Saturday, November 19, 2011

Wheels falling off the ETS wagon?

Why on earth did NZ follow the Europeans and choose an ETS scheme rather than a simple Carbon Tax option. The logic escapes me.

Two recent articles confirm my opinion and illustrate the "Law of Unintended Consequences".

The first was a Piers McLaren's piece highlighting the planting boom hangover NZ has created in forestry:

"New Zealand’s problem is that we had a massive planting boom in the 1990s followed by very little planting in subsequent years. Steve Wakelin from Scion has calculated that we would need to plant about 50,000 hectares of new land every year, starting in the winter of 2012, to avoid our forest estate becoming a massive carbon source in the period 2023-2038. Why will it become a source? Because this is the logical result of a harvesting boom following one standard rotation after the planting boom of the 1990s. Our forests would pump out up to eighteen million tonnes of CO2-equivalent per year for some of those years. We will curse our forest “sinks”!

The second is a fundamental flaw in our ETS legislation revealed by Rob Stock:

"Motorists are paying up to $25 a tonne for carbon at the petrol pump while the price of carbon credits on the open market is just over $13, leading to windfall profits for petrol companies. New Zealand emitters are able to buy and surrender dubious, but cheap Eastern European "industrial gas" credits, banned or limited in other carbon markets, under New Zealand's Emissions Trading Scheme (ETS) at prices far below the expected $25 level when the scheme was established.

What was supposed to be a tax has morphed into a source of revenue for the oil companies! A host of unintended consequences is inevitable when you let bureaucrats loose to create complicated "market driven regulations".

What was wrong with a simple tax on all energy-based carbon emissions? The tax could be raised or lowered as required to change consumer behaviour. It would be a far simpler and justifiable source of revenue for the consolidated fund than the transaction and capital taxes being debated.

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