GREEN AND GOLD
27 July 2008Rod Oram
"Australia must lead climate change fight" was the headline emblazoned across the front page of the Sydney Morning Herald on the recent morning the country released the first of two big policy reports on the subject.
Ah, the sweet joys of the honeymoon. Australia is doing the useful but easy bit on climate change: good analysis, bold green papers, waves of public enthusiasm and vague expressions of support from business.
On these, Australia is 20 months behind us, a very long time in climate policy debate. They are where we were in December 2006 when the government released its draft energy strategy followed last September by its proposals for the emissions trading scheme.
As Australians will soon discover, the honeymoon descends rapidly into a bad marriage as heavy emitters and opposition politicians begin fighting their corner.
Here in New Zealand, those bad relationships finally degenerated into dysfunctionality on May 18 when National said it would not support the emissions bill. John Key, party leader, gave six reasons. None stacked up. Three were being addressed in the select committee, as the revised bill testifies, and three were self-evident or irrelevant.
Of the latter, his main assertion was we should wait to see what Australia did with its emissions scheme to make sure ours aligned as closely as possible with theirs.
Well, we have waited. And it does.
Canberra's Green Paper and the Garnaut Report that underpins it match our scheme on the key principles: it will cover all gases and eventually all sectors; all emissions above a prior level (2005 for us) eventually have to pay their full cost; price signals for those emissions will be set in a cap-and-trade system rather than by carbon tax; the national trading scheme will have international links to improve its liquidity and reduce its volatility; trade-exposed sectors will get help to keep them competitive; and the rate of emissions reduction will be adjusted to keep pace with competitor countries.
Some details differ, reflecting some significant differences between our economies and emissions.
For example, agriculture is 49% of our emissions, the heart of our exports and the sector most sensitive to consumer attitudes overseas. In Australia, it is only 16% of emissions and a minor exporter compared to minerals, which are largely insulated from such sensibilities. As a result, Australia has yet to set a date for bringing agriculture into its scheme, although given our leisurely timetable for doing so, they are unlikely to be far behind.
Electricity is similar. While we both plan to put a price on carbon in electricity generation in 2010, the treatment of the sectors will differ in some respects. Again, this reflects the differences. Burning coal to generate electricity accounts for 50% of Australia's emissions. The technology for solving that problem is still a long way off and the country has only a tiny base of zero-emission renewable energy generation.
In contrast, electricity accounts for only 11% of our emissions thanks to the renewables generating some 65% of our needs. In its national energy strategy, the government has set the goal of lifting that to 90% by 2025.
On forestry, Australia will not make owners liable for deforesting their land but we will. Again, this reflects two big differences between the countries. Our abundant trees, thanks to their ability to absorb carbon, are a far bigger asset in our Kyoto accounts than in Australia's. And, the opportunities for turning forests into grazing land for ruminant animals (our biggest Kyoto liability) is far greater here than there.
Australia is also proposing some differences in its trading mechanisms. It is likely to block the sale overseas of Australian carbon credits and block or limit the purchase overseas of some types of Kyoto credits. It is also considering setting both a floor and a ceiling on the Australian price of carbon in the early years of its market. It hopes this will offer some protection if international markets become expensive or volatile.
In contrast, our government believes full access to global markets will allow New Zealand businesses generating credits to maximise their sales opportunities and for those buying credits to get the best world price.
But once again, our heavy emitters, championed by Business New Zealand, are arguing black is white, this time on the question of trans-Tasman compatibility.
"The differences between Australia's planned emissions trading scheme and New Zealand's make them incompatible, and they could not work together as one," said Phil O'Reilly, the lobby group's chief executive. The only solution, he said, was to drop our scheme and adopt the key features of Australia's.
When Wayne Swan, the Australian treasurer, was asked about O'Reilly's view during his recent visit to Wellington for bilateral talks with Michael Cullen, Swan replied: "I was somewhat puzzled by that statement. Both schemes have a lot in common, but we have vastly different economies. The size of agriculture in this economy is vastly different than the size of agriculture in our economy. So there are differences, but there is plenty in common."
In addition to his assertion of incompatibility, O'Reilly identified five things his heavy emitters want which they argue the Australian scheme would give them but New Zealand's won't:
1. The allocation of emission credits based on intensity with no overall cap, rather than on volume within a cap. He's wrong on both parts. The Australian Green Paper makes it perfectly clear theirs will be a cap-and-trade scheme, and therefore there will be limits; and our scheme, like theirs, allows for intensity allocations within the cap.
2. No penalties for land use changes. But in New Zealand that would favour a few landowners at the expense of the economy as a whole.
3. Limited international links for our carbon market. Yet, the tiny scale of this domestic market would hinder its function if its international opportunities were curtailed.
4. Protection for transport fuel users whereby the cost of carbon will be neutralised by a reduction in excise duty. Nice but misleading. Australia is proposing to give such relief for heavy transport users for only the first year of the scheme and for the first three for cars.
5. Implementation of the scheme only if each sector is properly prepared. But again, our scheme has provisions for five-yearly reviews to ensure sectors are not disadvantaged versus their overseas competitors. And ours is far more generous. Our trade-exposed sectors will be given 79% of this country's free allocations; Australian trade-exposed sectors get only 30% of theirs.
Interestingly, National echoes many of the heavy emitters' arguments. So, like them, its "wait-for-Australia" stance has crumbled beneath it. Now Nick Smith, its spokesman on climate change, says National "has no real issue" with 80% of the emissions bill.
If it has a scrap of self-respect left, it will resume co-operation on improving the emissions trading bill and passing it in this parliament. If they don't, they will face a voter backlash at the election.
© 2008 Fairfax New Zealand Limited. All Rights Reserved.
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