The madness of the Government’s new carbon tax is that New Zealanders will be the only people in the world paying it. It will drive up the costs of living and undermine the competitiveness of New Zealand business for negligible environmental gain. A further concern is its impact on inflation, interest rates and the exchange rate. It will add to the costs of fuel and power and these flow right through the economy to basics like food. This puts pressure on inflation, which in turn drives up interest rates and the kiwi dollar. The Government’s carbon tax is a classic example of the way the Government is making things tougher for the productive exporting sector. The worst aspect of the carbon tax is that it will not make one iota of difference to New Zealand’s emissions – Nick Smith 2005
It is hard to believe that the Member of Parliament who led the successful campaign against the Labour Government’s carbon tax in 2005, is the same MP who is going to impose National’s carbon tax on the country next month.[1] Sure, National’s carbon tax has a fancy new name – it is now called an emissions trading scheme (ETS) – but the arguments against it are still the same. While National’s carbon tax/ETS will have no affect at all on the climate, the estimated 5 percent rise in the cost of power and 4 cents a litre increase in the cost of petrol and diesel will force up the price of food, heating, and all other goods and services in the economy. This will put upward pressure on inflation, drive up interest rates, and push up the kiwi dollar, making things a lot tougher for the export sector.
Nick Smith’s 2005 statement highlights the monumental hypocrisy of the National Party – back then, when the economy was booming they campaigned against a carbon tax stating that the country could not afford one, while now, in 2010, when the economy is emerging from the worst recession in years, they are claiming that the country needs one. I suspect that if a nation-wide poll was carried out today, National would be shocked to find that public opposition to the ETS is widespread and is undoubtedly contributing to their fall in the public opinion polls.
In fact, National Party supporters are so worried about the ETS that they have passed remits at regional conferences against it, and many National Party MPs share their concern, only too well aware that as a result of the growing anger amongst their constituents, they may well be destined to pay the price at the ballot box next year.
Unfortunately for National, this issue will not go away. Once the ETS starts on July 1st and the cost increases begin to spread, New Zealanders will feel the pressure in their household budgets. With the increase in GST coming in at the same time and interest rates already beginning to climb, National and their ETS will be seen to be very much to blame.
While the government failed to provide a decent economic analysis of the effects of the ETS, some industry groups have now stepped up. Fonterra, for instance, has calculated that the cost of processing dairy foods is expected to increase by $38 million next year rising to over $100 million a year by 2015, and meat processors have estimated their costs will increase by $10 million from July 1st rising to $20 million a year by 2013. These will directly increase the price of food. In addition, Federated Farmers has estimated that the direct costs to farmers of the power and fuel price increases from July will be around $87 million, but the indirect costs on the whole sector will be in the region of $200 million. Costs of this magnitude will have a dramatic impact on the international price competitiveness of a sector that produces 64 percent of everything New Zealand exports.[2]
In fact, it is hard to believe that a political party that has traditionally represented the interests of farmers can be so determined to penalise them so badly – and these financial penalties on farmers are long before agriculture even enters the ETS in 2015. It is little wonder that there is now increasing talk about the establishment of a new political party to represent farmers. And it is also no wonder that a major protest march to Parliament is being planned for Tuesday 22nd June (to find out more, click here ).
In the run up to the 2008 election, John Key accused Labour of trying to lead the world in climate change and promised that under his stewardship a more moderate approach would be adopted: “National believes that the ETS should not attempt to make New Zealand a world leader on climate change. Kiwis simply can’t afford to pay the price for that particular experiment.[3] In light of that election promise, National’s ETS – as described by Nick Smith in Parliament last year – can only be described as a betrayal: “On 1 July 2010 New Zealand will have the first emissions trading scheme up and running outside Europe, and it will cover more sectors than the European scheme does. We were also the first country in the world to include forestry, in 2008, and we were the very first country in the world to have a plan for introducing agriculture, in 2015. If we can settle our emissions trading scheme by December, we will be at the front end of international action on climate change, and will actually have the most comprehensive emissions trading scheme of any country in the world.”[4]
What the politicians aren’t telling the public is that New Zealand’s greenhouse gas emissions have not increased because we have become bigger emitters, but because our population has grown. This sets us apart from the situation in many industrial nations where populations are falling. In 1990 (the base year for Kyoto Protocol considerations), New Zealand’s population of 3.4 million produced around 62 million tonnes of carbon dioxide equivalents – that is around 18 tonnes per person. By December 2009, our population had grown to 4.3 million, and emissions to 74 million tonnes, which is around 17 tonnes per person. That means that as a nation, our greenhouse gas production per head of population has actually fallen from 1990 levels.
