Pee Kay: Killing Prosperity with Good Intentions

The Emissions Trading Scheme (ETS).

We have all read and heard about the ETS but do we all know just exactly what the mechanics of the scheme are, why politicians are so obsessed with it and do we know just how much the ETS affects us as a country and personally?

I didn’t, my knowledge was superficial, so I went searching.

My interest was piqued when reading Kate MacNamara’s article in the Herald – Government’s $60m handout for Fletcher Building’s NZ cement production is a quick fix, but not a good one.

She wrote – The Government is cutting Fletcher Building a $60 million cheque because its wholly owned subsidiary, Golden Bay Cement, can’t compete with imports; there’s no level playing field. Indeed, New Zealand has purposely devised an uneven one, as ever, with good intentions and unsurprising consequences.

Unsurprising because the problem for Fletcher is “emissions leakage”.

It sounds like a case of bad gas and in one sense it is. Nothing gives economies a sharp pain like the unintended consequences of good intention. Scratch the surface however and nothing about Fletcher’s fate is unanticipated. New Zealand taxes the industrial emitters of greenhouse gases.

This happens through the Emissions Trading Scheme (ETS) whereby emitters must purchase ETS units and surrender them as they produce certain levels of greenhouse gases.

The ETS was supposed to be a tool to reduce carbon, but in this case, it is currently forcing taxpayers to subsidise major corporations just to keep a regional factory from closing.

Herewith my take on how the ETS works, and why it is threatening New Zealand’s prosperity.

The New Zealand Emissions Trading Scheme is the government’s primary tool for reducing greenhouse gas emissions. It sets a limit on emissions, requiring businesses to surrender New Zealand Units (NZUs) for their pollution, while rewarding forestry and other reduction efforts.

The government well knows to slap a heavy carbon tax on local industries; those industries will either go bankrupt or move offshore because overseas competitors don’t have to pay it.

This is where New Zealand Units (NZUs) come into play. To keep local industries from shutting down, the government gives businesses a batch of free NZUs every year to cover a portion of their pollution costs.

The government sets a strict legal limit, the cap, on the total amount of greenhouse gases that all businesses in the country can emit combined. This cap has a sinking lid and every year this cap gets lowered as a means to force total pollution down.

This is where the marketplace comes in. Businesses must hold enough credits to cover their total pollution at the end of the year. This is intended to create a supply-and-demand market. Businesses that emit less than their allowance can sell/trade their leftover credits for a profit. On the other side of the coin, businesses that that exceed their allowance must buy extra credits from other businesses or at auction.

The New Zealand ETS was formally introduced by Helen Clarkes Government in 2008 and established under the Climate Change Response Act 2002 .

It was trumpeted as the first scheme in the world to include all economic sectors, unlike other international schemes that only targeted heavy industries and all greenhouse gases. But in New Zealand, a massive political roadblock immediately appeared, agriculture!

The “all economic sectors” bit was a step too far for a country so reliant on agricultural exports. The New Zealand farming sector aggressively pushed back and agriculture remained largely exempt or deferred due to the pushback and concerns over the economics of food production.

Because agriculture is the sacred cow of our economy, successive governments panicked at the thought of charging farmers for sheep and cow farts. Fearing a food sector collapse, politicians have repeatedly given agriculture a free pass.

This left transport, energy, and manufacturing to shoulder the entire financial burden. Costs they promptly passed straight down to consumers.

And who do we have ensuring New Zealand plays its part in preventing “global boiling”…the Climate Change Commission.

To many the Climate Change Commission operates as a bureaucratic echo chamber, generating endless reams of expensive, out-of-touch dictates while achieving zero real-world progress. This self-important assemblage with deeply entrenched and immoveable views that CO2 and global warming are undeniably linked, remains completely blind to real world truths.

Ultimately, they offer nothing but hollow, theatrical gestures. They drain vital taxpayer funds and stand as a monument to wasteful governance, while leaving everyday people to pay for their idealistic visions.

To me the absolute sham about the ETS is successive governments naive idea that global trade is a fair, level playing field game. It’s is anything but. By slapping a heavy carbon tax on our own local businesses while completely ignoring the fact that many overseas competitors pay absolutely nothing, the system actively punishes our factories and rewards offshore polluters.

The irony goes from frustrating to downright absurd when you look at who we are actually helping with this economic self-sabotage. While New Zealand manufacturers and households struggle to cover the rising costs of our domestic carbon tax, the world’s true heavy hitting polluters, like China and India, get a free pass.

