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Sustainability Council is right...and wrong

25 June 2008

Catherine Beard, executive director of the Greenhouse Policy Coalition, representing the energy intensive sector on climate change issues, says environmental lobby group the Sustainability Council, is right that the emissions trading Bill before Parliament needs significant changes before it becomes law, but is wrong in its assumptions about the Bill providing subsidies to business at the expense of consumers.

In a report released on 24th June, the Sustainability Council claims that the emissions trading bill provides millions of dollars to large industrials in free allocation of units, and that this so called “corporate welfare” is a subsidy from other consumers.

Catherine Beard, executive director of the Greenhouse Policy Coalition says this is a misrepresentation of the facts, because any free allocation of carbon units dispensed by the government comes from the United Nations allocation of units to New Zealand as per our Kyoto Protocol agreement.

“These units are called AAU’s, and they are allocated at no cost by the United Nations.”

“The United Nations, under the Kyoto Protocol, allocates freely a number of units to each country, depending on the target they negotiated under the Kyoto Protocol. How each country allocates those units in their economy will be up to each government, but most countries are using the allocation of AAU’s to ensure that their energy intensive trade exposed industry is shielded from the full cost of carbon emissions under emissions trading, to prevent industry becoming uncompetitive internationally against countries that do not price carbon.”

“The problem of leakage is well recognized internationally – and that is where your own domestic industry can not pass on increased costs due to carbon, if other countries are not facing the same costs. The result can mean industry relocates to developing counties where they don’t face a cost of carbon and global emissions increase if the production in the developing countries is more carbon intensive due to lower efficiency and a heavier reliance on fossil fuels.”

Catherine Beard says far from enjoying an economic windfall from any free allocation of units – it is predicted that most industrials will face significant costs, some seriously so.

“The amount of free allocation to industrials in the Bill is capped at 90% of 2005 emissions and now out of that pool has to come an allowance for new investment and growth. This will mean all companies are likely to be short of allowances by at least 10% or significantly more. To characterize that as some sort of corporate welfare is bizarre, when the net effect is a significant cost to a company they did not previously face and that their competitors do not face.”

Catherine Beard says the other concern companies in the industrial sector have with the work of the Sustainability Council is the premise that industry is somehow off the hook and all the cost falls on consumers.

“Most companies in the industrial sector have been doing the heavy lifting in terms of emission reductions in the New Zealand economy. Many are already below their 1990 levels of emissions, despite growth in production (see emission reductions sheet attached). The big emissions growth in New Zealand has come from an increasing population, increased transport emissions and increased emissions from using more fossil fuels in the electricity sector. The industrial sector could reasonably argue they are subsidizing those parts of the economy that have yet to reduce their emissions.”

Catherine Beard says there is one area of agreement between the Greenhouse Policy Coalition and the Sustainability Council.

“The Sustainability Council is right to say the any free allocation should not be set in legislation without reference to what other countries are doing or without reference to whether there will be a new Kyoto Protocol agreement.”

“Industry should not get free allocation of allowances if New Zealand’s trading competitors are all facing a price of carbon. Neither should any allocation be removed automatically year after year, if other countries have failed to price carbon. This is one of many areas in the Bill that needs to be fixed.”


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