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### Viewing cable 08WELLINGTON297, NZ'S EMISSIONS TRADING SCHEME LEGISLATION PASSES

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08WELLINGTON297 | 2008-09-12 06:06 | 2011-04-28 00:12 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Wellington

`

    VZCZCXRO1234
    RR RUEHDT RUEHPB
    DE RUEHWL #0297/01 2560605
    ZNR UUUUU ZZH
    R 120605Z SEP 08
    FM AMEMBASSY WELLINGTON
    TO RUEHC/SECSTATE WASHDC 5429
    INFO RUEHNZ/AMCONSUL AUCKLAND 1738
    RUEHBY/AMEMBASSY CANBERRA 5258
    RUEHDN/AMCONSUL SYDNEY 0718
    RHHMUNA/CDR USPACOM HONOLULU HI
    RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE

` `

    UNCLAS SECTION 01 OF 03 WELLINGTON 000297

    SIPDIS
    SENSITIVE

    STATE FOR STATE FOR EAP/ANP
    PACOM FOR J01E/J2/J233/J5/SJFHQ

    E.O. 12958: N/A
    TAGS: PGOV ENRG SENV NZ
    SUBJECT: NZ'S EMISSIONS TRADING SCHEME LEGISLATION PASSES
    PARLIAMENT

    WELLINGTON 00000297  001.2 OF 003

    Reftel:  07 Wellington 695

    ¶1.  (SBU)  Summary.  With the support of the Green Party and New
    Zealand First, the Labour Party pushed through its controversial
    Emissions Trading Scheme (ETS) bill on September 10 by a vote of 63
    to 57.  National opposed the draft legislation and has promised to
    amend it if elected to lead the government.  New Zealander
    politicians, media analysts and business leaders continue to debate
    how much the ETS will cost average consumers.  The legislation is a
    personal and professional triumph for Prime Minister Helen Clark and
    follows her promise to make New Zealand a carbon neutral country and
    halve emissions by 2040, a commitment that the business community
    (and the opposition National Party) maintains is too ambitious for a
    small country and will cost New Zealand jobs and economic
    competitiveness.  End Summary.

    Parliament Passes Much-Debated ETS Bill
    ---------------------------------------

    ¶2.  (U)  Following several years of study and analysis, the GNZ in
    April 2007 introduced the Climate Change (Emissions Trading and
    Renewable Preference) Bill, popularly known as the Emissions Trading
    Scheme (ETS) bill, to amend the Climate Change Response Act of 2002
    and to introduce a greenhouse gas Emissions Trading Scheme in New
    Zealand.  The ETS will impose a phased-in program of emissions
    limits in the form of tradable carbon units beginning in 2008.
    Forestry would be the first sector to come under the ETS along with
    transport fuel in 2009, electricity generation in 2010, and
    agriculture in 2013 - although all industries can voluntarily begin
    to reduce their emissions before their entry dates.  The draft
    legislation includes a review clause, which dictates that the GNZ
    will compare New Zealand's climate change targets with its major
    trading partners every five years so as not to place New Zealand at
    a disadvantageous position.

    The Price Tag for Being Clean and Green
    ---------------------------------------

    ¶3.  (U)  The proposed cost of the ETS to consumers and business is
    the topic of continuing controversy.  Minister of Climate Change
    David Parker initially suggested that the cost of an ETS to NZ
    consumers would be relatively modest.  He estimated a loss of
    economic growth to New Zealand at roughly 1% of the expected GDP
    growth over the next five years, or approximately NZD 537 million to
    cover New Zealand's Kyoto commitments.  On a per capita basis, the
    GNZ projected NZD 50 per year, which Parker said was worth the cost
    in order to combat climate change effectively.  Prime Minister Helen
    Clark packaged the proposed ETS as a hallmark of New Zealand's
    commitment to be a world leader in environmental causes.