Under global climate frameworks like the Paris Agreement, these mega-economies are classified as “developing” nations, meaning they face far looser restrictions while building massive coal fired power stations to manufacture the very goods we import!

And how much is New Zealand expected to fork out for this global virtue signalling? Taxpayers are already on the hook for a massive $1.3 billion international climate finance fund. Rather than investing that cash into our own roads, hospitals, or local manufacturing, a massive chunk of our tax revenue is bundled up as overseas grants to help those “developing” nations like China and India, “transition”???

Building more coal fired power plants is transitioning? You can be excused for saying a very loud WTF!!!

We are effectively subsidising the global marketplace, handicapping our own local manufacturers, and paying over a billion dollars for the privilege of watching global emissions rise anyway. Non sensical!

Just look at that local operation Golden Bay Cement in Northland. Because they play by the rules here, they get hit with a massive bill for every single tonne of carbon they produce. Meanwhile, importers can buy cheap cement from foreign factories that don’t incur a single cent in emissions taxes, and ship cement straight into New Zealand warehouses!

The system is so counterproductive and counterintuitive that it can nearly shut down New Zealand’s only fully integrated cement plant! Forcing the government into an embarrassing sidestep. Having to cut, an up to $60 million, taxpayer funding package to Fletchers just to artificially level a playing field that its own ETS policy fractured in the first place. How ironic and absurd is that?

Because the offshore producers completely bypass our domestic ETS tax, they can effortlessly undercut local prices. It turns the whole idea of a “level playing field” into an absolute economic and environmental absurdity!

This operationally uneven system creates an irrational phenomenon known as “emissions leakage”, where well-intentioned climate rules backfire on a global scale.

If local environmental penalties push an operation like the Golden Bay Cement facility to the brink of collapse, New Zealand will not magically stop using cement. Of course not!

Instead, the market simply shifts its supply to the minimally regulated overseas factories and where the importation would burn massive amounts of heavy fuel oil to transport those heavy goods across the ocean.

Green politicians might celebrate a reduction of carbon on New Zealand’s side of the ledger but net global emissions actually increase, revealing the scheme to be an exercise in carbon shifting rather than true carbon reduction.

To make matters worse, the system doesn’t just put regional jobs at risk, it actively punishes local businesses and innovation for trying to do the right thing. Because, if a domestic manufacturer spends millions of their own dollars to innovate and cut down their emissions, the government rewards them by reducing their free carbon credits (NZUs)!

Can you see the contradiction? The ETS becomes a trap that keeps local factories drowning in pollution compliance costs, no matter how hard they try to clean up their act!

Rather than around $60 million of taxpayer funds on a desperate corporate band-aid to prop up Golden Bay Cement, a common-sense observer might ask an obvious question: why not simply walk away from the ETS altogether?

The answer comes down to pure, unadulterated government virtue signalling.

Our political leaders are utterly terrified of being the odd one out on the global stage. If New Zealand walked away from the ETS, the international condemnation from the “usual suspects” such as UN bureaucrats and WEF billionaires, would be swift and predictable. Western allies and global trade bodies would instantly brand us an environmental pariah, threatening our cozy seats at international junkets like the next COP summit and throwing a spanner into future trade agreements.

Then, of course, imagine the hysterical local meltdown from the domestic crowd who blindly subscribe to the “global boiling” narrative.

But would we actually become an environmental pariah?

Is it not a burgeoning reality that the rest of the world is finally waking up? People are starting to realise that extreme weather events are a naturally occurring part of our planet’s history, rather than a man-made apocalypse that can be taxed away by our miniscule nation of five million people?

Ultimately, New Zealand is trapped in an expensive game of economic and environmental make-believe. We are constraining our local industries, depleting regional jobs, and forcing taxpayers to bankroll a bloated carbon market all so our politicians can look virtuous at international summits.

It is time to stop playing the willing victim for a global system that the world’s biggest polluters safely ignore with impunity!

Why would we spend millions of our tax dollars artificially saving local factories just to maintain the illusion of global virtue? Does this not prove that keeping up appearances on the world stage matters far more to politicians than protecting New Zealand’s economic prosperity?

If our leaders genuinely care about the future of this country, they would stop pandering to the climate change tsars and start focusing on the actual prosperity of the country.

Until we find the courage to ditch this illogical, self-inflicted burden, New Zealand will continue down a path where we aren’t saving the planet…we are actually bankrupting ourselves!

Pee Kay writes he is from a generation where common sense, standards, integrity and honesty are fundamental attributes. This article was first published HERE