Saturday, September 22, 2007

Carbon Trading in New Zealand

The New Zealand government last week announced its latest climate change policy aimed at reducing carbon emissions towards the levels agreed under the Kyoto Protocol. It's a cap-and-trade scheme, which will be phased in for different sectors. Forestry will be the first to participate from next year; transport and major industy enter in 2009 and 2010; while agriculture (responsible for about half New Zealand's emissions) will have no commitments until 2013.

Even with the emissions measures in place, New Zealand is predicted to overshoot its Kyoto carbon emissions targets for the 2008-12 period by about 25.5 million tonnes.

The best analysis is from blogger No Right Turn , who looks at some of the implications as well as identifying some gaps and omissions. There's also a link to the full government document, The Framework for a New Zealand Emissions Trading Scheme. I guess at some point I'll be a good citizen and wade through it.

The Green Party and environmental groups such as Greenpeace criticised the announcement as too little too late, but the policy at least appears to have broad political support. Many of the proposals are similar to those in the 'Blue-Green' position paper released last year by the National Party -- who along with United Future and New Zealand First helped torpedo previous climate change measures such as a carbon tax and a 'fart tax' on animal methane emissions.

There are specific long-term targets for renewable energy and tree planting, as well as vaguer aspirational goals for things such as widespread use of electric cars.

Costs to the fuel and energy sectors are expected to be passed through to consumers, meaning an estimated 4-5% increase in petrol prices and power bills starting in 2009. The government has already promised that it will seek to compensate people on low incomes for these increased living costs.

Instead of further bureaucratically-managed subsidies, one option could be to cut tax from the first $5-10,000 of individuals' income. This is actually a Green party policy, but is also favoured by many economic liberals because it is simple, transparent and provides the right incentives. It removes tax from desirable things (earnings from work) and applies it to undesirable ones (emissions).

However, such an income tax cut is normally suggested as a tit-for-tat swap in conjunction with a carbon tax, rather than alongside a cap-and-trade scheme. Ironically, while some centre-rightists are now suggesting a carbon tax to be the most sensible anti-emissions measure, it is this part of the political spectrum which has consistently trashed the idea whenever it has been proposed.

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