Warning of further job losses if govt caps offshore emissions trading

Job losses in the manufacturing sector will be even higher if the government takes the purist approach to emissions trading urged by opponents.

The government has faced criticism from the opposition parties, some foresters and its own officials about the refusal to cap the number of international carbon credits New Zealand firms can buy.

Changes to climate change legislation are working their way through parliament and numerous submitters have urged the government to put some sort of limit on how many carbon credits New Zealand’s larger emitting businesses can buy overseas.

As NBR Print edition reports today the reason is that offshore carbon credits are now cheap because of a combination of over-supply in the European Union and the region’s recession.

New Zealand’s emissions trading scheme has assumed a long-term price of $25 a tonne. International carbon credit prices have dropped as low as $6 a tonne and businesses here have been buying them at these low prices.

That has led to calls for a cap on the purchase of international carbon credits.

The commissioner for the environment has publicly called for such a cap, as have local foresters who are part of the scheme.

However, the calls come at a time the country’s manufacturing sector is already facing huge pressure and some of the largest plants – and biggest emitters – are laying off staff.

Norske Skog’s Kawerau plant and New Zealand Aluminium Smelter’s Tiwai Pt operation have announced large layoffs in recent weeks.

And the country’s’ manufacturing sector faces currency headwinds for its exports. Those looked likely to intensify after this week’s jump in the Australian/New Zealand cross rate, which rose above 80 Australian cents for the first time in 15 months.

Capping the ability of local firms to buy cheaper carbon credits offshore would only add to their costs and see more job losses, Business New Zealand executive director for manufacturing Catherine Beard says.

“We have a lot of big exporters who don’t get any free allocations [of carbon credits] and they are very exposed in that area,” she told NBR ONLINE.

“We went into the emissions trading scheme for a variety of reasons and one of them was to be able to use the world market.

“The whole idea is you have deep and liquid carbon markets, and the big benefit for New Zealand was you could source the least cost emissions reduction.”

New Zealand foresters who are part of the scheme have strongly criticised the government’s refusal to impose a cap on international carbon credit purchases.

In an open letter to Prime Minister John Key, a group of foresters who are part of the scheme – and whose prices are being pushed down by the ability of emitting firms to trade internationally – called for a cap.

Other countries allow firms to buy only up to 50% of their carbon credits overseas and New Zealand should do likewise, the group urged the government.

If the Emissions Trading Scheme Amendment Bill is passed in its current form “there will be no incentive for land owners to plant trees to store carbon, resulting in new planting for carbon being virtually non-existent and greatly increasing the potential for deforestation and its associated environmental risks, including reduced water quality and soil erosion”, the group says.

Papers obtained under the Official Information Act show officials tried to get the government to put a limit on such offshore purchases.

Late last year then-Climate Change Minister Nick Smith asked for analysis of such a cap, and officials reported back just before Christmas that the more stringent any cap on international trade is, the higher the price of buying local units would be.

“One option would be to ban the use of international units entirely. This would force ETS participants to use the price cap for all of their net compliance needs and transform the ETS into a fixed price scheme.”

That would in effect be a carbon tax by the back door, officials say. The proposal was to allow international trade but limit it.

That option has since been ruled out by the government, although there is regulation-making power in the current bill to allow this to be changed by a future government. 

If that happens, New Zealand firms will face higher costs and the country will face the likelihood of further job losses. 

A June paper to ministers noted that, assuming the government wanted the New Zealand price to reflect the international price, there is no need to put a cap on international trade in carbon credits.

Ms Beard says the point of the scheme is firms either reduce emissions or buy credits. Most New Zealand emitters already meet international best practice on emissions reduction.

“If you’re highly energy efficient already there isn’t a lot of scope, barring some technology breakthrough.

“Most of New Zealand emissions come from either agriculture and transport and there simply isn’t any silver bullet there to reduce emissions.”