10 April 2008
As the dark clouds of a possible recession gather on the horizon, the prospect of facing increased fuel and electricity costs as a result of the most ambitious emissions trading scheme in the world is certain to be adding to business pessimism, according to the Greenhouse Policy Coalition.
The Finance and Expenditure Select Committee is currently hearing submissions on the Climate Change (Emissions Trading and Renewable Preference) Bill, and many risks of being an early mover are now being exposed, according to the Greenhouse Policy Coalition, which represents many large industrial companies in the energy intensive sector.
Executive Director of the Greenhouse Policy Coalition, Catherine Beard, says that one of the great risks with the Bill is that due to the haste to get a scheme in place, aspects of the legislation will be quite an experiment, which could lead to unintended consequences.
“We will be the first country in the world to attempt to include every greenhouse gas in an emissions trading scheme by 2012. While this could make a lot of sense if every other country were imposing the same costs on themselves, it puts New Zealand at a competitive disadvantage if they fail to follow our lead.”
“In addition, if other countries do not include agriculture and forestry units in their schemes, as is the case in the largest carbon market, the EU ETS, who are we going to be able to link with in order to reduce the risk of carbon price volatility and a lack of liquidity in our small market?”
Catherine Beard says at this point in time we don’t even know what the Australian scheme will look like and whether our emission units will be compatible enough to enable trading between the two schemes.
She said another major risk was what the price of carbon would be. “New Zealand will be a price taker on international carbon markets and the price of carbon is a big unknown. Many analysts in the carbon markets are predicting prices on the high side, in the NZ$30-50/tonne CO2 range.”
Catherine Beard says these sorts of carbon prices will translate into high additional costs for business and consumers, and in the absence of the global price on carbon, New Zealand firms will become less competitive and jobs will be on the line.
“Unless this Bill is changed significantly to reduce the potential for a price shock to the economy, we foresee some tough times ahead for New Zealand companies and New Zealand consumers”, she said.
“Key changes being recommended by the Greenhouse Policy Coalition include delaying the passage of the Bill until we see what the Australian scheme will look like in July, introducing a price safety valve to cap the price of carbon, and measuring industry and agriculture against “Worlds Best Practice” in energy intensity (energy per unit of output) to allow for continuing investment and growth”.