Business NZ: hands off our ETS handouts

Why is Business NZ putting its proverbial head above the parapet and expressing a view on the New Zealand Emissions Trading Scheme (the NZETS)? In this post, Simon Johnson argues that the ETS gives us the “Eyes Glaze Over” syndrome as it is a dead horse being flogged by the usual suspects. The NZETS is toothless by design. In both respects, Business NZ has got the Emissions Trading Scheme exactly how they want it.

Phil O’Reilly, the CEO of business lobby group Business NZ, has just written an opinion piece in the Herald on the New Zealand Emissions Trading Scheme (the NZETS).

I think I can guess what you are thinking.

“Oh no, an article about the NZETS…just the mention of it sucks the life out of me. I bet it has attracted a whole lot of crackpot denier comments. It’s so complex and full of jargon I don’t really know what to think about it. I find the whole subject just a turn-off. My Eyes are Glazing Over.

This is the entirely natural MEGO response, but you need to fight it! Most discussions of the NZETS descend into flogging the dead horse in order for the snake to swallow the elephant in the room sort of circularity.

We need to realise that this ETS inertia works to the advantage of the parties who gain from the current NZETS. That is of course, the big emitter business members of Business NZ. So, obtain a coffee or other stimulant and read on. I can help you through this. I have waded through Phil O’Reilly’s NZETS musings so you don’t have to.

At first reading, Phil O’Reilly’s article seems a confusing mix of criticism of the NZETS but it also includes some praise.

The criticisms: NZETS policies are uncertain, there has been lost of tinkering and amending – this is bad for investors and even low carbon investors.

“We need to stop the politicking, get the settings fixed, and just let the ETS get on with it its job.”

The praise:

“The framework is fundamentally sound and capable of allowing a stronger price signal to flow through once the international carbon market revives…Major design changes at this point are unnecessary since higher carbon prices are almost certainly on the horizon, especially if Europe recovers.”

What on earth is Phil O’Reilly on about? I can’t decide which is further from reality; that the NZETS has a sound framework, or that the European economies are about to recover!

However, facts and internal consistency just don’t matter in a business op-ed about the NZETS. A bit of criticism is a useful dog whistle to the fringe of climate change deniers. Sure enough, they pop up in the comments section including Hot Topic’s favourite energy expert Bryan Leyland. The wingnuts perform the function of making Phil O’Reilly look centrist and therefore reasonable.

And, according to the flogging the dead horse theory, it doesn’t matter what you say about the NZETS, the mere mention of it induces ennui. So the more yada yada yada, the better.

But let me focus on the bottom-line meta-message from Phil O’Reilly. It is “Hand offs the generous free allocation of emissions units to emitters” as indicated in this quote.

“The allocation of free units allowed under the ETS is not a subsidy but a necessary protection against an uneven playing field.”

Business NZ have a history of lobbying very effectively against having an effective carbon price. In particular, for the NZETS, they have lobbied very hard and successfully for generous free allocation of emissions units to big emitters. Its useful to look back at the history of this.

In 2005 Business NZ opposed the proposed carbon tax. They succeeded in getting the tax withdrawn. Clearly, the carbon tax didn’t have enough exemptions.

In 2006, Business NZ started “a project to develop a framework for emissions trading”. Partners were Business NZ members (and big emitters) Genesis Energy, Mighty River Power, Contact Energy, BlueSkope Steel, Solid Energy, Comalco (now Rio Tinto Alcan NZ), Fletcher Building and Fonterra.

Why were they doing this? Phil O’Reilly said “It’s important that the system doesn’t harm business competitiveness, and hopefully it can actually enhance competitiveness.” One part of the project was to “evaluate and make recommendations on emission credit allocation schemes for different sectors”.

In other words, by 2006 Business NZ had already evolved what was to be a highly successful tactic; over-emphasise the competitiveness risks to the big emitters and lobby for generous free allocations of emissions units to the big emitters.

In September 2007, Helen Clark’s Labour-led Government released its draft NZETS Framework. In this framework, the free allocation of units to eligible industrial emitters was to be equal to 90 per cent of 2005 emissions plus electricity consumption up to 2012, then decreasing annually on a linear basis so allocation ended in 2025, with no allocation to new industries.

In April 2008, Business NZ said the proposed NZETS allocations did not sufficiently protect the competitiveness of businesses. They catastrophically predicted that the NZETS would would cause 28% to 32% contractions of sheep and wool farming, dairy farming and processing and metals production, causing the loss of 52,000 jobs.

By 2008 Rod Oram was describing their approach thus.

“Business New Zealand says it supports an emissions trading scheme. But it’s now clear it means one that transfers most of the costs to consumers and taxpayers.”

Business NZ were not even trying to deny this. Passing the cost of the Kyoto Protocol onto taxpayers had been an explicit policy since 2007 when Phil O’Reilly said:

“The government needs to meet the 2012 liability itself rather than multiply its cost many times by passing on to businesses.”

Labour stuck with 90% of 2005 emissions for free allocation and the 2025 end-year in the Climate Change Response (Emissions Trading) Amendment Act 2008 which became law in September 2008. Business New Zealand spat the dummy at not getting its way. Phil O’Reilly described the NZETS as “deficient”,”a risk to our economy” and an “example of poor law-making”.

In 2009, the new National Government reviewed the NZETS, and then adopted amendments to it in November. Brian Fallow noted that the large industrial emitters had got three big wins: a price cap of $25 a tonne to 2012; allocation of free units based on an intensity basis; a more gradual phase-out of free allocations at 1.3 per cent a year not 8.5 per cent.

Phil O’Reilly of course agreed and said “the Government had listened to business concerns about potential economic damage by providing for a more measured transition into a full trading scheme, while still placing a price on carbon.”

In February 2010, Business NZ submitted on the development of Industrial Allocation Regulations in their by now time-honoured way, of emphasising free allocation to emitters:

“In the absence of other jurisdictions having emissions trading or carbon taxes, officials need to err on the side of generosity when developing the specific detail around the allocation of free units.”

Fast forward to April 2011 and in Business NZ’s submission to the David Caygill review of the NZETS they recommended that the $25 price cap and the 1:2 part obligation (which were due to end in 2012) be kept for ten years and that the start of phase out of free allocation be delayed until 2018.

In November 2011, when the David Caygill review announced it was recommending slower implementation of the NZETS, Business NZ said the slowdown was welcome but not enough.

In April 2012, the Government announced its intention to keep the $25 price cap until at least 2015 and to have a slower phase out of the 1:2 part obligation to 2012. In other words, they met Business NZ almost halfway.

I think it’s clear from this review that Business NZ has always taken a tough negotiating position on the NZETS free allocations. They work out what they can reasonably expect, then they always ask for more concessions above that. Then they complain vigorously when they don’t get everything they want.

Hence their op-eds seem confusing, contradictory and act as honeytraps for crackpots. But it doesn’t matter, as any discussion of the NZETS is enwrapped in a veil of flogging the dead horse. Yet more proof that the ETS in NZETS really does stand for “Emitters Trading Scheme”.