators. Kiwiblogger David Farrar and — remarkably — even Matthew Hooton (noted for his ability to spit venom about Green policy on RNZ National and not get called on it) broadly welcomed the policy.

It’s hard to find much to dislike. The policy the Greens have put together is clean, relatively simple, with a few fishhooks to be found in the untangling of the current ETS structure and in the treatment of agriculture. But it’s not perfect. To unpick why, we need to revisit some basics and remember some history.

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If you want to cut greenhouse gas emissions, simple economics suggests that what you need to do is to put a price on those emissions. This should send a signal to emitters to cut their output, and direct consumers to choose cheaper, lower carbon products and services. The higher the price on carbon, the bigger the cuts you should get.

If you don’t want to price carbon, then you have to regulate: which is what Obama is doing in order to get round the legislative impasse in Congress and the Senate.

There are two main ways of putting a price on carbon. Straightforward taxation is preferred by economists because taxes are direct, transparent and act across the economy at all levels. Reduce emissions, pay less tax. If you also choose to return the revenue raised to taxpayers — as a tax and dividend, as has been done in British Columbia — then you avoid too much consumer pain.

Emissions trading schemes are (much) more complex, and generally preferred by politicians because they can structure the market to suit lots of different interest groups. There are lots of policy levers for politicians to pull. But that’s also emissions trading’s biggest weakness.

The main failing of the NZ ETS has been the National government’s mismanagement. It’s been too keen to “help” big emitters and agriculture, and too happy to ignore the forestry sector.

The history of emissions policy in New Zealand demonstrates just how lobbying and political whim has shaped it. A carbon tax was on the Labour government’s agenda in 2006/07, but that was dropped because of the Fart Tax protests orchestrated by Federated Farmers. So Labour opted for an ETS instead, with broad approval from National. Though they voted against the final bill, they kept it in place – officially “moderating” its effects under newly-minted climate denier Rodney Hide’s influence. ACT’s preferred “smart green” carbon policy was a tax – before Hide drank Alan Gibbs’ climate denial Kool-Aid and discovered the joys of living in Lala Land.

Labour’s reaction to the Green’s shift has been lukewarm, indicating they would prefer to continue with the ETS, but with the comprehensive mismanagement inflicted on it by the present government, it’s hard not to see the scheme as damaged goods.

The ETS could be fixed: in addition to a price cap, add a floor price and ban cheap “hot air” emissions units from overseas. Boost forestry by requiring some or all surrendered units be NZ sourced. Reduce the amount (and timescale) of grandfathering existing high emitters. Bring agriculture into the scheme as soon as possible.

Sounds complicated? It is – but the ETS structure is in place, and can be tweaked by changing policy settings rather than legislatively demanding scrap and replace. But that’s also the weakness…

As long as governments have a completely free hand, and plenty of vested interests as backers, they’ll screw up carbon policy. They’ll do it at every opportunity. So let’s take some of the levers out of their hands, and give them to someone with a legislated requirement to act in the best interest of all New Zealanders

One key part of the Green policy that hasn’t received much attention is the proposal to create a Climate Commission to advise government. Something like this already exists in the UK — the Committee on Climate Change — tasked to provide “independent, evidence-based advice to the UK Government and Parliament”. Tony Abbott’s government in Australia has just defunded a similar body, the Climate Council, only to find that it refused to go quietly, successfully crowd funding its own continuance.

Creating a body with the statutory duty to advise government on climate science and international actions to reduce emissions is a good idea because it takes the politics out of the assessment of risk.

In the case of economic policy, we are happy (at least, up to a point) to give the governor of the Reserve Bank of NZ — ostensibly a politically neutral person — the power to set interest rates, the single most important economic policy setting.

When it comes to setting climate policy we should do the same: give a politically independent climate commissioner the power to adjust the carbon tax rate to reflect the severity of the emissions reduction challenge the country faces — based on a credible carbon budget, taking into account the international context.

The Green’s Climate Commissioner would advise government. We should have the courage to go further, and take climate policy setting out of the hands of the partisan and the easily bought, and put into the hands of a body that is required, by law, to act on the best evidence and in the interest of all New Zealanders — not just those with politicians in their pockets.

6 COMMENTS

  1. Thank you for a clear explanation of the alternatives and a timely reminder of the historical precedents.

    This paragraph says it all:
    “As long as governments have a completely free hand, and plenty of vested interests as backers, they’ll screw up carbon policy. . . . . So let’s take some of the levers out of their hands, and give them to someone with a legislated requirement to act in the best interest of all New Zealanders”.

    I absolutely agree.

    There are both large and small-lot forest owners in NZ with trees approaching harvest-size who are currenly in limbo and have been that way ever since National came to power.

    For a while, before the Nats came to power, it looked like selling the carbon credits generated by mature forests could be an alternative to felling the trees. That is, leaving the trees standing as “carbon sinks” and being paid to do so, was looking like it might be a viable investment option for forest owners. It seemed like it might be good enough for at least some of the owners/investors and it certainly would have been good for the planet.

    Then the newly-elected National Government killed the value of NZ-generated carbon credits by a totally dumb change of policy that allowed cheap overseas-owned credits to flood the market. The value of NZ-generated carbon credits dropped through the floor overnight.

    Can’t think of a better reason why the levers MUST be taken out of Government hands.

  2. “Creating a body with the statutory duty to advise government on climate science and international actions to reduce emissions is a good idea because it takes the politics out of the assessment of risk. ”

    Just as long as they don’t stack the body with their buddies and closet climate deniers. In the interests of balance of course.
    Unless they follow the proper 97% to 3% ratio.

    Personally the Brit Columbia model appeals to me. Simple, straight-forward, works for everyone equally. The Green proposals sound like more work (and pay) for the accountants.

    • Where do you base your 97% figure from?
      Which flawed study supports your view that there is a 97% consensus about something (as yet undefined) and how do you determine that these people support this position?

  3. The revenue is going to have to come from somewhere to deal with increasing roading repairs and rail repairs (eg. Gisborne line washout) from extreme weather events.
    Long term, the relocation of the capital to Taupo will cost a few dollars – better start saving up for that now and getting that revenue from carbon emissions seems appropriate.

  4. Conserving fossil fuels is a good idea, mainly for what better use we could put them to other than what we currently do
    But as far as cutting emissions to ‘save the planet’ or what ever BS scam ETS or carbon tax are NOTHING is going to stop the 30 – 40 year time lag humans have to survive through, the human habitat can not survive these current temperatures (much longer) let alone what is coming in the near future, El Nino could force another degree Celsius on the atmosphere this year … hold the press on this one;)
    So cutting fossil fuel use so we can use it for medicines and food production = good but to late.
    For saving the planet = futile and uninformed, and 100 years to late.
    And for saving humans long term (another generation or 2) forget it, our collective goose is cooked.
    But voting will help ……….. now where is my beer.

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