Jun 19, 2008

Brian Fallow On The ETS

Brian Fallow writes another thoughtful article on the proposed Emissions Trading Scheme this morning.

We quote some key segments which NZ First and Labour back benchers should pay particular attention to:

Households, however, are beset by rising petrol prices, food prices and mortgage bills at the same time that employment and house prices are falling. They need an additional cost like a hole in the head.
Small- and medium-sized businesses, facing some of the same costs and the challenges of an economy which may well be in recession (if so it won't be official until September), can be forgiven for feeling the same way.
So they are unlikely to be impressed when the Sustainability Council and others point out that as the costs are rolled out on to emitters it is households, small businesses and road users who will bear 90 per cent of the load - even though they are responsible for only about a third of emissions.
And there's the rub. Most of New Zealand's emissions come from trade.


The first group to be pinged for every tonne of their emissions is domestic electricity consumers, from the start of 2010. The big trade-exposed ones like New Zealand Steel and the Rio Tinto aluminium smelter will be sheltered against 90 per cent of the ETS-related increase in power prices.
The rest of us get no such break, and in fact the impact will be amplified by the fact that thermal generators, which will face carbon costs, have a disproportionate influence on the wholesale electricity price.
Road users face the full force of carbon pricing from the start of 2011.

Fallow also raises some interesting points about what is in effect a massive subsidy programme for the trade exposed sector - agriculture in particular. He doesn't ask this, but are we certain that we aren't causing another huge international trade problem for ourselves? If we can find a way to channel a huge subsidy to agriculture won't the US and EU be quick to follow suit? If they do, does it really matter if we get an outcome from the Doha Round?