The ETS is a price signal

Written By: - Date published: 9:15 am, June 25th, 2010 - 44 comments
Categories: economy, energy, ETS, jobs, leadership - Tags: , ,

There’s a rising crescendo of protest about the costs of the Emissions Trading Scheme (ETS):
Taxpayers face $1b Kyoto liability – authors
Emissions scheme could cost NZ up to $5b
Scoop Images: Emissions Trading Scheme Protest
… and so on.

All too often the commentary completely misses the point. The goal of an ETS is not just a random extra cost being imposed on the economy. The point is to serve as one of those “price signals” that economists are so fond of. The point isn’t to just blindly pay more, it is to change our behaviour so that we don’t have to. Guyon Espiner gets it, Claire Browning gets it, too many commentators do not.

Of course the Nats have completely stuffed up their ETS – in two major ways. First, they have designed a crippled, ineffectual ETS, that loads costs on to the taxpayers instead of the big polluters. Nick Smith admits that this ‘moderate’ ETS is not going to ‘result in big reductions of emissions’. Both Treasury and the Environmental Commissioner have, ever so diplomatically, called it crap. So have academics:

The authors of The Carbon Challenge – Victoria University researcher and economist Geoff Bertram and climate-change analyst and researcher Simon Terry – also describe the Government’s current ETS as “technically obsolete” and “beyond rescue” as a sustainable framework for tackling climate change. They say the scheme will not make any inroads into cutting New Zealand’s gross emissions levels.

This first stuff up is already terminal, but National are compounding it with a second. They are not responding in any positive way to what is left of their own price signal. There’s no leadership. They are not challenging the growing perception that the ETS is just a random tax with no purpose. Where’s the plan National? Where’s the way forward? The Green Party gets it. Some in the business community get it:

Top New Zealand businessmen are consummate brand builders and united by a common belief: that New Zealand is looking a gift horse in the mouth by viewing the world’s inexorable move towards a low-carbon economy as a cost, rather than an economic opportunity. …

Plenty of people get it, but the National Government does not. So they have brought us the worst of all possible ETS schemes. Badly designed and devoid of vision. An ETS with all of the costs and none of the benefits. They fully deserve the growing backlash. Nice one National – great work.

44 comments on “The ETS is a price signal ”

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  1. Santi 1
    25 June 2010 at 10:01 am

    The point of an ETS isn’t to just blindly pay more, it is to change our behaviour

    What????? Are you a social engineer or what? Leave people alone!

    • r0b 1.1
      25 June 2010 at 10:03 am

      Hey Santi, do you support the three strikes legislation?

      • Santi 1.1.1
        25 June 2010 at 11:02 am

        I do.

        • Doug 1.1.1.1
          25 June 2010 at 11:14 am

          Social engineering.

          • Santi 1.1.1.1.1
            25 June 2010 at 11:16 am

            Yes, in the same way you remove weeds from your garden.

            • Pascal's bookie 1.1.1.1.1.1
              25 June 2010 at 11:25 am

              Nah, that’s more like an ETS or a carbon tax.

            • A Post With Me In It 1.1.1.1.1.2
              25 June 2010 at 12:39 pm

              I am not sure it is worth it considering the level of debate bein displayed…

              You are full of irony here. The point of the ETS is to remove the worst polution from our country also. Much like weeds. Obviously the national plan is intentionally crippled so I am referring to a sensible ETS which makes the polluters pay.

              If you don’t believe in GW then say so and let the discussion stop immediately. Obviously if you are a denier then the ETS is a sick joke.

              Actually NActional’s ETS AND the 3 strikes law have a lot in common:

              – Costs the taxpayers ridiculous amounts of money
              – Not based on good advice or research
              – Will not really solve the thing it was supposed to solve to any great degree
              – Is unfair
              – etc

              Thanks for making the connection. I had not thought of that angle….

