National Leader Christopher Luxon will have sent a shudder through the farming and transport industries yesterday with his argument that the Emissions Trading Scheme (ETS) should do the “heavy lifting” to get New Zealand to zero net Greenhouse Gas Emissions by 2050.
Farmers have already proposed their own alternative to the ETS, He Waka Heke Noa and suggestions that the ETS would force a reduction in transport’s use of petrol were dismissed last year by the Climate Change Commission.
Relying on the ETS would see its price rise dramatically, incentivising the planting of vast areas of exotic forest with the attendant breakdown of some rural communities.
No one is accusing Luxon of being a climate change sceptic, which some thought his predecessor, Judith Collins, was.
His argument relates solely to how to get to net zero.
“We believe in the ETS system being at the heart of what we’re trying to do to drive here,” he told TVOne’s Breakfast yesterday.
The Prime Minister was quick to refer to the interview during Question Time in Parliament yesterday.
“I notice that the member, when it comes to the challenge of climate change, wants to rely almost solely on the emissions trading scheme (ETS),” she said.
Ardern claimed that “If he were to do that, that could lead to $1.30 extra on petrol prices and, according to the Climate Change Commission, would mean that one in 10 farms would be converted to pine forests.”
But Ardern’s figures are contested.
The Commission sees the ETS rising rapidly, from $76 today, to $140 in 2030, to $250 in 2050.
The Sustainable Business Network says that even if this were to be the case, it would be likely that the carbon price would track this closely.
“This could add 34 cents to every litre of petrol by 2030 and 61 cents by 2050,” they said last year.
Even so, 61 cents a litre is more than twice the 25 cents of tax the Government has just removed from petrol as a cost of living adjustment.
But the chair of the Climate Change Commission, Dr Rod Carr, says there is another problem with the ETS and petrol.
He told a webinar in late 2020 that petrol was relatively price inelastic; that raising its price did not necessarily reduce its consumption.
“Anyway, half of the price of petrol is consumed already by taxes and levies,” he said.
“So one of the questions is not so specifically about petrol.
“But if the ETS at these prices has only a very small impact on final consumer prices, how much work can we expect the price to do alone.
“If the ETS price was dramatically higher?
“Then the impact on certain households who had limited choices about how to reduce the use of high emitting products and services would be quite significant.
“Let’s stick with petrol for a little while.
“It may be that in some more remote communities or those who have to travel long distances, or for those where public transport is simply not an option, essentially the emissions price acts like a tax and it doesn’t change behaviour.
“It merely reduces that household’s disposable income for other purchases.”
Ironically Luxon echoed that view last month when he attacked the Government before it removed half the excise tax off petrol.
“There’s not a lot that you can do about fuel prices because they’re dictated globally – but the bit the Government could control is the tax component of that,” he said.
“If you really want to do everything to keep as much cash in Kiwis’ pockets, the right thing to do is to actually see if you can reduce that tax.”
But, on the other hand, for Luxon, using the price to try and change behaviour has an ideological tinge, and he hints that may need to be accompanied by other measures.
“I need to be able to bring Center-Right politics principles to the economic, social and environmental challenges that we’ve got,” he said in the Breakfast interview.
“What we’re saying is we think the ETS is a really good system that needs to really drive the outcome, and then you augment it with some really smart, intelligent projects that actually help you manage down the categories of emissions that we have.”
Neither Luxon nor his climate change spokesperson, Scott Simpson, have spelled out what these might be.
Luxon did suggest that hydrogen-powered vehicles and EVs might be part of the solution, though he did not say whether he favoured grants or tax rebates for them.
Instead, he said more roads might be needed.
“We’re going to have a transport emissions challenge,” he said.
“There’s going to be the adoption of EV and hydrogen vehicles.
“Having really efficient roads for those vehicles to run on is actually a good thing.”
The party’s agricultural spokesperson, Barbara Kuriger is, however, strongly supportive of the He Waka Heke Noa proposal from the agricultural producer organisations, which would see farmers not be part of the ETS but instead pay a levy on methane emissions either on a farm by farm basis or more likely when their stock or milk enters a processing plant.
Luxon said there was no obvious technological pathway to reduce farm emissions, so he proposed doubling current research spending on this.
There is already considerable spending on methane research in New Zealand.
The New Zealand Agricultural Greenhouse Gas Research Centre at Massey University receives $10 million in Government funding a year and is regarded as a world leader in its research on technologies like breeding low methane emitting cattle and developing methane inhibitors for grazing livestock.
Separately AgResearch has developed a methane inhibiting ryegrass which, because it has been developed using genetic modification techniques, is not currently able to be used in New Zealand.
This is just the beginning of this debate; of how to achieve the reductions that New Zealand recently committed to at the Glasgow UN climate change conference.
Climate Change Minister James Shaw confirmed yesterday that the Government would publish the “how-to” document, the Emissions Reduction Plan, next month.
That will be the real test of the ETS.