The reality is that emissions trading schemes were never designed for rural economies like New Zealand where 47 percent of greenhouse gas emissions come from the food producing agricultural sector, made up largely of methane, a byproduct of livestock digestion that cannot be reduced. Furthermore, over three quarters of our electricity generation comes from renewable sources (hydro, geothermal, and wind) which cannot be ‘cleaned up’.
Emissions trading schemes were designed for industrial economies like the European Union, which operates the world’s only other bone fide ETS. There, the ETS is not an “all gasses, all sectors” scheme like New Zealand’s, but instead it targets just 43 percent of industrial emissions. It excludes the transport sector, households and small businesses, agriculture, and construction and waste. In addition, the EU scheme is based solely on carbon dioxide (which makes up over 80 percent of their emissions profile) and excludes methane and nitrous oxide which are such a major part of our scheme.
If the National Party had modeled their ETS on the EU scheme, to include only manufacturing and heavy industry, the cost burden on the country would have been minimal (arguably so minimal they would claim that an ETS wouldn’t be worth implementing). But rather than deal fairly, by excluding food producers, households, small businesses and transport, National has lumped all sectors into the scheme (as did the Labour Party that they criticized so strongly) and then has had the gall to claim that New Zealand is a ‘fast follower’ on climate change not a leader! This is a breathtaking misrepresentation of the truth – the reality is that New Zealand is so far out in front that it is simply not possible to be any further ahead!
None of New Zealand’s major trading partners have an emissions trading scheme – Australia’s scheme is now suspended until 2013, Japan’s scheme has been delayed until 2012, the US scheme is stalled, and Canada’s scheme is still on the drawing board. Meanwhile China and India have no intention of imposing any scheme at all that would slow their economic progress.
This week’s NZCPR Guest Commentator, Roger Kerr, the executive director of the Business Roundtable, explains how the call to suspend National’s emissions trading scheme is widespread throughout the business community in his article Why the ETS should be deferred:
“Calls are mounting for the next phase of the government’s emissions trading scheme, due to commence on July 1st 2010, to be deferred. There are strong arguments for a temporary suspension of the scheme. The world has changed since the ETS legislation was passed in November last year. It turned out that political support for an ETS in Australia was lacking. The leaders of both main political parties in effect recognized that in the present circumstances voters were not prepared to bear the costs. In its budget last month the Australian government stated that it would not reintroduce ETS legislation until 2013, and ‘only when there is clarity on the actions of major economies, including the US, China and India’. The government made much of aligning the New Zealand ETS with Australia’s, both as to design and timing. Now there is no Australian scheme with which to align”.
The point Roger makes about recognising that “in the present circumstances voters were not prepared to bear the cost” is crucial. If everyone reading this newsletter takes a stand and makes a commitment to let the Prime Minister and his MPs know that they do not support the introduction of the ETS at this time, National may reconsider its position. After all, as Roger states, suspending the scheme “should not involve any loss of face for the government. Its stated policy has been to move in line with other countries, not ahead of them. There is broad support in the business community for this commonsense approach – nothing New Zealand can do on its own can affect global temperatures. Other governments and, I suggest, most New Zealanders would accept that rationale. The prudent course for the government is to suspend the 1 July measures on a temporary basis, and move if and when other countries do – as it told the country it would.”
Why John Key hasn’t taken a more pragmatic view and suspended the scheme before now is rather a mystery. Imposing an industrial solution on a non-industrial country will always be problematic, especially when there were uniquely kiwi solutions available that could have enhanced our tourism potential, given unemployed New Zealanders work, and gained widespread public support such as the planting of kauri forests on the DOC estate. Such proposals are in line with the thinking of nations around the world, which are increasingly shying away from costly and bureaucratic ETS-type schemes.
The reality is that New Zealanders do not want to live in a country where elderly people sit in the freezing cold because they can’t afford heating, or where families with children can’t afford to buy milk. But unless the public speak up, that’s where we are heading. Everyone who opposes the ETS needs to let National know that they will continue to oppose it until the extra charges on their power bills are removed. The opposition will not stop on July 1st – as National is fervently hoping – but it will grow until the ETS is suspended.
You can email MPs or write to them c/o Parliament Buildings Wellington (no stamp required) but whatever you do make sure they know how you feel. Nick Smith claimed it was people power that defeated Labour’s carbon tax in 2005 – it is people power that is now needed to convince National that they need to suspend their ETS.
FOOTNOTES:
1.Nick Smith, Nelson Marlborough Farming December Column
2.David Broome, ETS or Bust?
3.John Key, Speech to Lower North Island Regional Conference 2008
4.Nick Smith, Oral Question in Parliament