            • travellerev 1.1.1.1.1.3
              25 June 2010 at 10:16 pm

              Funny, the other day I was watching criminal intend (Very un PC but I love SKY) and the three strike policy as a reason for mayhem was used as a theme. The reasoning as per the rapport: violent criminals engaged in violent crime are more likely to kill in order to avoid leaving witnesses. Wow and that is mainstream entertainment.

              Conclusion: violent dysfunctional criminals do not equate to weeds in your garden.

        • r0b 1.1.1.2
          25 June 2010 at 11:14 am

          Would it be fair to say that the point of the three strikes legislation is to change people’s
          behaviour?

          • burt 1.1.1.2.1
            25 June 2010 at 11:46 pm

            Not necessarily, if imprisonment can change behaviour well bugger me it didn’t the first two times for these guys.

            So no it’s not changing their behaviour, it’s restricting their ability to repeatedly inflict their behaviour on society.

            If we accept that there is a threshold of violent or high victim impact criminal behavior that justifies permanent incarceration then we are simply arguing about that threshold. Currently set to 3, what’s your number rOb?

            • r0b 1.1.1.2.1.1
              26 June 2010 at 12:32 am

              So no it’s not changing their behaviour, it’s restricting their ability to repeatedly inflict their behaviour on society.

              So Burt, you disagree with Judith Collins and your own MP Peter Garret that the three strikes legislation will have a deterrent effect on crime? You don’t think it’s going to socially engineer any change in behaviour at all? How could they have got it so wrong Burt?

              what’s your number rOb?

              My number is 0 Burt. Every violent crime is one too many. But you need to treat the cause, not the symptom.

    • mickysavage 1.2
      25 June 2010 at 10:35 am

      According to Santi we should ban red lights on roads. Bloody social engineers restricting man’s right to drive whenever whereever he wants to.

      • Bright Red 1.2.1
        25 June 2010 at 10:41 am

        Santi wants the Crimes Act repealed too. Damn interfering social engineering government punishing people for just doing what they want to do.

      • djp 1.2.2
        25 June 2010 at 10:50 am

        Actually uncontrolled intersections can lead to improved traffic flow and safety.. something about drivers not running on autopilot and being more aware/careful of how they drive

      • burt 1.2.3
        25 June 2010 at 11:55 pm

        Only you mickysavage would attempt to confuse a debate about social engineering by comparing utility public infrastructure with taxation to modify behaviour.

    • Lanthanide 1.3
      25 June 2010 at 10:49 am

      Do you realise that the lightbulb standards and reduced flow showerheads would have actually helped to cut back our CO2 output and thus reduced our Kyoto liability, while actually having very marginal impact on the populace overall?

      • Santi 1.3.1
        25 June 2010 at 11:06 am

        Why don’t we ration electricity as well? Kyoto is big scam. As a result of tghe ETS NZ will be channelling money to Rsussia and China. Fantastic!

        • r0b 1.3.1.1
          25 June 2010 at 11:16 am

          Channelling money overseas is silly isn’t it. That’s exactly the point of the post.

        • Doug 1.3.1.2
          25 June 2010 at 11:20 am

          We do ration electricity by making people pay for it. Economics is about how to use price signals to efficiently ration scarce resources.

          In the case of a proper ETS the scarce resource is the atmoshere/hydroshere’s capacity to absorb GHGs without having an adverse impact on society and the natural environment.

          I still prefer that we start with a universal carbon charge to get the price into the market and over time allow for a transfer to tradable permits. Setting up new markets from scratch are always subject to rent seekng behaviour from the incumbent beneficaries.

          Hey perhaps we should start calling farmers benes. Who’s up for some bene bashing?

        • rimu 1.3.1.3
          25 June 2010 at 11:24 am

          As a result of the ETS local polluters will be incentivised to find ways to do business that will results in LESS money being spent to meet our Kyoto obligations. If we do not have an ETS then the cost will still be paid but it will be by the tax payer rather than the polluter, and there will be no incentive for polluters to reduce that cost.

