What happens if you impose costs on your industry that are not faced by their competitors internationally? Your industry becomes less competitive. If industry is already under severe competitive threat the extra costs could force the industry or some components of that industry to shift offshore to a location where operation is more competitive. There are real concerns from many companies that the New Zealand Government's emissions trading regime will force companies, or big segments of some sections of important sectors to move offshore. This is because New Zealand is proposing a policy that covers all sectors and all gases. No where else in the world is proposing such comprehensive coverage.
Aside from some free allocation of credits for some sectors that are deemed competitiveness at risk, the New Zealand policy has no real solution to this problem of industry leakage. Even the CTU, a key support base for the Labour Party, is worried.
Some argue that New Zealand could impose some form of border adjustment to correct the imbalance between New Zealand rules and those that apply in other jurisdictions. The trouble is that no one else is thinking seriously about such a policy, and for good reason - they would probably contravene WTO rules. This very issue has been the focus of discussion in the US Senate Finance Committee in the past day or so. We encourage all those interested in this topic to read the attached article from the Wall Street Journal and the testimonies attached to it.
The Hive favours a policy response to climate change. But we don't want New Zealand to commit economic suicide in this response. It is for this reason that we want to move in concert with our major trading partners.
We think that Government should take the current Kyoto liability on the chin. And put all effort into achieving as comprehensive as possible buy into a new agreement to replace Kyoto (as opposed to Dr Cullen's current plan to have the private sector and individuals pick up some of the cost).
If we really need to do something before the rest of the world, lets work with Australia on a Australasian policy response. This would remove the incentive to relocate production to that major trading partner.
