The Government decided to press ahead with a revised ETS, introduced with the support of the Maori Party.
The Bill exhibits all the worst features identified by critics of ETS systems. Economists have long tended to prefer a carbon tax to an ETS, because the latter is likely to result in high compliance and administration costs, lack of transparency, massive lobbying for special treatment, corporate welfare, and market manipulation. Politicians are attracted to an ETS because it does not look or sound like a tax, although it is. Moreover, politicians can hand out the associated credits in a politically advantageous way.
The NZ ETS exhibits all these negative features. A large bureaucracy will be needed to manage it, and already the process of establishing the ETS is shot through with lobbying, unprincipled deal-making and divergent treatment of different economic activities. The intensity-based approach will strain the already formidable information and monitoring requirements of an ETS.
As the costs and subsidies become reflected in asset prices, the wealth transfers will become locked in, and politically difficult to change. The notion that, by turning up to the Copenhagen meeting as a world leader in having a legislated ETS, we can influence the world is simply pompous grandstanding. This conceit will be at the expense of New Zealand workers and businesses.
The deals are being done in the back room. It seems the price of support from the Maori Party to simply have the Bill introduced was to include a Treaty of Waitangi clause, to look again at past Treaty settlements, and to allocate carbon credits to iwi fishing interests. There will be more deals. It is obvious who has the leverage here the price to actually get this legislation passed will be high.
Meanwhile the government is congratulating itself for its pragmatism and moderation, due to there being a delayed entry and a gradual transition for various sectors. But the direction of policy is the crucial signal to investors. A gradual transition does not much help as far as jobs and investment are concerned. It is the destination that is the problem, and the signal to business is loud and clear. Invest elsewhere.
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