          The idea of paying poor countries to plant trees is a bit iffy, but that’s more to do with Kyoto than our ETS (which is a local market only)

        • kriswgtn 1.3.1.4
          25 June 2010 at 11:35 am

          Jenny Shipley signed us on to Kyoto, blame her

        • Draco T Bastard 1.3.1.5
          25 June 2010 at 3:15 pm

          We do ration electricity – using the price.

  2. marsman 2
    25 June 2010 at 10:54 am

    “devoid of vision” …..that’s National.

  3. RedLogix 3
    25 June 2010 at 1:37 pm

    Fascinating how rightwingers all worship the power of the magical ‘free market’ …until suddenly it doesn’t suit them anymore.

    In general there are only two ways for a govt to achieve anything at all:

    1. By fiat, ie law, regulation or policy to directly change behaviour.

    2. By taxation or price signals to indirectly change market behaviours.

    Changing behaviours around greenhouse gases involve just three choices:

    1. Deny there is a problem and do nothing. Comes at a high cost to our trading reputation and inevitably to the enviroment from which all our prosperity is dependent.

    2. Ration carbon usage directly by regulation. Effective …but likely to have all sorts of unintended consequences because legislation would have difficulty addressing every possible usage scenario.

    3. Employ an ETS market based system, or a carbon tax, to indirectly change behaviour. The right way to go, but only if you get the market design right. Getting it wrong as the Nats have is worse that useless.

  4. RedLogix 4
    25 June 2010 at 1:47 pm

    Fascinating how rightwingers all worship the power of the magical ‘free market’ …until suddenly it doesn’t suit them anymore.

    In general there are only two ways for a govt to achieve change; by fiat, ie law, regulation or policy to directly change behaviour; or by taxation/price signals to indirectly change market behaviours.

    Changing behaviours around greenhouse gases involve just three choices:

    1. Deny there is a problem and do nothing. Comes at a high cost to our trading reputation and inevitably to the enviroment from which all our prosperity is derived.

    2. Ration carbon usage directly by regulation. Effective but clumsy …likely to have all sorts of unintended consequences because legislation would have difficulty addressing every possible usage scenario.

    3. Employ an ETS market based system, or a carbon tax, to indirectly change behaviour. The right way to go, but only if you get the market design right. Getting it wrong as the Nats have is worse than useless.

    Sooner or later the hollowness of this ETS will become apparent to everyone, effectively propelling us into the ‘do nothing’ option. That will saddle the country with a triple whammy of costs, the cost to the taxpayer of subsidising big emitters, AND the cost to our exporters as our trading position is eroded….AND eventually with the costs imposed by global climate change.

  5. Clarke 5
    25 June 2010 at 1:57 pm

    I don’t understand why the Right have so many problems with the ETS … the purpose of the tax is that you change your behaviour by emitting less CO2, and thus evade your tax oblligations. And let’s face it, tax evasion is one of the things that the Right does actually seem to be quite good at ….

  6. dirty coal 6
    25 June 2010 at 2:14 pm

    how much would an ETS reduce NZ emissions by?

    what is the reductions that an ETS wld cause by 2020 and 2050?

    If there are not sharp emissions reductions what would the purpose of an ETS be?

  7. Roger 7
    25 June 2010 at 2:15 pm

    Typical National, it is all about image. Introduce an ineffective ETS just so they can say they did it and watered it down so that they can say they compromised with the needs of the public (who will be forced to hand over money with no end insight).

    Just like National Standards which show huge changes that will be damaging if anything but shows how focused Tolley is.

    Just like the Three Strikes law that creates the image of toughness on crime but won’t reduce crime and may increase numbers of the worst crimes committed.

    Just like the reapplying for the unemployment benefit which makes Bennett look like she wants to reduce numbers but this won’t do it.

    Just like National’s focus on building infastructure during the recession that sees them talk about a cycleway and imaginary jobs but show antipathy towards rail and real job creation.

