NZ Greens launch new climate policy: replace ETS with carbon tax and dividend

By Gareth Renowden 02/06/2014

The NZ Emissions Trading Scheme has failed and should be replaced by a carbon tax, Green Party co-leader Russel Norman told the party’s annual conference yesterday [NZ Herald, Stuff]. Outlining the Green’s new Climate Protection Plan (pdf) Norman told delegates that the government’s mismanagement had “hollowed out and weakened [the ETS] to the point of redundancy, accelerated deforestation and driven up emissions.” If in government after September’s general election, the Greens would replace the ETS by a suite of policies built around a levy on greenhouse gas emissions, with revenues recycled to business and consumers through cuts in income taxes.

The key points of the new policy are (from the policy document):

  1. Set New Zealand on the path to be carbon neutral by 2050.
  2. Establish a Climate Commission to provide expert and independent advice to the government on: carbon prices, carbon budgets, and complementary measures to achieve carbon neutrality by 2050.
  3. Phase out the failed Emissions Trading Scheme and set an initial price on carbon:
    $25 per tonne on CO2 equivalent emissions for all sectors except agriculture and forestry. Dairy emissions will pay $12.50 per tonne. Forestry will be credited at $12.50 per tonne.
  4. Recycle all revenues raised from a carbon charge back to families and businesses through a $2,000 income tax-free band and a one percent company tax cut. A Climate Tax Cut. Households will be better off.
  5. Introduce a suite of complementary measures to support the rapid transition to a carbon neutral economy.

The tax and dividend scheme has been costed by independent economists BERL (report here). An average household will be over $300 better off per annum.

In addition to the new tax and dividend scheme, complementary measures which will help to reduce greenhouse gas emissions will include:

  • Aiming for 100% renewable electricity generation by 2030.
  • Extending the current home insulation scheme to another 200,000 homes.
  • Low cost loans for rooftop solar installations, and a requirement that power companies pay a fair price for electricity fed into the grid.
  • Incentives for the biofuels sector.
  • No new coal mines.
  • Reprioritise transport spending towards rail, bus and cycle use.
  • A Green investment bank to support low carbon, resource efficient projects.
  • An end to coal and oil subsidies.
  • A certification system for on-farm mitigation of agricultural emissions to allow farmers to claw back some of the carbon tax overheads.
  • A suite of measures to encourage forestry and afforestation, including giving credits for riparian planting to improve water quality.

The government’s mishandling of the ETS has been attracting strong criticism, with Herald economics editor Brian Fallow commenting that the scheme’s integrity “lies in an unmarked grave somewhere”. Recent revelations that big emitters were pocketing free emissions units and selling them at a substantial profit — effectively a direct subsidy of their carbon emissions — makes a transition to a carbon tax look a sensible course of action, though it remains to be seen if the Labour Party, who will be senior partners in any Lab/Green government, will adopt the policy.

One of the most interesting ideas is the creation of an independent climate commission to advise government. This how the Green’s policy document describes it:

The Green Party will establish an independent Climate Commission, composed of recognised experts on the subject of climate change and macro-economic policy. The Commission will become New Zealand’s foremost authority on climate change.

The Commission’s role will be to advise government on:

  1. The emission targets for 2020, 2030, and 2040;
  2. A National Carbon Budget, its component five-year budgets, and the amount that can be carried over between them;
  3. The price and price path settings for carbon;
  4. Complementary measures designed to reduce domestic emissions; and
  5. A national adaptation strategy.

Like the Parliamentary Commissioner for the Environment, the Climate Commissioner will advise government through annual reviews and self-initiated reports.

This has to be a good idea, and I hope it’s one that can find cross-party support. The creation of an independent body to assess the science, evaluate policy and advise government will help to take the politics out of the assessment of the risks climate change imposes. It won’t stop the arguments about policy, but that’s where the political debate needs to be focussed.

Overall, my impression is that this a carefully considered and constructed set of coherent policies that should deliver substantial emissions reductions without causing substantial economic dislocation. By adopting the thrust (if not the detail) of Jim Hansen’s tax and dividend approach, the Green Party has ensured that ordinary voters will benefit from reducing emissions. It will not be popular with the big emitters who have been profiting from a badly run ETS, but that’s probably a good thing.