Catherine Beard: Low-cost options could create breathing space

Buying carbon credits would be an expensive option. Photo / Greg Bowker

There are probably many people in New Zealand under the mistaken impression that the emissions trading scheme is on hold pending a review by a special select committee. Unfortunately the legislation remains in force despite the review and is due to start hitting industrial companies and increasing electricity prices in seven months' time unless the government moves soon to suspend the scheme.

There are growing calls for the start date of the scheme to be put back, at the very least to reflect the fact that the Australian scheme (should it get through the Australian Senate) has gone on hold until July 2011.

A postponement of the scheme would allow time for a better scheme to be devised and allow us to see what happens at the negotiations for a new global agreement at the end of this year in Copenhagen. Presently the prospect of a new global agreement, which includes both developed and developing countries, looks slim.

Developing countries are demanding big financial incentives to join in the efforts to reduce emissions. They want much more ambitious emission reduction goals from developed countries (in the region of 40-60 per cent emission reductions by 2020) and significant transfer of technology and funding for adaptation.

India, China and other developing countries have asked for 0.5-1 per cent of the GDP of the industrialised countries to take dramatic emission reduction action. Considering the 2008 GDP of the OECD (Organisation for Economic Co-operation and Development) countries was $30.34 trillion, this works out to $150-300 billion - annually. It is hard to see this sort of wealth transfer getting much traction in the current global economic recession. Voters in industrialised countries are worried about keeping their jobs and maintaining their existing standard of living.

Most New Zealanders probably don't realise that the way the emissions trading scheme is currently designed, there will be a large transfer of wealth from New Zealand companies to developing countries because there will not be enough emission credits available for purchase in New Zealand. This is because foresters that take up the opportunity to earn credits (which they could then sell to emitters), would be well-advised to put them in their top drawer to pay for future liabilities when the trees are harvested.

New Zealand companies will be forced to go to the international carbon markets and buy credits from the "Clean Development Mechanism", which are issued in exchange for investment in carbon reducing projects in developing countries. This is likely to cost New Zealand companies less than investing in energy efficiency in their own plants, because in most cases this investment has already taken place.

However, buying credits from developing countries will be a much more expensive option (currently around $27/tonne, which will cost householders around $170-330 a year in extra energy costs) than some other domestic ideas being proposed. The Automobile Association calculated that we could meet a Kyoto Bill of $593 million with a fuel charge of 2c/litre, which equates to about $8/tonne CO2e (which they would support providing there was a corresponding reduction in other excise levies).

And Solid Energy put forward a proposition that we could meet our current and any future obligations for about $1/tonne levy on all greenhouse gases, if we used the money raised to plant new trees on conservation and private marginal land prone to erosion.

These sorts of low-cost solutions are well worth investigating as a way to meet our international obligations without causing a transfer of wealth out of the country and costing jobs. They would also give us the breathing space to design a better emission trading scheme if that is the way the rest of the world eventually decides to go. Once investment goes to other countries and plants are closed, it is extremely hard to reverse.

Some will argue that by choosing one of the lower-cost options we put all the cost on taxpayers rather than emitters, but the alternative is an expensive emission trading scheme that ultimately leads to a low wage and low employment economy, as our industry struggles to compete with countries that have no price on carbon.

Economists in New Zealand have predicted that anywhere from 25-55,000 jobs could be at risk with the current emissions trading scheme, because our firms will become less competitive internationally against those that do not include a price of carbon in their cost of doing business.

Let's hope the government and the select committee review get the message that the productive sectors of the economy have been sending them and look for a "least regrets" way to meet our obligations. In the meantime, they need to suspend the current scheme without delay.

* Catherine Beard is executive director of the Greenhouse Policy Coalition, representing a range of companies in the industrial processing industries.