Emissions Trading-essential elements

Feature story - September 14, 2007
The NZ government is about to release its proposal for an emissions trading scheme to address climate change.

The emissions trading scheme is just one of a string of tools that must be implemented to tackle climate change. If we want to avoid the most catastrophic climate impacts, we must reduce emissions by 30% from 1990 levels by 2020 and 90% by 2050. Our political leaders need to agree on mandatory emission reduction targets, set a price on all greenhouse gas pollution at the earliest possible date, and instate strong policies to encourage renewable energy, energy efficiency, increased public transport and reduced agricultural emissions.

The following elements are essential for a credible and effective regime:

Robust, science based cap: It is important that the level of the initial cap is determined by the level of emissions necessary to contribute to global emissions reductions that will enable global atmospheric temperatures to peak at an increase of 2 degrees. In the case of New Zealand, this entails a cap that will set New Zealand on a path to an 80-90% reduction in emissions by 2050.  This will create a price on emissions that will help start the process of reducing emissions;

Sinking cap: The cap needs to reduce at a sufficiently rapid rate to set New Zealand on a path to a 80-90% reduction in emissions by 2050;

Reliable inventories: It is essential that businesses are not able to under-state their emissions reduction potential in order to game the system as has happened elsewhere;

All sectors in as soon as possible: In order to ensure fairness and the necessary level of emissions reductions to meet the 2050 target, all sectors should be brought into emissions trading from the outset of the scheme.  The Government should not delay entry of New Zealand's agricultural or transport sectors;

All greenhouse gas emissions as soon as possible: All greenhouse gases, including methane, should be included.  Land managers can change land use to reduce their emissions in much the same way that energy companies can change fuels.  

Auctioning preferred over free allocation: As has been demonstrated by the operation of phase I of the European Emissions Trading Scheme, free allocation of permits tends to benefit shareholders of those firms that receive free allocation instead of addressing climate change or assisting vulnerable people. Auctioning increases the value of the carbon price and therefore improves the business case for decarbonising operations, rather than continuing to emit and buy cheap credits from the market place. Auctioning also provides revenue that enables the Government to invest in climate-friendly initiatives and assist vulnerable people to make the adjustments needed in an emissions-constrained economy;

Social equity: It is important that the Government addresses any social inequity that may arise from a price on greenhouse gas emissions.  This includes insulation and other measures to reduce the energy dependence of households and greater investment in public transport to maintain mobility.