    ¶4.  (U)  Critics of the government's plan placed the cost at NZD 1.2
    billion, and Business New Zealand, which represents the interests of
    New Zealand business sector, estimated the price tag as high as NZD
    3.5 billion and accused the government of hiding the true costs from
    voters so as not to ruin Labour's electoral chances.  The Treasury
    Department then adjusted its estimate to NZD 717 million, claiming
    that the Reserve Bank's initial calculations assumed carbon prices
    at NZD 21 per tonne and had not taken into account the rapid price
    rise in fuel in 2008.  More recently, Treasury again adjusted its
    estimate to NZD 1 billion, fueling criticism that the GNZ is hiding
    the true costs.

    ¶5.  (U) The New Zealand Institute, a leading NZ think tank, argued
    that small farmers and small-to-medium sized businesses would not be
    able to pass on their higher costs to consumers and therefore be
    less competitive.  The Institute stated that New Zealand would be
    better placed to be a "fast follower," rather than a world leader on
    climate change issues and urged that New Zealand change its targets
    and slow its ETS phase-ins.  New Zealand business analysts worry
    that the ETS will force NZ's remaining industrial businesses to move
    to countries unfettered by regulatory constraints on carbon
    emissions, eliminating more jobs in New Zealand.  They say that New
    Zealand will put its economic competitiveness at risk and even by
    meeting its Kyoto obligations, the net impact on world greenhouse
    gas emissions will be negligible.

    National Will Amend ETS if Elected
    ----------------------------------
    ¶6. (SBU) The opposition National Party strongly opposed the ETS
    legislation from the start and promised to amend the scheme if
    elected to lead the next government.  Despite professing support for
    the concept of an ETS, National's Climate Change Spokesman Dr Nick
    Smith asserted that the ETS legislation was inherently flawed and
    unnecessarily rushed into law.  Said Smith of the bill, "It is

    WELLINGTON 00000297  002.2 OF 003

    riddled with errors that will cost New Zealand households and
    businesses dearly."  Smith believes that more time is needed to
    fully examine the full complexities and economic implications of the
    legislation.  National is worried the ETS will cause job losses and
    force heavy industry overseas.  If it leads the next government, as
    polling suggests it has a good chance of doing, National will seek
    to change the scheme to a target of a 50 per cent reduction in New
    Zealand's emissions by 2050.  Its overall position is to establish
    an ETS that Smith believes will better "balance New Zealand's
    responsibility to reduce greenhouse gas emissions with the need to
    grow the economy."  National also wants to move slower on
    establishing an ETS to ensure that New Zealand's ETS complements
    whatever system Australia settles on due to strong linkages between
    the two economies.
    Where the other Parties Stand on the ETS
    ----------------------------------------
    ¶7. (U) The Government relied on the support of two governing
    coalition parties, the Green Party and New Zealand First (NZ First),
    to pass the ETS legislation.  However, this support was not easily
    granted.  At one time, the Greens came close to pulling its support
    for the bill because it believed the Government has backslid on fuel
    and industry emissions.  It also had concerns about the economic
    impact of increased energy costs on lower income households.  After
    canvassing public opinion, the Greens eventually decided to vote in
    favor of the bill, but with reservations.  Although wanting a tough
    regime, the Greens decided it was better to have a scheme in place
    than not have one at all.  In return for its support, the Greens
    managed to secure a NZD 1 billion fund to be spent over several
    years on insulating homes and improving heating for primarily
    low-income families.
    ¶8. (U) NZ First also had initial concerns about how the scheme would
    impact lower income households.  These were, however, sufficiently
    allayed by the funding concession secured by the Greens.  Labour was
    particularly relieved to get the support of NZ First given that its
    leader, Winston Peters, was asked by PM Clark on August 29 to stand
    down from his ministerial portfolios pending investigation over
    fraud allegations involving his party.  However, fears that this
    would result in dissolution of the relationship between the parties
    were not realised and the NZ First vote for the bill provided the
    Government with enough parliamentary support to see the ETS bill
    passed into law.
    ¶9. (SBU) The Maori Party did not support the ETS bill because it is
    opposed to "paying the polluters and rewarding the corporate
    lobbyists with huge exemptions."  The party also wants Parliament to
    review that impact the ETS will have on Maori assets (particularly
    forests), an issue it believes was not properly addressed during
    debate on the bill.  The right-wing ACT Party asserts that the
    Government's ETS is a waste of time and money and should be
    discarded.
    Views Differ on Australian Model
    --------------------------------
    ¶10. (U) As New Zealand debated implementation of scheme to curb
    emissions, Australia is also going through a similar process.  At a
    political level in New Zealand, views diverge over the treatment and
    relative merits of the Australian government's proposal for its
    Carbon Pollution Reduction scheme.  The New Zealand Government sees
    the proposed Australian scheme as a buttress to its own scheme,
    emphasizing shared implementation timeframes and fundamental
    principles.  It acknowledged that the Australian scheme has some
    different design features from the New Zealand scheme, reflected in
    the different economies and emissions profiles.  However, the
    Government underscored that these differences should not bar the two
    schemes linking up in places, if deemed necessary.  The National
    Party wants to align as closely as possible with the Australian
    scheme, particularly in areas of compliance and tradability.  It
    believes that New Zealand should wait until the Australians have set
    up its scheme to ensure greater compatibility.
    ¶11. (SBU)  The Green Party was opposed to New Zealand using the
    Australia's proposed emissions trading scheme as a model as it
    believes Australia does not go far enough to address climate change.
     It also claimed that the Australian government has been corrupted
    by the influence of industry happy to address climate change as long
    the costs are within acceptable limits.
    The Role of Agriculture in the Scheme
    -------------------------------------
    ¶12. (U)  Agriculture is a significant component of the New Zealand
    economy accounting for more than 50 percent of merchandise exports.
    New Zealand exports approximately 80 percent of its agricultural
    production, which makes its greenhouse gas emissions profile unique
    among developed countries.  Agriculture accounts for over half of
    New Zealand's greenhouse gas emissions (primarily in the form of
    methane and nitrous oxide from livestock) compared to an average of
    10 to 15 percent in other developed countries.
    ¶13. (SBU)  As New Zealand is 'just one big farm' from an export

