Emissions trading

New Zealands Emissions trading scheme stepped up another gear on 1 July 2010 when stationary energy and liquid fossil fuel industries came into play for a first transition period. I'm not going to go into details on the scheme, information regarding the scheme can be found here: http://www.climatechange.govt.nz/ and here: http://en.wikipedia.org/wiki/New_Zealand_Emissions_Trading_Scheme.

There are two interesting points to note. Firstly, at this point in time the NZETS is not a conventional cap'n'trade scheme. There is no cap other than that required by Kyoto, no sunset clause and no output reduction. The government will issue unlimited emissions units (NZU's, one NZU is equivalent to 1 tonne CO2eq). Only forestry can 'earn' NZU's, which can be bought nationally and traded internationally. If the national emissions exceed the Kyoto cap then the government will be buying abroad to acheive compliance. The cost of surrendering carbon is fixed at 25NZD per NZU. This has effectively been halved for energy, fossil fuel and industry participants as they are required to surrender on NZU for every 2 tonnes CO2eq, so effectively a price of 12.50NZD per tonne CO2eq.

Secondly, The cost to industry participants of buying NZU's will be passed on to consumers. It is estimated the the price of electricity, fuel and food is to rise with consumers meeting 52% of the overall costs in this transitional period (1). Estimates indicate this could be in the region of $400 per year (approx £200 at current exchange rates). Whilst it seems this ought to be a clear signal to consumers to reduce their consumption it is unlikely to do so. The weekly fuel bill, the shop and filling the car up is likely to only be in the region of a few dollars, worth a grumble but not likely to be painful enough to warrant reducing consumption. Furthermore, the opportunity to make reductions in our emissions is limited. For example, many many studies show that typically energy efficiency results in a saving of between 10-30% of our overall direct energy consumption. Much of the emissions are produced before the consumer turns on the plug or fixed in the efficiency of the engine in the car.

What then is the incentive when consumers are dependant upon and consequently trapped into using the power produced by energy generators and the goods, food and services produced by industry and the rise in price of energy, fuel and food isn't that noticeable? And where's the incentive for the providers of energy and goods, food and services to reduce their emissions if the consumer is paying?

I am left unsure how this is supposed to stimulate these industries to make radical and fast reductions in emissions or invest in efficiency. I guess we will have to wait and see if the signals are loud enough and clear enough or whether NZ Ltd will have to find the cash to foot the bill for exceeding its Kyoto committments.

P.S It seems that there really is nothing that can't be sold on internet trading sites such as ebay and trademe: http://www.trademe.co.nz/Business-farming-industry/Carbon-credits/auction-301199406.htm

1 Sustainability Council of New Zealand http://www.sustainabilitynz.org