    Sadly ignorant members of the public will look at this and say “Gee, National are concerned about the environment but also our incomes. They are concerned about all of these other issues as well, I’ll vote for them”. All the while they are paying more for everything for no reason since polluters have no incentive to reduce emmissions, their children will never see the inside of a museum since this won’t be tested, their friend gets murdered because they witness a crime committed by someone on his second strike, and his spade he bought to work on the cycleway gathers cobwebs in the shed.

    • marsman 7.1
      25 June 2010 at 4:00 pm

      Well put Roger.
      Unfortunately the longer National tries to run the country the longer the list of their self-serving,destructive policies will be.
      Can we somehow stop them in their tracks?

  8. Mike 8
    25 June 2010 at 3:34 pm

    And this is how it’ll begin to impact…

    Regular petrol goes up 3.2484 CPL (cents per litre), Premium by 3.3286, Diesel by 3.7547 and Avgas by 3.0952 as at 1 July – these are discounted rates for Government, so the public will pay more. (All incl GST btw)

    As we saw with the 2008/2009 fuel price rises, this will naturally affect the price of everything in the supermarkets as well as air travel. And then we have the GST increase.

  9. Godber 9
    25 June 2010 at 5:21 pm

    Those dumbos that believe an ets is a good idea want fucking with a baseball bat. It will rob from everyone at a time they can least afford it, achieve nothing and enrich the rich.

    No one on this planet has any evidence whatsover that global warming is anything but benefitial, so what the fuck is taxing people going to do for those people at the bottom? If you say it will save the planet go and get fucked because you know nothing.

    [Haven’t seen you here before, so this is a warning. Please read the site Policy. The kind of aggressive, content-free posting you’ve made here starts pointless flames and attracts the attention of the moderators. RL]

    • Draco T Bastard 9.1
      25 June 2010 at 11:14 pm

      No one on this planet has any evidence whatsover that global warming is anything but benefitial,

      Actually, all the evidence points to the Earth becoming uninhabitable if global climate change continues the way it is (warming). Of course, you’re just another psychopathic RWNJ that doesn’t believe in evidence as it proves you wrong.

  10. Lefty 10
    25 June 2010 at 6:07 pm

    All emissions trading schemes are scams aimed at transferring wealth from the poor to the rich and from the taxpayer to the polluter. Capitalist markets are driving the destruction of the planet.Trying to design ‘market signals’ that will prevent this is an exercise in futility. Much of the evidence on ETS schemes to date all suggests that ETS cause actual harm, especially in developing countries.

    Maintaining a reasonable standard of living requires a certain volume of carbon emissions. The challenge is to eliminate emissions that are not required. A carbon market will be no more effective in doing that than the food market is in making sure everyone is fed, or a housing market in making sure everyone is adequately housed. At best, prices can match the supply of goods or services with the supply of money, they do not ensure sensible or fair distribution or stop the production and distribution of useless or harmful products. Only regulation can do that, and even then the regulation must be a reflection of a genuine community will and consensus to tackle a problem.

    There are many simple emission reducing measures that can be regulated for with very little risk of unintended adverse consequences. The only thing stopping this happening is it require all the political parties turning their back on blind capitalist market ideology.

    The National ETS has the advantage over the Labour/Green one that it is overtly unfair and only an absolute idiot what think it is anything other than a wealth transfer whereas the Labout/Green version had a lauyer of greenwash that made it dangerous nonsense.

  11. Andy 11
    25 June 2010 at 7:13 pm

    The government climate website shows that projected emissions for 2020 will be approximately the same as 2010 with an ETS, and slightly above without.

    I was also given this information by a govt dept:


    The overall cost to consumers and businesses of the emissions trading scheme in the first year will be $400 million. From 2008 2012 the government will allocate $1.775 billion in carbon credits to the forestry sector. By honouring commitments to give credits to the forestry sector, and by softening the costs to consumers and businesses, the Government will be making a significant loss on the emissions trading scheme.

    So here’s the bad news: the ETS will cost us all, the government (i.e the taxpayer) is making a loss, and the effect on emissions will be minimal.

