The carbon trading dilemma

Here’s my thoughts on the Emissions Trading Scheme. I’m not a climate scientist or an economist, so I need to admit that I don’t really get all the technical details of how the scheme should work or what the solutions are to the negotiation impasses that Jeanette seems to have reached this week.

I tend to prefer a trading scheme to a tax because theoretically at least a trading scheme limits the amount of carbon emissions whereas a carbon tax just imposes a cost. A trading scheme also allows for a bit of carrot as well as stick. (It recognises that there are economic opportunities, as well as costs in a low carbon or carbon neutral economy).

That said though the carbon tax vs trading scheme boat sailed long ago taking with it a lot of Labour’s credibility on climate change issues. The current scheme is deeply flawed. If you had to pick two areas of the economy that you could not afford to play pork barrel politics with over climate change they would be transport and agriculture, and yet that is exactly what the government is proposing to do.

The financial assistance for warm dry homes is good and equitable. But it doesn’t overcome the hurdle, in my mind at least, of how you have an effective trading scheme when some people in the scheme are allowed to produce for free and others have a cost imposed.

Imagine a fish trading scheme where the government said a certain amount of fish could be caught and fishers could buy and sell those rights among themselves, but one fishing boat was allowed to ignore the rules and catch as much as it wanted. What would the outcome be?

I think the Greens have got two questions to consider. First the strategic political question – what is it best to do before the election? And the Machiavelli in me says that caucus should vote against the ETS, differentiate itself from flawed Labour greenwash and force all the other parties to come up with a real trading scheme that doesn’t look like it would leak like a sieve.

But the second question is the ethical political one – what decision will be best for the climate? And I guess this turns on two points:

  • Is this something on offer better than nothing?
  • And can a deeply flawed trading scheme can be amended and improved after the election?

If it is better than nothing, it’s not much better. From National’s policy to date I can’t see them improving the Emissions Trading Scheme in a climate friendly way shortly after the election, especially once Labour has already put something in place allowing them to avoid the political debate. And I can’t see Labour backtracking on their own legislation and admitting they got it wrong either.

Despite that I’m reluctantly leaning towards favouring caucus voting for the ETS. If Pachauri’s timeframe is correct, or even the 100 months one, then we need to act now and then again, rather than instead, immediately after the election. It’s a long shot that we’ll come up with something that will work but the immediacy forces us to give what we have a go now rather than wait another year. So that’s my answer for now, but it doesn’t ‘feel’ right so I’m happy to be convinced otherwise.

12 thoughts on “The carbon trading dilemma

  1. Stevedore, the biggest problem I have with the Government’s ETS, as I said in my own thread below, is that people acquire property rights through it.

    Given that it is totally inadequate as a response to climate change, as you and I both agree, the conferring of carbon credit property rights makes it incredibly difficult fo some future Government, in which the Greens may have a significant role, to strenghten it sufficiently to actually be effective in reducing greenhouse gas emissions.

  2. Yes, fair point. Although you have much the same problem with taxes – they are very hard things to change in an upward direction – political pressure only ever seems to ratchet one way. It might actually be easier to lower the lid on the quantity of tradable carbon over time so long and the traders felt fair relativities were retained?

  3. Hmmm! Michael Cullen increased the top income tax rate (which is probably the most sensitive tax to voters unless some Government is stupid enough to intorduce a poll tax [National’s hidden agenda?]), and survived to deliver at least another 8 Budgets.

    But interfere legislatively with property rights to carbon credits, and I suspect (led again by John Boscawen), all hell would break loose politically.

  4. Sign the damned thing already. It’s better to have a flawed piece of legislation than to have no legislation at all. Bargain for a better ETS after the election.

    Property rights are an issue – the best solution is for the government to lease them out rather than sell them. The lease is fully transferable but has a time limit on it.

  5. draco, if the Greens want to bargain for a better one, they’re better to shoot this down and get a good scheme after the election, in my opinion. Signing it and then asking for it to be abolished 6 months later isn’t likely to work very well, for obvious reasons.

    I’m also pretty sure the permits are sold, rather than leased (although we can’t know, since the negotiations are secret and the Greens have been prohibited from broadcasting the details), and it will be very difficult to change in future.

    This legislation locks us into a scheme that goes for decades.

  6. Idiot makes this point though george.d

    Sure, it confers property rights – but what’s important to note is that those property rights have a limited lifespan, and will usually be purchased from the goverment at auction. The government can quite happily choose to sell fewer permits than it did in previous years – its basically a cabinet decision, requiring no additional legislation.

    Good call draco (sign!)

  7. wendylo (quoting Idiot/Savant) said: …its basically a cabinet decision, requiring no additional legislation

    That is also a significant part of the problem. The Greens’ appropriate decision-making charter principle would suggest that this sort of decision should be legislated for, with the opportunity for public submissions to be considered by a Select Committee.

    Doing it by the secretive processes of Cabinet, without a formal public input process, would imo abbrogate that Green charter principle.

    Cabinet (and subordinate legislation – eg regulations, Orders in Council, Ministerial Directions) should properly be about process mechanisms, not about implementing substantive policy initiatives.

  8. Signing it and then asking for it to be abolished 6 months later isn’t likely to work very well, for obvious reasons.

    You wouldn’t be able to get it, or want it, repealed once it was in law but you would be able to get it amended. I would prefer a better act than the ETS as it is but we’ve been waiting 5 or 6 years to get anything in place at all and at some point we have to accept that we aren’t going to get the perfect law straight out. Put this one in place and then work on getting it made better.

  9. Pingback: ETS all the time «

  10. “..Despite that I’m reluctantly leaning towards favouring caucus voting for the ETS. If Pachauri’s timeframe is correct, or even the 100 months one, then we need to act now and then again, rather than instead, immediately after the election..”

    ..this is actually incorrect..

    ..under the labour ets..nothing kicks in untill 2011.. that ‘urgency’ imperative..

    ..whilst valid on a macro scale.. not applicable here..

    ..and really cannot be used as a ‘reason’ to pass this deeply flawed/inadequate legislation..


  11. My inclination would be

    A) sign it

    B) before signing it, make clear that after the election any coalition involving the support of supply from the Greens will be conditional on better climate change legislation being in place with 18 months. You can then *start* a coalition without all the details of what that means ironed out, but it’s not a blank cheque for either party.

  12. watching jeanette managing the press conference so adroitly, I’m confident she will lead the party and members to the best decision possible.

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