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Brief Counsel

The ETS deal - pure politics

15 September 2009

With the Maori Party on-side, National now has the numbers to push through the revamped Emissions Trading Scheme (ETS) it wanted.  A Bill will be introduced next week and then the Emissions Trading Scheme Review Committee will once more consider the issue.

So what is in the Bill?  And will this finally give the Scheme certainty?

Introduction

National wanted to water down the Emissions Trading Scheme it inherited from Labour and now it can.  The deal struck with the Maori Party gives National more than it probably could have hoped for with the added bonus that it leaves Labour in the lurch.  From John Key's point of view, Monday was a good day at the office.

But by abandoning negotiations with Labour in favour of a fast-track agreement with Tariana Turia, National has ensured the ETS will continue to be dogged by politics.

A grand coalition between National and Labour was possible and would have given the scheme the certainty that only big party bipartisanship can deliver.  Instead the two tribes are now sure to remain at loggerheads over whose scheme is better for New Zealand Inc.  If National is a two term government this may not matter but, if there is any slippage to the implementation of the scheme just announced, come 2014 key aspects of the ETS may still be up for grabs.  Does an election promise to delay agriculture's entry to the scheme seem so far-fetched?

What the deal does

The key features of the Scheme are now:

  • Transport fuels come under the ETS on July 1, 2010, six months sooner than in the existing scheme
  • Electricity and industrial processes come in on the same date, July 1, 2010, six months later than in the existing scheme
  • Agriculture comes in on January 1, 2015, two years later than in the existing scheme.  (The recent Select Committee Review was silent on an entry date for agriculture.)
  • As a transition, between July 1, 2010 and January 1, 2013 the transport, energy and industrial sectors will be obliged to pay for only 50% of their emissions (the taxpayer will pick up the rest of the bill)
  • At least until Jan 1, 2013 the price of carbon will be capped at $25 a tonne for the transport, energy and industrial sectors
  • The transfer of units overseas is prohibited except for units derived from forestry
  • The allocation of free units to trade exposed industry will be on an intensity basis.  How many units an emitter gets free will depend on its performance compared to an industry average
  • The phase-out of free allocations is to be slowed down to 1.3% per year (the same as in the Australian scheme, down from 8.5% under the existing scheme)
  • Forestry provisions remain unchanged, although the Government has reaffirmed its commitment to try to secure international agreement to allow offsetting under which deforestation liabilities can be avoided by planting trees elsewhere.

Just a fortnight ago the Maori Party, issuing a Minority Report from the Emissions Trading Scheme Review Committee, opposed the introduction of an ETS with its "subsidisation of the nation's largest polluters at the cost of households and small-medium businesses."  It wanted a carbon tax instead.  The Maori Party had tried to suppress publication of this Minority Report, no doubt to save itself from the embarrassment of a public u-turn.

But as noted in the last Brief Counsel on this issue a combination of pressure from iwi interests in the primary sectors and the prospect of low income Maori paying higher prices for electricity from January 2010 provided compelling reasons to trade with National.  In the end the Maori Party has traded a lot, although the price it extracted has yet to be seen.  Expect, as one consequence of the deal, a ban on point of sale advertising for tobacco and heavier tobacco taxes.

What next?

The Government is now on track to introduce a Bill next week.  It will get its First Reading on Thursday September 24.  To have the ETS in place in time for the UN Conference in Copenhagen the Government will need to have the legislation passed by December 17, which is just possible if the Emissions Trading Scheme Review Committee, again under Peter Dunne's Chairmanship, allows only limited consultation.  It seems likely submissions will be called for only on selected aspects of the Bill.  Given the Committee failed to agree on much at its last sitting (remember there were four minority reports issued) this next stage will be determined by numbers.  National and the Maori Party and Peter Dunne's United Future together will be enough to ensure the Bill passes swiftly into law.

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