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Robin Grieve

ETS – Hot air and cold cash

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The fact that Phil Goff intends funding Labour’s $800 million policy of paying R D tax credits by bringing agriculture’s biological emissions into the ETS two year early in 2013 raises some very interesting questions about the mechanisms of the ETS and its purpose.

Goff stated that delaying the entry of agricultural biological emissions by two years, which National did when it moderated Labour’s ETS, is costing the country $800million. Reversing that change, he maintains, will give him the money to fund his tax credits.

Forgetting the obvious, “isn’t the money supposed to be saving the planet?”Goff is mistaken about the money. He will not get $800 million from agriculture to fund his election pledge. This is because agriculture will not be paying that much under the current legislation and what is more, the money they will be paying does not go to the Government.

Phil Goff’s understanding of the ETS is not clear as his statements on the matter are contradictory and confusing. Firstly he said that delaying the entry of agricultural biological emissions into the ETS by two years is costing the country $800 million. But he also said the $800 million was what agriculture will pay over five years, which must mean surely that by delaying its entry by two years, is only costing only $320 million.

It also brings up the question, why is he including agriculture’s contributions over five years? With agriculture already set to enter the ETS in 2015, three of those years are already accounted for. It is only what agriculture pays over the two years prior to that which is new money. It seems to have escaped everyone’s attention that Goff is counting the same money twice.

Even if we focus on what agriculture pays over two years there is also a large question mark over Goff’s figures. If we conclude that Goff is going to suck $800 million out of the farmers over five years, which is $320 million over two years, he is going to have to make substantial changes to the ETS for this to happen. As it stands now, with a carbon price of $20, agriculture will be paying $64 million per year for its biological emissions, which is only $128 million over two years. Goff, it appears, is planning to increase that by two and a half times. Obviously the carbon price makes a big difference to this equation. In the initial stages of the ETS emitters have the option of paying $25 per tonne to the Government or buying NZ Units on the market. The Government option ceases prior to 2013 and with recent sales of NZ Units at only $14 per tonne, the $25 per tonne option would not be popular.

Even if the changes to the ETS that Goff has signalled, which include making agriculture pay a higher percentage of their emissions and setting a base year of 2005, are enough to suck $320 million out of the farmers over two years, this is not sustainable. John Key’s ETS is set to cost farmers between 9 and 11 % of their incomes. That is a massive cost to impose on any person. Goff will need to increase that to 27.5% of farmers net incomes to get his $320 million. That is a devastating cost and even then he won’t have the $800 million he needs to fund his election promise.

Besides all this, how much money agriculture will end up paying each year is a moot point as far as election spending pledges goes because under the ETS, as it currently stands, none of the money agriculture, or indeed any emitter pays, goes to the Government. This is because the ETS is not a tax, it is a trading scheme. The ETS requires emitters to pay someone to off set the carbon dioxide equivalents they emit above a certain level, and it uses carbon trading as the mechanism to achieve this.

When agriculture’s biological emissions are brought into the ETS, a processor like Fonterra will have to surrender to the Government one NZ Unit for every tonne of carbon dioxide equivalent the milk that it processes is said to have produced. These NZ Units which Fonterra will have to surrender to the Government are created by the Government and given by it to trade exposed industry and to foresters. There is no cash cost to the Government to do this and there is no limit to how many NZ Units they can create and give away.

Fonterra will receive from the Government enough NZ Units to cover 90% of its emissions. It will have to purchase the other ten percent from someone like a forester who has been given NZ Units by the Government. Alternatively it can buy International Units. The NZ Units it was given by the Govt and those it acquires from the forester in NZ or internationally, it then surrenders back to the Government.

The Government gives out the NZ Units at no cash cost to taxpayers and then receives them back. It receives no money. It may deem these Units to be some sort of accounting credit or liability but you can’t fund R D tax credits or debt reduction with a balance sheet entry, you need cash; and agriculture’s entry into the ETS as it stands now, will give the Government none of that.

By thinking the ETS will generate cash that he can spend on non global warming activities, Goff not only demonstrates a lack of concern for the catastrophic global warming that the ETS is supposed to save us from, he also shows no understanding of how the ETS works. Even John Key appears to know little about the ETS and agriculture. Firstly he said that bringing agricultural biological emissions into the ETS early would push up the price of milk. He is wrong, farmers are price takers, they can not put up their prices to cover that expense. John Key also said Goff would get only $350 million over 5 years from agriculture not $800 million. His maths is right but it seems he too mistakenly thinks the ETS is a cash cow for the Government.

It is not, it is simply a scheme where money is taken from the good hard working people of NZ and given to a forester to subsidise his income. These foresters are being paid to plant trees to store carbon because we don’t know what else to do with it. The grand scheme of the ETS is for foresters to store the carbon for 30 years so that our children can be lumbered with the problem.

