Fran O'Sullivan: ETS go-ahead risks business anger

A sharp critic of Labour policy, Minister Nick Smith is now pushing the ETS scheme. Photo / Sarah Ivey

John Key's refusal to postpone the implementation of the next phase of the emissions trading scheme (ETS) is setting the scene for a 'winter of discontent' with New Zealand business.

In just two days the perception of the Key Government as a climate change laggard has morphed into an unwitting climate change leader as our major trading partners, like Australia and the United States, prepare to defer their own schemes leaving this country out in front of the pack instead of the "fast follower" the PM promised.

Kevin Rudd and Barack Obama are facing domestic political considerations.

Australia goes to the polls this year and Rudd doesn't want Tony Abbott to make headway with the Liberal-National Coalition's 'great big new tax' scare campaign.

In the US, the mid-term elections are fast coming up which is affecting Obama's ability to build support for legislative change.

Problem is that while staying the course may win the Prime Minister political brownie points on the international climate change circuit and help the National Party deflect the Greens at next year's election, it has the potential to undercut the international competitiveness of New Zealand- domiciled businesses.

An early sign of that snowballing domestic business discontent came yesterday with the decision of the Employers and Manufacturers Association Northern (the major shareholder in Business NZ) to circulate a photo of Climate Change Issues Minister Nick Smith under the slogan "The Madness of Old Nick."

Overlaying the photo were some pungent words that Smith made in 2005 when he savaged the former Labour Government's plans for a carbon tax.

"The madness of the Government's new carbon tax is that New Zealanders will be the only people in the world paying it. It will drive up the costs of living and undermine the competitiveness of New Zealand."

The Auckland Regional Chamber of Commerce has been adding fuel to the fire by asking its membership to email Key directly to ask for the July 1 cost hikes to be deferred.

The chamber reckons it will increase electricity prices by 5 per cent and add 4c a litre to the cost of petrol and diesel. Its boss Michael Barnett reckons the cost hikes will jeopardise the profitability of small to medium businesses as they get back on a growth curve after the lengthy domestic recession.

But the biggest push has come from major lobbies acting as a broad coalition.

On March 5, nine business groups, including Business NZ, the Road Transport Forum and the Major Electricity Users' Group, wrote to Key and other ministers to express their concerns about what they saw as the "widening disconnect" between New Zealand's ETS and the policy responses to greenhouse gas emissions among our major trading partners.

As the Business Herald reported, the signatories said they supported the Government's stance that the ETS "should be aligned with Australia's as far as possible" and that New Zealand "should move in line with, not ahead of, its trading partners".

But they said the international environment had changed, particularly now there was no Australian scheme with which to align. There was also uncertainty about the prospects for a US scheme.

Events this week have shown the business lobbies were on track.

But despite the business footprint the nine groups represent, the PM did not do them the courtesy of providing a direct written response.

He deputed that responsibility to Smith.

In an April 7 letter obtained by the Business Herald, Smith staked out his reasons for refusing the business lobbies' request.

He emphasised climate change was a global problem requiring a global solution. Countries had to do their fair share to reduce global emission. Sensibly, he did not hang his hat on the so-called Copenhagen accord.

Such outcomes did not alter the key drivers of the Government's policy.

Among the points that Smith cited to back the Government's stance:

* Market-based approaches such as emissions trading lie at the core of the current Kyoto Protocol. The Copenhagen negotiations reinforced the market-based approach.

* Australia and the US remain engaged in the international negotiations and are continuing to explore price-based and other measures to reduce emissions. In Australia the Carbon Pollution Reduction Scheme (CPRS) remains the Rudd Government's preferred choice.

* The EU is expanding its emissions reduction net.

* Japan and South Korea have indicated they plan to implement ETS.

It was time to bed in the New Zealand amendments. The Government had also provided a buffer for local businesses.

But the most salient point was Smith's assurance the Government would "continue to keep a close eye on international developments, particularly those in Australia, where the CPRS had not yet passed.

He also noted that the first review of our ETS was scheduled for 2011 - and would "provide an opportunity to ensure that New Zealand's climate change policy settings continue to be fit for purpose".

Many in business don't want to wait until next year for the review to take place.

Smith can be an ornery politician. He is not easily persuaded to change his mind on a stance in which he has invested a considerable amount of his own political capital.

But Key has more subtle instincts.

It won't be too long before business starts reminding him of his pledge that National would balance New Zealand's environmental responsibilities.

How long either before his face is emblazoned with pre-election quotes?

Such as "... while we must play our part in the fight against climate change, we shouldn't be the world leader, because that will come at the expense of our economy" or "I see no sense in New Zealand exporting emissions - and jobs - to another part of the world".