Pure Advantage NZ pushes 'New Zealand’s Position in the Green (growth) Race' but is silent on carbon pricing

Robin Johnson's Economics Web Page looks at the latest Pure Advantage report promoting green economics. It's all great sustainability stuff except that it fails to mention carbon pricing (emissions trading schemes or carbon taxes). How seriously can we take the Pure Advantage "green growth" message on climate change, when they are not upfront about their position on a price on carbon?

Pure Advantage, New Zealand's green business advocacy group, have just released another green growth report 'New Zealand’s Position in the Green Race'. Hot Topic blog has posted about Pure Advantage before and Phillip Mills guest-posted on how NZ needs a bold low-carbon business strategy too.

The report has three goals: to define green growth, to summarise New Zealand's uninspiring environmental and economic performance, and to propose "a process for developing a green growth recipe for NZ and a strategy for delivering it" (page 27).

The basic idea of the report is clear from this graphic - where 'Green Growth' starts as an amorphous brain storm of idea, which then gets focused through the 'NZ Green Race' report and an economic analysis, before emerging like a butterfly from a chrysalis as a number of strategies and policies.

Pure Advantage believes that "corporates need to step up to provide the necessary leadership" because "New Zealand’s political leadership has successively failed to make the distinction between greening our current dirty industries, and creating new forms of high-value growth in a green economy" (page 11). Hear hear for both observations!

Climate change features strongly in their definition of green growth (as does flowery language).

Green Growth is:

"the aggregated economic benefit that comes from minimising waste and the inefficient use of energy, reducing pollution and greenhouse gas emissions, enhancing natural resources and biodiversity"
"is an economic progression driven by a series of interrelated and unprecedented global commercial imperatives, including the geopolitical drive for domestic energy security, exploding population growth, changing social demographics, mounting climate obligations, rapid decarbonisation of economies towards renewable energy..."
"is a global economic revolution driven by a series of interrelated global mega-trends, including rapid decarbonisation of economies towards renewable energy"

The report works well on the first two goals, but it fails in terms of the the third goal as their 'recipe' for dealing with climate change does not include carbon pricing. The New Zealand Emissions Trading Scheme (ETS) is mentioned twice in the report. On page 27 there is a brief mention of the ETS in discussion of NZ's growth in greenhouse gases. And in a quote from the OECD on page 34.

So what? Should Pure Advantage mention the ETS or carbon taxes/prices? The ETS is probably perceived to be most boring topic ever. Discussing the ETS is usually flogging the dead horse to swallow the elephant in the room.

But how do Pure Advantage think we can achieve a rapid decarbonisation of the economy without carbon pricing? As James Hansen says there needs to be a rising carbon fee on all emissions of carbon dioxide and greenhouse gases. Or, as the economist William Nordhaus says

"If economics provides a single bottom line for policy, it is that we need to correct this market failure by ensuring that all people, everywhere, and for the indefinite future are confronted with a market price for the use of carbon that reflects the social costs of their activities. Economic participants—thousands of governments, millions of firms, billions of people, all making trillions of decisions each year—need to face realistic prices for the use of carbon if their decisions about consumption, investment, and innovation are to be appropriate."

It is very unlikely that Pure Advantage don't have an opinion on emissions trading and carbon pricing. Its also very unlikely that they think they know better than either Hansen or Nordhaus. They are after all successful intelligent business people who have identified with sustainability. So its highly improbable that the Pure Advantage team think that decarbonising the economy can be done without effective carbon pricing.

So why don't they mention carbon pricing explicitly as an essential method to decarbonise? I suspect the answer is in this quote from the executive summary;

"To date much of the green debate in New Zealand has focused on the downside: costs and enforced obligations. Pure Advantage has been formed to focus on the economic upside of being green..."

"Costs and enforced obligations": that sounds more like the more traditional business view of the ETS. The Pure Advantage team seems to view the ETS as a downside, just like the rest of the business community who are not-so green-growth. And they only want to push the upside of green growth. So in promoting green growth (and decarbonising) to their business colleagues, Pure Advantage feel they have to downplay the ETS.

I have problems with this approach. It is less then completely transparent. Its also not showing leadership.

Wouldn't real green growth leadership involve openly stating that New Zealand must have a carbon price? That New Zealand needs to have an effective no-exception no-subsidies ETS or carbon tax instead of the ineffective NZETS?

William Nordhaus has made this comment on global warming eloquence without carbon pricing.

Whether someone is serious about tackling the global-warming problem can be readily gauged by listening to what he or she says about the carbon price. Suppose you hear a public figure who speaks eloquently of the perils of global warming and proposes that the nation should move urgently to slow climate change. Suppose that person proposes regulating the fuel efficiency of cars, or requiring high-efficiency lightbulbs, or subsidizing ethanol, or providing research support for solar power—but nowhere does the proposal raise the price of carbon. You should conclude that the proposal is not really serious and does not recognize the central economic message about how to slow climate change. To a first approximation, raising the price of carbon is a necessary and sufficient step for tackling global warming. The rest is at best rhetoric and may actually be harmful in inducing economic inefficiencies.

I'd love to hear from a spokesperson from Pure Advantage who can tell me that they are not just "eloquent speakers" on global warming - who do not propose a carbon price.

Here are some questions for Pure Advantage.

* Do they recognise the economic point that decarbonising must involve carbon pricing?

* Do they accept that the NZETS is an ineffective carbon price scheme?

* If yes to both these questions, why don't they show leadership and stand publicly for what they believe in?

New Holland Disease?

Dutch Disease is the term used by economists to describe the situation now being faced by Australia (aka New Holland). The Sydney Morning Herald (link below) describes some of the effects the mining boom is having on the rest of the economy - where most people work. The demise of BlueScope is covered in a related article from The Conversation, 'Once upon a time, when Australia had a steel industry …’, which has the great line, "governments ... wedded to day trading for policies".

Dutch disease is a concept that purportedly explains the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector. The claimed mechanism is that an increase in revenues from natural resources (or inflows of foreign aid) will make a given nation's currency stronger compared to that of other nations (manifest in an exchange rate), resulting in the nation's other exports becoming more expensive for other countries to buy, making the manufacturing sector less competitive.

The current situation in Australia appears to be a textbook example.

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.