Bringing agricultural biological emissions into the ETS serves no economic purpose. There is also no environmental benefit because the emissions do not need storing, they are biological; they are sourced from the atmosphere, cyclical and entirely harmless. The money agriculture will pay will subsidise a forest somewhere that we do not need. Nothing else will be achieved.

Annette King thinks agriculture should be in the ETS because she believes the taxpayers are paying for these agricultural emissions now. She thinks it is entirely reasonable for farmers to pay for ten percent of their emissions because the taxpayer will be paying the other ninety percent. She is obviously unaware of Goff’s plan to charge farmers more than this. Along with the Green’s, King and Goff believe consumers and taxpayers are subsidising farmers because they are not paying for all their emissions.

They are quite wrong because no one is subsidising anyone. Goff’s claim that consumers are being hit because farmers are not in the ETS defies reason and is untrue. No taxpayer or consumer money is used to pay for these agricultural emissions now because they cost nothing. Even John Key has said agriculture should pay its fair share, but fair share of what? His mistaken belief, which he shares with King and Goff, that there is something which needs to be paid for, is based on a lack of understanding of the ETS.

Often the Kyoto Protocol is used to claim there is some sort of cost to these emissions that if the emitter does not pay, the taxpayer must. Again this is quite wrong. The ETS and Kyoto are unrelated. There is no link between them other than the ETS was created to try and help NZ meet its emissions reduction targets and to meet its Kyoto commitment.

The first commitment period of The Kyoto Protocol expires at the end of 2012 and there will be no second period. This means NZ has no international liability for any emissions, agricultural or otherwise after 2012. Any liability the NZ Government faces after this will be purely voluntary, and limited to within our shores. In the current economic climate it would be a foolish Government that imposed any costs on its people that are not justified.

For the emissions NZ produces over the years 2008-2012, the first Kyoto commitment period, NZ is in credit 21.9 million tonnes and so has no liability. The taxpayer is paying nothing. Even if NZ’s Kyoto balance was in deficit there would be no need of taxpayer funding because any country which does not meet its obligations in the first period just has to try harder by meeting extra obligations in a second commitment period, of which there will be none.

The Government crows that our Kyoto balance is in credit because of the ETS and the splendid job our foresters are doing. This is untrue. Our foresters are doing nothing more than banking our money.

The only reason NZ’s Kyoto balance is in credit is because of carbon accounting that is fraudulent at worst and smoke and mirror trickery at best.

Under Kyoto, NZ has agreed to limit our emissions to 1990 levels. In 1990 our gross emissions were 61.9 million tonnes and our forestry removals were 23 million tonnes making our net emissions 38.9 million tonnes. Forestry removals in 1990 are ignored and the 61.9 million tonnes of gross emissions are used to calculate our allowed emissions for the 5 years of Kyoto 2008-2012. We are allowed to emit 309 million tonnes, being 61.9 times five. The latest estimate has NZ producing 363 million tonnes of gross emissions over this period, well over our allowed amount. But this deficit is turned into a credit by deducting the 82.8 million tonnes that will be removed by forestry over the five years. This reduces our total net emissions to 280 million tonnes which after a few minor adjustments makes us 21.9 million tonnes below our allowed emissions of 309 million tonnes, which is set using gross emissions.

Forestry removals are ignored in 1990 but included in 2008 to 2012. This makes the Kyoto target nothing more than a farce. The only honest conclusion, environmentally and accounting wise, one can draw from what has happened is that our gross emissions have increased substantially, as have our net emissions increased substantially. Our Kyoto balance should be a deficit but this liability of between $700 million and $1 billion becomes a $438 million credit because of morally corrupt accounting that allows us to meet a target which is set using gross emissions, with net emissions.

Some numbers for you;

  • Gross emissions 1990: 61.9 million tonnes – forestry removals 23 million tonnes
  • 2009: 72.6 million tonnes – forestry removals 26 million tonnes

(The figures above are not an exact representation of our Kyoto balance because not all forestry removals are counted.)

I personally don’t care how much they trick and cheat and delude the global warmers. I also don’t care that the Kyoto Protocol and NZ’s target is completely farcical, but I do care when a scheme like the ETS is created to assist NZ meet a delusional target and takes money from hard working NZers for no purpose whatsoever other than for politicians and global warmers to delude themselves into thinking they are saving the world.

In the case of Phil Goff though, by thinking he will have $800 million to splash out on tax credits, he appears to have abandoned any pretence about wanting to save the planet. The mechanism of the ETS will not allow him to do this though, meaning his R D tax credit policy is unfunded. While we can take some comfort knowing that the hard earned dollars we pay under the ETS do not go to the Government, it is only small, because the over riding shame of it all is that it is costing us lots of money and nothing is achieved. Our money is wasted.