Business leaders advise politicians to deliver stable climate change policy

Business leaders tonight called on political parties to achieve a stable climate change policy, based on the country's long-term interests, if they want to achieve a public commitment to reducing emissions.

Nick Main, chair of the New Zealand Business Council for Sustainable Development, submitting to Parliament's Finance and Expenditure Committee on the bill which would set up emissions trading system and ban new non-baseload thermal power generation for a decade, told MP policy makers:

"We can't have a significantly different climate change policy each time we get close to an election. We need you to make wise decisions that have our long term interests paramount."

Mr Main told the committee the business council, whose 73 member companies' annual sales equate to about 34% of gross domestic product in dollar terms, that the council supports the proposed emissions trading system, because it will:.

• help New Zealand manage the transition to a lower carbon emissions world.
• directly incentivise New Zealand emitters to reduce their emissions or sequester carbon where it is cost effective to do so.
• help New Zealand find the least cost way to live within the limits of the global emissions cap and
• most importantly reduce our greenhouse gas emissions to the atmosphere below Business As Usual (BAU) levels. For that reason it is superior to a carbon tax.

Mr Main, also chair of Deloitte, said as the market price for carbon will continually adjust to reflect any change in either the cap or the marginal cost of reducing emissions, a cap and trade mechanism is the only market based instrument that will provide sufficient incentives to help close the gap between our current levels of emissions and the Kyoto or subsequent target.

"On both environmental and cost grounds an ETS is the preferred mechanism worldwide to manage climate change," he said.

The EU already has an Emissions Trading System in place. Australia has a work programme underway to introduce such a scheme in 2010. All three candidates for the US Presidency Senators, Clinton, McCain and Obama are all proposing a cap and trade scheme for the USA. In Japan the major business organisation has withdrawn its opposition to a cap and trade scheme and the Government has commenced work on such a mechanism.

"An ETS, by charging for something that was previously considered free, will increase costs but that is necessary for it to work. It is the Kyoto Commitment supported by all parties in the Parliament that imposes the cost on the country. The ETS is the mechanism for gradually moving the cost from the tax payer to the emitter," Mr Main said.

At the moment taxpayers will meet the full cost of our Kyoto commitments. With an ETS the costs will move to emitters and the consumers of their products providing a direct incentive to reduce emissions.

"Only by devolving the cost of emissions will we bring about a reduction in the level of emissions and hence the cost of emissions we incurred when we took on the Kyoto commitments."

The MPs were told the Business Council supports New Zealand's ETS eventually covering all sectors and gases "because we do not know where the next low cost opportunity to reduce emissions will come from."

"It is true that New Zealand's share of the world's emissions is small even if our per capita emissions are high. However, similar claims can be made for any small groupings of people.

"Despite our size we do have the capacity to influence how the world's climate change policy will evolve particularly in respect of agriculture and forestry. We have an unusual emission profile. Agriculture provides almost 50% of our emissions.

"The evidence from the research undertaken at Lincoln University is that New Zealand products even when transported around the world are less emission intensive that comparable products sourced from elsewhere.

"In a world where every product or service faced a uniform price on carbon New Zealand would not be at a disadvantage but would in fact be more competitive. It is therefore in New Zealand's interest to show that agriculture can be included in an ETS because otherwise we will continue to have competitiveness as risk issues for our agricultural products if our most direct competitors do not face a price in carbon. We don't need every farmer in the world face a price on carbon. What we need is for our closest price competitors in each commodity to face a price on carbon. The world price will then include the cost of carbon," Mr Main said.

The Business Council considers that it would be appropriate to undertake a major review of the ETS in 2012 by which time we will have some information that we do not have now including

- the likely country and sector coverage of the post 2012 climate change agreement
- how the carbon market here and overseas is developing
- what technologies, options and practices we have to reduce emissions.
The Business Council believes the legislation should

- Recognise and compensate for liabilities for pre 1990 forest owners who were not in a position to make harvesting decisions through the 2006/2007 period;

- Establish the upper cap as 90% of 2005 emissions (provided there is flexibility in setting the base year, when a company starts accounting for its emissions, depending on an individual firm's case);

- Not provide any free carbon allowances for new businesses entering the market, encouraging start up businesses to use lowest-emission technology;

- Establish a clear set of criteria for allocating and phasing out free allocations;

- Require the Minister to report on how the plan for the allocation and phasing out of free allocations has been determined against those criteria;

- Remove the current limitations on purchasing emission credits issued as a result of overseas energy producers switching from high-emission coal to nil emission nuclear generation

- Confirm that the current key ETS design features – in particular determining points of obligation which make it either mandatory to take part in emission trading, or to opt in - will have the maximum effect in reducing New Zealand's GHGs

- Determine the timetable for the optimum devolution of the obligation to the farm level given the current mixed views regarding the availability and effectiveness of emission abatement technologies, like nitrogen inhibitors.

"We also think the legislation needs to be very clear about how it plans to mitigate the potentially negative impacts for New Zealand companies facing a price on carbon before their international competitors do. It needs to be made very clear that:

- The initial carbon free allocations are being made to compensate for stranded assets arising from historical business decisions that did not factor in a price on carbon and are therefore not available for new entrants; and

- The mechanism to protect against "Competitiveness at Risk" during the phase out period is a carbon credit allocation - to be phased out at a pace which protects that entity from unacceptable negative commercial impacts where, on a temporary basis competitors do not yet face a price on carbon."
The Business Council also suggests that the legislation does not need to ban new baseload thermal (coal and gas) electricity generation for the next 10 years as an emission-control measure. These provisions should be removed from the bill.

Mr Main said: "A market price on carbon under an ETS will be enough to influence the price of electricity generated by using fossil fuels. The Government should trust in its own market mechanism. There is no need for a ban. A price on carbon should be enough to make energy from renewable sources competitive."

He also called last week's decision to delay the introduction of the carbon price on liquid fuel "unfortunate".

"The changed timetable for exposing liquid fuels suggests that the committee should seek from officials an analysis that examines whether simply trading in Kyoto instruments may now make more sense that creating a separate NZ instrument- particularly if foresters, who can take immediate actions to reduce emissions, will be adversely affected by the lack of demand for credits from liquid fuel importers.

"The most important message from business is that the public knows that we need to reduce our emissions if we are to preserve our quality of life and the success of our trade and tourism. This is a 30 year issue not a three year one but we must start now. We will only achieve public commitment to reducing our emissions if all parties in the parliament support a stable climate change policy that is based on our shared long term interests. We can't have a significantly different climate change policy each time we get close to an election. We need you to make wise decisions that have our long term interests paramount," Mr Main said.

Mr Main also presented the select committee with the latest national research showing 60% of business decision makers supported emissions trading, think it will work, and on what basis heavy emitters should be supported.

This research is available at the Business Council website www.nzbcsd.org.nz