Major industrial emitters are to receive well over a billion dollars in subsidies from ordinary consumers for power they buy over the next ten years.
Under the new rules proposed for the Emissions Trading Scheme (ETS), major emitters will be rebated for about 90% of the resulting electricity price increase, while other consumers will pay the full price rise.
This subsidy will come not from Government, but from other consumers. For households, road users and small and medium businesses that are responsible for only a third of the nation’s emissions carry over 90% of the net charges resulting from the ETS up to 2012, and only a little lower proportion for the five years after this.
The subsidy was originally targeted to cover price increases for electricity that, while generated from renewable sources, is still priced up to the level of power made from fossil fuels. However the ETS draft legislation reported back from select committee now proposes the 90% subsidy instead of what would have been about a 75% subsidy. At current world prices for carbon credits of $30/tonne, the proposed payments will total over $1 billion up to 2018, and a similar amount again for the period from 2019 to 2030.
At the same time, the draft legislation has left in place rules that mean gross emissions will be reduced by less than 2% over the first five years of the scheme. It maintains the complete exemption for agriculture over this period when that sector accounts for half the nation’s emissions and has by far the largest source of low cost options for saving emissions – many of them at a profit. Agricultural producers will receive a net subsidy on animal emissions of $1.31 billion up to 2012, after account is taken of the charges they pay on electricity and fuels (again on a price of $30/tonne). Fonterra will in addition receive a subsidy for its energy emissions.
New Zealand needs a way to price emissions so that it can meet its Kyoto Protocol obligations and protect its clean green brand. If the ETS is to be that mechanism, it must pass two fundamental tests:
- It is effective in cutting emissions; and
- It fairly allocates the bill for emissions that cannot be cut but New Zealand is still liable for.
That requires the start date for the agriculture obligation in particular to be brought forward and all emitters paying the carbon charge on the same proportion of their emissions at each point in time, as proportions rise.
Rather than paying subsidies to all major emitters regardless of their individual positions, transitional assistance can be based on there being a clear benefit to the nation in each case. The current rules guarantee a massive transfer of wealth from ordinary consumers to the major emitters before there is any scrutiny of the position of individual emitters.
The end result is low-income families subsidising dairy conversions that are entirely profit driven. This is unsound economics, absent care for the environment, and unsustainable politics.
Climate change is the ultimate leveller: every tonne of emissions counts, no matter where it comes from, and there is no place to hide from its consequences. This also makes it the ultimate democratic issue. That means policies promoted in the name of sustainability have to deliver meaningful gains for the biosphere and be fair.