Peter Whitmore: Emissions trading scheme needs meaningful overhaul

It is not just the price of meeting targets that we need to consider, but also the cost of the damage the emissions are causing. Photo / Alan Gibson

True cost of carbon needs to be met and offset within our economy.

Now we have signed the Paris Agreement, our Government wants to continue using the emissions trading scheme as our primary tool to meet our commitment to reduce emissions. But if we continue down this route there are still some major issues that need to be sorted.

Three of these concern the charges made for emissions, the revenue collected from these charges, and the effect of accepting international units to pay for local emissions.

Our emissions charge certainly needs to be sufficient for us to meet our Paris commitment, but our undertaking to reduce our emissions to 11 per cent below 1990 levels by 2030 is weak when comparedwith many other countries. For example, the EU has committed to a 40 per cent reduction over the same period. Hence there is a strong argument that we ought to aim a lot higher.

It is not just the price of meeting targets that we need to consider, but also the cost of the damage the emissions are causing. Estimates for this cost vary, but recently published figures place it at around $300 per tonne. Six years after the ETS came into effect, New Zealand units are still selling for only around $15 a tonne.

Moving towards charges that reflect the damage emissions are causing makes strong economic and moral sense. The sooner we take action, the lower the cost will be and the less damage we will pass on to future generations.

The second point relates to the revenue the Government collects from emissions charges. This is similar to the tax on tobacco products, but collected in a more complex way. Once these charges become significant we can expect the price of goods and services produced using fossil fuels to rise.

To avoid this causing a major increase in the cost of living, the revenue needs to be recycled back to the New Zealand population, but no one is talking about this or how it could be done. One option would be to reduce GST. This could leave the average person with the same purchasing power as before, but more likely to spend their earnings on environmentally cleaner options.

Finally, we come to the Government's stated intention to continue accepting international units to meet local emissions obligations. We have already seen the negative effect this can have when dubious Kyoto units completely knocked the bottom out of the carbon market for several years, making the ETS almost completely ineffective.

The sooner we take action, the lower the cost will be and the less damage we will pass on to future generations.

Beyond that, suppose, for example, the emissions charge rises to $100, but some foreign units are available for $90. Do we then want to use hundreds of millions of dollars from our export earnings to purchase these offshore units, while at the same time reducing the effectiveness of the ETS and leaving all New Zealanders worse off because the funds cannot be recycled back to them? This looks like a lose-lose option.

One example of a country that has taken major steps to tackle climate change is Sweden. They now have a carbon tax over some sectors of their economy of around $200 per tonne of carbon dioxide emitted. Since 1990, their gross emissions have fallen by around 20 per cent while ours have risen by around the same amount. Sweden's economy has continued to grow strongly.

If we really started to take climate change seriously and put appropriate charges on emissions, within a few years we could see almost 100 per cent of our electricity coming from sustainable sources, a major increase in the use of electric vehicles, development of public transport systems that allow people to get to work more quickly and more cheaply and a major move by industries towards using sustainable energy sources, such as wood waste, in place of fossil fuels.

Besides rapidly reducing our emissions, this would also produce many new business opportunities and jobs, as well as starting to seriously cut into the more than $7 billion a year we spend importing fossil fuels " more than half of what we earn from all our dairy exports. What are we waiting for?

Peter Whitmore is an executive member of Engineers for Social Responsibility.