New Zealand ETS did not produce cave dwelling hair shirt economy

The New Zealand PM is in Australia to talk about many things, of therapeutic goods and US ships and emission trading schemes.

New Zealand introduced its ETS three years ago, and despite what opinion writers in The Australian newspaper (pointedly not linked to) would have us believe, the NZ economy did not fall over in a heap, the populace reduced to cave dwelling hair shirted free lovin single parent pot smoking nihilistic godless hippies.

NZ leads on carbon pricing - Gillard

The Age, June 20.

Prime Minister Julia Gillard has used a visit by New Zealand Prime Minister John Key to praise his country for outdoing Australia by having "the guts" to price carbon.

Ms Gillard said she was determined Australia would catch up to New Zealand, which introduced an emissions trading scheme (ETS) in 2008.

Mr Key declined to comment on specifics of the Gillard government's plan to price carbon. "But what I can tell you about the ETS in New Zealand is, it's worked," he said. The ETS had driven growth in the renewable energy sector and slowed deforestation, he said.

The leaders agreed to establish a senior officials group to work on ways to link the two countries' schemes in the future.

Earlier, Opposition Leader Tony Abbott used a welcoming statement for Mr Key to take a pot-shot at Labor's plan to introduce an ETS.  Mr Abbott congratulated Mr Key for "watering down" the ETS his conservative government inherited.

But he said if the coalition in Australia inherited a trading scheme from the Gillard government it would be "rescinded" altogether.

"In this country your sister party will go further and do better," Mr Abbott told parliament.  "Should we inherit any carbon tax we won’t just reduce it - we will rescind it."

Tony is so tuff. And so is Julia.  Everything is such a tuff choice – in fact if it isn’t a tuff decision then it’s not worth taking that’s how tuff’n tough they both are.  I am so tired of relatively mundane decisions having to be framed in this ridiculous way.

Australia to follow NZ's carbon tax example

NZ Herald, June 20.

New Zealand is set to help Australia in its fraught bid to introduce a controversial carbon tax.

At a joint press conference with Prime Minister John Key this afternoon, Australian Prime Minister Julia Gillard announced her officials would work with their New Zealand counterparts to link the countries' emissions trading schemes.

Mr Key said New Zealand and Australia had to work together to tackle climate change.

A scheme allowing carbon credits to be traded across the Tasman "makes sense", he said.

"Our economies are very closely linked and if we can work together on this problem of climate change that's a good thing."

New Zealand's ETS had been implemented effectively and was running in line with its estimated cost of $150 per household, he said.

The scheme was originally introduced by the Labour Government in 2008 and was substantially amended by National in 2009.

Reuters has a more in depth look at the scheme as it stands.

Analysis: NZ carbon scheme faces first challenge

Reuters, June 15.

From moribund to modestly active, New Zealand's carbon trading scheme has picked up since the entry of big polluters a year ago but faces a major challenge in how to ramp up pressure on firms to take more steps to cut emissions.

The emissions trading scheme, or ETS, remains the first national scheme outside Europe's $120 billion a year program.

Industry is questioning whether New Zealand should toughen its scheme given the glacial pace of U.N. negotiations on a new climate pact and slow progress in other competitors in bringing in a national price on carbon. Neighboring Australia is struggling to win support for its carbon pricing plan.

A toughening could boost trading of pollution permits in the ETS, deepening the market, which is currently limited by availability of tradable New Zealand Units, a price cap of NZ$25 for NZUs, lack of national emissions reduction target and a series of sweeteners for industry during the first phase to end-2012.

Each NZU represents a tonne of greenhouse gases.

The three-year old ETS was expanded on July 1, 2010, when the transport, industry and energy sectors, which account for about half of the country's emissions, were included.

Since then, average weekly trade of NZUs in the over-the-counter market has averaged about 300,000, according to data from Thomson Reuters Point Carbon. Forestry was the first sector in the ETS, which started in 2008.

Polluters such as coal-fired power generators, refiners and cement plants have to buy NZUs to meet government-set emissions obligations, while foresters are given NZUs for the carbon locked away in their trees. Exporters are given a large number of NZUs for free to equalize carbon costs with competitors.

SWEETENERS

[Climate Change Minister Nick] Smith declined to comment on changes the government will look at. But it is expected to include the possible extension of sweeteners, such as surrendering only one NZU for every two tonnes of emissions, beyond the current expiry date of 2013.

Agriculture, a major export earner and which accounts for almost half of emissions, enters the ETS in 2015. Dairy exporter Fonterra is New Zealand's largest company, and is still liable through its milk processing operations.

New Zealand was exposed to greater emissions costs than other agricultural producers, so it was imperative transition measures remain until competitors move to similar schemes…

State-owned Genesis Energy, which operates New Zealand's largest power station, said it also wants the transitional measures to continue, and it also want to see greater depth and liquidity in the market.

"What companies like ours need is certainty of policy and liquid markets in which to function," Genesis Public Affairs Manager Richard Gordon said. "We can cope with the ETS, we can live with it, but we need certainty."

Both Genesis and Fonterra said they have been active in the market since July last year, however both companies said there were issues with market liquidity, with too few credits coming to market.

Obviously, any thoughtful insight from a NZ contributor would be most appreciated. My perspective is as an expat Aussie current living in Asia.

In addition to the overlooked link pointed to below, there is a video and some notes at Robin Johnsons Economics Web Page.