    China alone is adding the equivalent of an entire NZ’s worth of emissions to its output every few weeks, (a new coal power station every week) so our efforts will be wiped out in days.

    Our emissions from electricity production are around 10% of total. So even if we go to 100% renewable then it will make a max of 10% difference.

    For some reason, we seem fixated on the agricultural sector, when no one else in the world is even touching this.

    It may be a small cost initially, but once the transition phase is over we could be fast tracking to economic suicide.

    I don’t really know what kind of price signal we should be giving people. I honestly think most of the people I know live pretty sustainable lifestyles. Go to China if you want to see unsustainability.

    I

  12. Santi 12
    25 June 2010 at 7:40 pm

    The ETS is not a price signal, but simply another tax the lefties are so fond of. It will damage NZ.

    • Draco T Bastard 12.1
      25 June 2010 at 11:19 pm

      It’s supposed* to add a price to GHG emissions and thus add a price signal. See, even you should be able to understand that as it’s really really simple. The fact that this has been pointed out to you and you still fail to see just means that you’re delusional.

      * this doesn’t mean to say that it does as it’s readily apparent that it’s been designed by NACT not to and is, as a matter of fact, a transfer of wealth from the poor of NZ to the rich.

  13. Macro 13
    25 June 2010 at 7:59 pm

    It’s not as if the “govt” weren’t actually told before that the changes they were making to the ETS were crap and would result in precisely the muck that Geoff Bertram and Simon Terry are now predicting. I know I told them, and I’m sure many other submitters did too. But they chose to bulldoze their amended ETS through without any consideration to the actual consequences. They did it for the same reason that EVERYTHING else done by this “administration” is done. IMAGE. That’s what drives this crowd – they want and seek popularity so desperately that they are blind to any thing that will get in their way. They need to be liked. An ETS that will make us think before we drive our car? Forget it! Who cares about AGW really? So you want a decent shower? Ditch any suggestion about efficient plumbing, people may think that we are wanting them to have cold showers. Lets make heaps mining? Oh! your not so keen on carving up National Parks – Ok forget it. And on and on. We might as well have a PANDA for PM. NZ’s would love that! Hey I might even vote for a Panda!

  14. BLiP 14
    25 June 2010 at 10:26 pm

    The post fails to address Labour’s contribution to this shambles – the ETS model itself. A carbon tax on emitters would have been the simplest, fairest and most effective policy instrument in, if not actually reducing emissions, then spreading the cost of doing so. I’m still not sure what role the bouffant from Ohariu had to play in the formulation of this but I put it down to Labour. That National Ltdâ„¢ have taken a stupid idea and made it worse is to be expected.

    • Draco T Bastard 14.1
      25 June 2010 at 11:21 pm

      Labour did try for a carbon tax but it lost it’s principals when it gave in to the “Fart Tax” brigade.

  15. Andy 15
    26 June 2010 at 1:05 pm

    There’s a follow up story to the CFC / CDM scam here

    http://eureferendum.blogspot.com/2010/06/perverse-consequences.html

    which has no made the MSM, Le Monde

    The general idea is that the manufacturers of CFCs get paid 70 times the cost of production of the gas to destroy the gas, in the form of carbon credits, so “behaviour modification” means producing more CFCs

    It’s the perfect scam really.

  16. Margaret 16
    29 June 2010 at 11:41 am

    I mounted my own protest when John Key announced last year he was going to make taxpayers pay farmers and industrys greenhouse tax’s.

    I refuse to pay International prices at home for dairy products as well as pay their tax. One or the other, but not both.

    I have only brought Beef 3 times since last October and have not brought Lamb at all. I look for products that are other than Fonterra.

    We eat more fish, chicken and pork, getting into beans also, much more healthy as well, never realised how hard beef was on your body, you must experience it to believe it.

    If more people did that the farmers will really scream and definetly will not vote National at the next election, would’nt that be great.

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