Jun 26, 2008

Industry Speaks On The ETS

Dear Political Leaders and Members of Parliament

The undersigned are writing to you to express on behalf of our collective memberships, and in the national interest, our strong concern at the process underway to introduce an emissions trading scheme via the Climate Change (Emissions Trading and Renewable Preference) Bill. We request the opportunity to provide further written submissions on the vast number of changes proposed in its latest iteration.

The Bill, as reported back from the Select Committee, has not taken heed of the serious concerns raised by those in the productive sectors of the economy, the sectors that generate the export receipts and employment in New Zealand.

In what is one of the most far reaching economic reforms New Zealand has ever attempted, many submitters to the Select Committee were given only 10-15 minutes to present on their concerns, while the Select Committee considered over 60 reports in 12 hours, and had three days to consider over 1000 amendments to the Bill. The Departmental Report on the Bill is longer than the Bill itself. This is a very rushed process for a matter of such great economic significance to New Zealand.

The complexity inherent in the introduction of an emissions trading scheme is immense, even more so when it is the most comprehensive scheme in the world. A scheme including all sectors and all gases is something that no other government in the world has yet attempted, and there is no precedent to follow. A comparison of the only other mandatory emissions trading scheme, the European Union ETS, shows that the New Zealand scheme (because it is much more comprehensive and there are proportionally less free allocations) is five times more expensive than the EU scheme on a per unit basis and 10 times more expensive on a population basis (see attached appendix).

A combination of the emissions trading scheme and the heavy restrictions on new thermal electricity generation are expected to increase the price of electricity by up to 40%. The costs of the scheme will be ultimately borne by households as business will reflect the cost in their prices or be forced to down-size or relocate.

All the economic analysis undertaken[1] indicates the impact on the economy, on jobs and wages will be severe, particularly if other countries choose not to follow New Zealand’s ambitious lead.

As it is drafted, the effect of the Bill will be the loss of industry and agricultural production to other parts of the world where they do not face a cost on carbon, because the Bill fails to adequately address the loss of international competitiveness of our productive sectors.

There will be a transfer of wealth to developing countries as industry and agriculture are forced to buy units from international brokers to cover their emissions, and investment in New Zealand will become less competitive once an additional cost of carbon is factored in.

The reported back Bill fails to provide any safety valve to protect against a high and volatile price of carbon, in an international carbon market that lacks liquidity and where the price of carbon reflects political decisions made in Europe, rather than the least cost emissions abatement.

New Zealand business and agriculture are supportive of the need to take action to contribute to the global effort to address climate change and are prepared to take action. Indeed, many large industrials in New Zealand have already reduced their emissions below 1990 levels. We would be supportive of an emissions trading scheme that puts a marginal price on greenhouse gas emissions and would send a price signal to incentivise on-going improvements in emissions intensity.

If the Bill is passed in its current form, economic analysis shows the result will be increasing global emissions as our productive capacity progressively exits New Zealand, a wealth transfer from New Zealand to developing countries through the purchase of units on international carbon markets, fewer jobs, lower wages, higher electricity, fuel and food bills.
There is too much of importance in the Bill being left to regulation, which is constitutionally bad practice and likely to result in poor policy outcomes. We believe policy of this magnitude should have the scrutiny of the whole of Parliament. In addition, the administration of the scheme is to be put in the hands of Ministers and Officials. We believe a better approach would be an independent regulator, such as mooted for Australia.

We urge all political parties to act in the best interest of New Zealand Inc and take the time to get this complex matter right and we respectfully request that stakeholders now be invited to make written submissions on the reported back Bill.

[1] Castalia, Infometrics, NZIER, Motu, CAENZ

Yours sincerely

Mike Petersen, Meat and Wool NZ Chairman
Tim Richie, Chief Executive, Meat Industry Association
Owen Symmans, Chief Executive, Seafood Industry Association
Phil O'Reilly, CEO, Business New Zealand
John Pfahlert, Executive Officer, Petroleum Exploration and Production Association
Peter Bodeker, CEO, Wood Processors Association
Charles Finny, Director, New Zealand Chambers of Commerce
Doug Gordon, CEO, New Zealand Minerals Industry Association
Roger Kerr, Director, New Zealand Business Roundtable
Catherine Beard, Executive Director, Greenhouse Policy Coalition
Frank Brenmuhl, Board Member, Federated Farmers
Tony Friedlander, CEO, Road Transport Forum
Ralph Matthes, Executive Director, Major Electricity Users Group