Brian Leyland & Chris de Freitas: Carbon taxes just a money-maker for Governments

Chris de Freitas

The $15 a tonne carbon tax announced this month will bring windfall profits to the Government-owned hydro-power generators.

Crazy as it might seem, electricity consumers will be paying carbon taxes on hydro power. What is more, it will do little to help New Zealand meet its obligations under the Kyoto Protocol.

The carbon tax paradox arises from the fact that under the electricity "market" all generators get the same price as the highest-priced station that is generating.

When burning coal, the carbon tax will increase Huntly's costs by 1c for each kilowatt-hour. Whenever it is setting the price - and this will be most of the time - it will increase the payment to all generators by about 1c a kWh.

If we assume that Huntly sets the price 60 per cent of the time, the carbon tax will cost consumers about $240 million a year. Of this, $150 million will be what is effectively a "carbon tax", which will be imposed on consumers for power generated from hydro and other non-carbon sources.

This $150 million represents windfall profits to the owners of hydro-power, geothermal and wind-power generators. A total of $120 million will be windfall profits by Meridian, Mighty River Power and Genesis that go straight to the Government.

Company taxes on the other generators will bring in $10 million more. The carbon tax will bring the Government $500 million a year, not $350 million.

Government statistics show that New Zealand's greenhouse gas emissions from the energy sector grew by 33 per cent between 1990 and 2002. And the trend is upwards. Emissions grew by 2.7 per cent from 2001 to 2002, up from the average annual growth of 2.4 per cent since 1990.

The basic aim of carbon tax is to reduce the use of oil, coal and natural gas. If New Zealand is to meet its Kyoto commitment, 2012 greenhouse gas emissions must be reduced to what they were in 1990.

Based on today's trends, emissions in 2012 will be about 30 per cent higher than 1990 levels. Thus, to meet the requirements of the Kyoto Protocol, New Zealand must give up a third of its fossil-fuel energy use.

It is clear that carbon taxes and tradeable emissions alone cannot make such a huge reduction. Sweeping legislation restricting the use of oil, coal and natural gas would be required. The economic, social and moral implications of a 30 per cent reduction are immense.

Carbon dioxide is a ubiquitous by-product of modern economies. The carbon fossil fuels - oil, coal and natural gas - provide the most abundant and affordable actual and potential source of energy. The International Energy Agency estimates that 90 per cent of all new energy demand worldwide over the next 20 years will come from fossil fuels.

Arguments against the Kyoto Protocol are not exclusively economic. It is universally accepted by the climate science community that the protocol would have virtually no effect on global warming. Even scientists from the United Nations Intergovernmental Panel on Climate Change (IPCC) are unanimous on this.

The required emission cuts by OECD countries would, according to IPCC climate models, reduce warming by as little as 0.07deg by 2050. Thus Kyoto's effect on temperature would be imperceptible.

Latest research indicates that past and recent fluctuations in world temperatures have a better correlation with variable energy output from the sun than with atmospheric carbon-dioxide levels. If this is the case, carbon dioxide is a minor factor in global warming.

In the past 150 years the world has probably warmed by less than 0.6deg Since 1998, it has cooled slightly, and if the cooling is linked to solar energy decline, this trend will continue.

Because the Kyoto treaty itself will make only a tiny difference to world temperatures in 2050, yet cause major economic hardship, the main effects of the carbon tax will be to increase Government revenue by $500 million a year and reduce gross domestic product.

It won't make much difference to how much coal we burn because, now that we have turned our back on large hydro schemes, coal is the only option we have left.

The truth is that the Kyoto Protocol's targets are not based on science or common sense. Its targets and timetables were arrived at arbitrarily as a result of political negotiations. They are not related to any specific information or long-term objective.

Many environmentalists and governments have realised lately that nuclear power is the only effective way of making major reductions in carbon emissions.

Many policy analysts now believe that going along with the Kyoto Protocol is worse than doing nothing.

It fails to establish long-term goals based on sound science, it poses serious and unnecessary risks to national economies and it won't make any significant difference to future climate.

* Bryan Leyland is an energy consultant, and Dr Chris de Freitas is a climate scientist at Auckland University.