Submission on Climate Change (Emissions Trading and Renewable Preference) Bill

Duncan Catanach compiled the NZRCA's submission to Parliament's Finance and Expenditure Committee regarding the Climate Change (Emissions Trading and Renewable Preference) Bill making the point that although water is a renewable resource, river environments are not renewable.

29 February 2008

Submission by the New Zealand Recreational Canoeing Association on the Climate Change (Emissions Trading and Renewable Preference) Bill

(henceforth ETS Bill)

Background to New Zealand Recreational Canoeing Association (NZRCA)

1. Formed in 1957, the NZRCA is the national representative organisation of canoe clubs and recreational kayakers throughout New Zealand. The NZRCA is an incorporated society and is affiliated to the NZ Canoe Federation, which is in turn affiliated to the International Canoe Federation. The NZRCA has delegated authority to represent the NZ Canoe Federation on conservation and access issues.

2. Previously the NZRCA was known as the New Zealand Canoe Association, prior to the creation of the New Zealand Canoe Federation in 1995/1996.

3. The NZRCA represents both individual members and affiliated member clubs. Currently there are 30 affiliated Clubs with a combined membership of around 2,500 kayakers plus another 65 individual members. The figure of 2,500 in no way adequately represents the sum total of kayakers in New Zealand, as there are many who do not belong to clubs, and who have not joined the NZRCA as individuals.

Summary of Submission

4. The proposed ETS bill will result in sub-optimal economic outcomes as a result of a relative over-investment in certain sectors, including hydro electricity generation, to achieve the Government's carbon emission goals due to the significant different conditions attached to different sectors.

5. The over-investment in hydro electricity generation will cause significant and potentially irreversible damage to river environments i.e., sub-optimal environmental outcomes. While water is a renewable energy source, river environments are not renewable.

6. We would suggest that the Government consider a more economically and environmentally efficient emissions trading scheme or counter-balancing subsidies or schemes to minimise the distortions created.

Detailed Submission

The proposed ETS system is not economically efficient.

7. Under the proposed ETS different sectors are treated significantly differently in the commencement of obligations, free allocations and the timing of the free allocation. This means that by definition, there will not be economic or allocative efficiency.

8. If the government's primary goal is the reduction of carbon emissions to a certain level then, by definition, sectors that have less favourable or more stringent conditions attached (i.e, sectors that have earlier commencement of obligations and/or lower levels and/or a shorter duration of free allocation) will bear a disproportionate burden in reducing carbon emissions.

9. A consequence of this differential treatment of sectors is an over-investment in activities that reduce carbon emissions in sectors with more stringent conditions attached and an under investment in sectors that have less favourable conditions attached.

10. If the relative size of the sectors to which more favourable conditions are given is small then there will be only small deviations from economic efficiency. However, with the scheme proposed, exceptionally generous conditions are given to the two sectors (agriculture at 48.5% of all emissions and industrial processes at 5.6%) that combined produce over half of New Zealand's carbon emissions. This means that the pricing distortions created by the proposed scheme and the degree of over-investment or under-investment in carbon emissions reduction in other sectors will be significant (one estimate of the size of the effective subsidy to the agricultural sector alone is between $475million and $2.8 billion for the period from 2013 - 2025).

The ETS will result in a relative over-investment in hydro electricity generation which will cause significant and potentially irreversible damage to river environments i.e., sub-optimal environmental outcomes. While water is a renewable energy source, river environments are not renewable.

11. The stationary energy generation sector accounts for 10.6% of all carbon emissions but has no free allocation and an earlier obligation date (2010) i.e., compared to agriculture and industry the sector has significantly more stringent conditions. This fact (coupled with the emphasis on "renewable" energy in the Government's Energy Strategy), means that there is likely to be significant over-investment in hydro electricity generation relative to other sectors in order to meet the Government's carbon emission goals.

12. New Zealand relies more on hydro-generated electricity than virtually any other country in the world i.e., the environmental and social cost of hydro electricity generation is already very high, particularly for whitewater kayakers and other river enthusiasts who the NZRCA represents who value natural river environments very highly.

13. While water is a "renewable" energy source, river environments are not renewable. In many cases hydro power schemes cause significant and in many cases irreversible environmental damage to river environments. Unlike some other "renewable" energy sources, the environmental damage caused by a hydro scheme is significant and in many cases irreversible. For instance a wind turbine can be dismantled and the natural environment can be relatively easily and quickly restored. International evidence suggests that even when hydro schemes are decommissioned, river environments are not always easily, quickly or cheaply restored to their natural state.

14. Consequently, the proposed ETS Bill is not only sub-optimal from an economic efficiency viewpoint, but it will also have significant and potentially irreversible costs to the river environment and is thus likely to result in sub-optimal environmental outcomes. The proposed bill also potentially contravenes one of the stated allocation principles of the ETS bill (principle two - that "the Government seeks to avoid long-term regrets in designing and implementing short-run policies").

We would suggest that the Government consider a more economically and environmentally efficient emissions trading scheme or counter-balancing subsidies or schemes to minimise the distortions created.

15. The size of the economic and environmental distortions created by the differential treatment of sectors under the proposed ETS Bill is significant. We would suggest that the differential in conditions is significantly reduced or eliminated - only then will the full cost of emissions be recognised (i.e., the externality is accounted for) and the appropriate investment made to reduce emissions by all sectors.

16. We would also suggest that if the differentials are not significantly reduced or eliminated then counterbalancing subsidies are given to reduce the environmental and economic distortions created by the proposed scheme. For instance, the NZRCA would support subsidies or schemes to promote supply and demand energy efficiency, for alternative and micro-energy generation and on supporting the development of more environmentally sustainable hydro power schemes (e.g. tunnel and run-of-river schemes rather than storage schemes).

Supplementary Submission

17. The NZRCA may wish to prepare a supplementary submission which will be available to the select committee prior to the public hearings.

Wish to be heard

18. The NZRCA wishes to be heard at the public submissions on the ETS Bill.

Yours sincerely,

Duncan Catanach
North Island Conservation Officer
New Zealand Recreational Canoeing Association

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