Emission returns penalise like GST

Richard Hayes.

01-08-2008 | Marie Taylor

Amidst all the confusion currently surrounding the Government's proposed Emissions Trading Scheme (ETS), one commentator is remarkably upbeat about it.

Auckland-based Richard Hayes, a director of Environmental Intermediaries and Trading Group Ltd, told the LandWISE conference in Gisborne in mid-May Government's reduction targets are worthwhile.

That's because trading is seen to create a price for polluting which will send a strong signal to the marketplace.

"This signal will act as the catalyst to change people's behaviour and justify the development of technology that will resolve the problem of global warming permanently.

"As soon as people get a bill they think about their behaviour, and what happens is a paradigm shift. Think of what has happened on acid rain for example," he says.

He discussed the impact of carbon trading on farming, and says emissions returns will be like GST returns. "If you get it wrong you will get penalised."

New Zealand is already emissions constrained because it already has an emissions cap in place from 2008-12.

"But I don't know how many people have changed their behaviours," he said.

This emissions cap stands at 310 million tonnes of carbon dioxide, which is the 1990 level of emissions.

Because developing countries are exempt from this emissions cap, such as China and India, it is possible to instigate projects in these countries and claim credits for that.

More than a billion tonnes of carbon dioxide emissions will be avoided through such projects which have already occurred in developing countries, he says.

And it is NZ's right to implement the Kyoto Protocol in NZ without restrictions. "How we comply is up to us."

The European Union and Australia are also getting into an emissions trading system so we are not doing anything unusual, he says.

But the launch of the ETS had done more to confuse people than to inform them he says.

"They haven't accepted that this was inevitable."

He says Treasury modelling suggests a figure of $15/t of carbon dioxide, but already the international price is $44-56/t.

If NZ is fully exposed to the international pricing, the impact of the ETS is likely to be much more significant than portrayed by officials during consultation, he says.

He says if people are involved in post 1989 forestry they can't afford to opt out of the ETS.

"It's like historical fishing rights; if you don't take the right up you have lost it."

At a carbon value of $50/t, and 800t of carbon stored in every hectare of forestry at maturity, that's a cost of $40,000 to the taxpayer if you opt out of the ETS, and the Government covers your harvest liability, he says.

"Anyone suggesting opting out should review the decision.

"Opt in, put the credits in your bedside table, there is no risk and no harvest risk, and there is a potential revenue stream."

Hayes says while gross revenue per hectare could be up to $500/year through NZ's ETS at a level of $15/tonne, international trading could return up to $1440/ha.

He says people should participate in the ETS and use its linking facilities to access international markets.

Meanwhile the costs of the scheme are estimated to hit farmers hard, assuming they get no assistance.

At a cost of $25/t for carbon, dairy farmers, at a payout of $4.56/kg MS would suffer a drop of 5.9% of their income, while beef farmers would lose 10.4% and sheep farmers 16.9%.

If carbon prices increased to $50/t these figures increase to losses of 11.8-33.8%.

That could be all the farming profit, he warned.

"This is very serious stuff."

So he recommended farmers first lobby to sustain assistance from the Government. "There is not enough time to introduce changes that will affect your bottom line profitability."

He also said they should start developing offsets. "I don't know what the solutions are."

Developing electricity from waste was an option for dairy farmers, so was avoiding emissions by reducing fossil fuel use and using renewable sources of energy.

The good news is that the energy intensity of NZ's competitors is much higher. He says NZ's main markets such as the EU and Australia will require emissions neutrality and will have it priced into goods.

"Market products as being able to deliver in a sustainable and carbon neutral fashion," he says.

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