    WELLINGTON 00000297  003.2 OF 003

    earnings standpoint, the ETS has been controversial and the proposed
    scheme has received a barrage of criticism from the agricultural
    sector.  Originally slated to be brought into the scheme in 2013,
    agriculture is now expected to be fully incorporated in 2018.  Many
    decisions about the ETS for agriculture have yet to be made,
    including how to measure, what to measure and the point of
    obligation for paying.  However, the costs to be borne by
    agriculture are significant with the sheep, beef and dairy
    industries being the hardest hit and it is questionable whether or
    not consumers will be willing to pay more for carbon friendly food
    form New Zealand.
    ¶14. (SBU)  New Zealand is one of the only countries, if not the
    only, to fully include agriculture in its ETS scheme.  Currently,
    very limited technology or strategies are available to significantly
    mitigate greenhouse gas emissions from livestock enterprises.
    Farmers are faced with having to buy an increasing number of carbon
    credits from 2013 unless they have or make a significant investment
    in forestry. Many believe that, unless other countries follow suit,
    implementation of the ETS will result in higher farm costs and put
    New Zealand agriculture at a competitive disadvantage with its
    competitors.  The policy risks are considerable for New Zealand
    agriculture.
    Comment
    -------

    ¶15. (SBU)  Passage of the ETS bill was both a policy and personal
    imperative for Clark.  It serves as a policy centerpiece for her
    Government's much touted sustainability agenda, which also includes
    making New Zealand a carbon neutral country and halving emissions by
    ¶2040.  It is also symbolic of her own emergent image as a leader on
    climate change in New Zealand and abroad.  In January 2008, Clark
    was awarded the United Nations Environment Programme Champions of
    the Earth award in recognition of her government's promotion of
    sustainability initiatives.   Failure to pass the ETS bill would
    have proven embarrassing for her in light on this honor.  Since the
    passage of the ETS bill, Clark has announced that further
    sustainability initiatives will follow.  She will also campaign on
    the successful passage of bill ahead of the November 8 election.
    Clark will likely draw on National's opposition to the ETS
    legislation to say a vote for Labour means a vote for climate change
    leadership and action.  End Comment.
    McCormick

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