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Govt abandons fiscal responsibility pledge with ETS changes

BUSINESSDESK: The National Party's pre-election pledge to keep amendments to the emissions trading scheme fiscally neutral has been blown out of the water by the changes proposed in the Climate Change (Emissions Trading and Other Matters) Amendment Bill.

New Zealand Sustainability Council executive director Simon Terry has released new calculations, based on data released under the Official Information Act, to show New Zealand will not only add greatly to its carbon emissions deficit by 2020, but is on track for a massive blowout by 2050.

The outlook, if realised, has the potential to cost future generations of taxpayers billions of dollars and is exacerbated by the indefinite extension of transitional arrangements that shield large emitters from their carbon costs and gives no date for including the agriculture sector in the scheme.

New Zealand has pledged to lower its greenhouse gas emissions by 50% from 1990 levels by 2050, but instead could be more than 140% above that level on current trends, with New Zealand's carbon liability rising dramatically late this decade.

"During the 2020s, an average of more than $2 billion a year would need to be paid to overseas parties in order for New Zealand to meet the obligations its targets require" based on a carbon price of $25 a tonne, Mr Terry says.

For the first four years of the Kyoto Protocol, 2008-12, New Zealand is 51 million tonnes in deficit, worth $1.3 billion at the $25 a tonne upper limit imposed under the ETS transitional arrangements, with around 80% of that liability to be transferred as a bill to future taxpayers, he says.

"If the legislation is changed and the new concessionary arrangements are not terminated before 2020, the consolidated taxpayer position will be minus 94 million tonnes," the Carbon Budget Deficit report says. "That is a sacrifice by the taxpayer of $2.3 billion, or more at $25 a tonne."

If carbon were $100 a tonne, that liability could blow out to $9.4 billion, although the study acknowledges higher carbon prices would spur reductions in carbon emissions in a way not true of current rock-bottom carbon prices, which are affected by a glut of carbon credits from the European Union's ETS.

New Zealand allows emitters to purchase offsetting carbon reduction units from offshore in any quantity. Other countries with an ETS tend to impose upper limits for foreign credits, believing this will make local units more valuable and spur local action to combat climate change.

For the moment, however, there is no binding international agreement beyond the end of this year, allowing the government and its advisers to claim there is no quantifiable liability into the future.

A Treasury paper released for the study says: "It is assumed the ETS has no fiscal impact on debt or cashflows, as the net cash impact from the ETS and international obligations highly uncertain."

As a result of these dynamics, Mr Terry says "it will be all too easy to under-provision for the 2020s harvesting liability and suddenly be caught with a huge bill. The stage is set for a boiled frog syndrome – a debt bomb slowly building up that the accounts provide inadequate warning of until it is too late".

"Governments with short-term objectives could treat ETS debt like funny money and prioritise other spending over paying it off, hoping that it will not seriously any affect until the 2020s."

Mr Terry has produced similar analysis in the past, drawing sceptical responses from supporters of the government's approach to the ETS, which presumes New Zealand should move no faster than major trading partners to combat climate change, since to do so would risk export competitiveness.

However, the latest analysis further demonstrates the fact that officials are forecasting fiscally neutral outcomes by making very large, undisclosed assumptions about the role of carbon-sequestering forest planting in reducing New Zealand's ETS liabilities.

However, Mr Terry says too few foresters are joining the ETS and too few are assuming the future liabilities the government had hoped would rest with them. The most recent proposed changes to the ETS are having a further chilling effect on investment in so-called "carbon farming".

Comments and questions
4

Can Mr Terry explain to us exactly what Canada's future liability is - having just torn up its commitment to the Kyoto nonsense which even its birth mother, Japan, has abandoned.

Time for the Sustainability Council to go the way of most of the other still-born "carbon saving" economic and financial disasters.

NZ is in credit with Kyoto by 51 million tonnes, it is not a deficit as Patrick says. Simon Terry gets a lot wrong.

Our net emissions have increased by 59.5 % since 1990 but our Kyoto target is set as the amount of our gross emissions in 1990. The emissions we measure to mee that target are net emissions. (gross less forestry removals)
That is why despite massive increases in gross emissions and net emissions, we are in credit with Kyoto because our net emissions today have not yet increased to the level of our gross emissions in 1990.
We cheat reallly, but who cares? We could even sell the credit of 51 million tonnes if another country wanted to buy them. This shows the fraudulent nature of these carbon credits.
Any govt that sent money offshore to buy dodgy carbon cedits will be assigned to opposition.

Why are we still measuring liabilities based on whatever happened 22 years ago?

Because the EU has huge credits as a result of the collapse of Soviet-style industry (in the East) post-1990, and the arrival ashore of North Sea gas (in the West) in 1991.

The USA agreed to accept this massive EU benefit in return for the EU allowing carbon trading.

It has nothing to do with global warming.

The Emissions Trading Scam is a nonsense and should be abandonded.
Key should be able to ease us out of our obligations with minimum damage.
liberte