Swiss cheese or cheddar: what is emissions trading now?

One of the hazards of MMP is Swiss cheese policy: big holes where cheese should be. Is this what is happening to the greenhouse gas (GHG) emissions trading legislation?

The carbon tax ended up with more holes than cheese as the government accommodated big industries’ and farmers’ objections. The tax had been the core of the government’s climate change policy. It vanished in 2005.

The emissions trading scheme (ETS) replaced it last year. It is intended over time (quite a long time) to lower GHG emissions by setting a reducing cap on allowable emissions — which vary by sector — above which emitters would have to buy credits.

Last week the government postponed the phase-in of transport, this country’s fastest-growing GHG-emitting sector. Its grounds were that fuel consumption is now rising more slowly, so climate change objectives are (sort of) being met for now. It also had an economic objective: less future inflationary pressure on interest rates, to ease households’ pain. Unspoken was a political objective: yelping voters don’t habitually hand governments fourth terms.

The government also accepted a recommendation from its leadership forum of chief executives of business, lobby groups and non-government organisations that the phase-down of free emission allocations to big emitters and agriculture should be delayed five years.

These are large holes. The ETS is starting to look like a Swiss cheese. Is it going the way of the carbon tax?

The government says no. It insists the cheese is still cheddar.

First, it says that even though the ETS will hit the fuel pump, furnace and farm more slowly than last year’s grand design promised, it will still be, when fully operating, the world’s first “all gases, all sectors” scheme, finessing Europe’s vaunted scheme.

Second, it says that, having set up the leadership forum to examine and improve the scheme, it would be wrong to ignore its recommendations — doubly so because the forum managed a degree of consensus. And it says delays were allowed for in the bill’s explanatory note.

But the transport delay looks opportunistic. What will the government do if oil prices fall? What will the rationale for putting transport in at all be if oil hits $US200 a barrel?

And the politics of the changes are at best mixed. The suddenness invited the media to portray them as election jitters and the more election-jittery a government looks to voters the less election-credible voters are likely to find it. Last week’s lurch is not the resolute, decisive, long-sighted government Helen Clark promotes as a counterpoint to John Key’s “flip-flops”.

The retreats raise questions as to whether there really will eventually be an “all gases, all sectors” scheme? If the cat is being nice to the mice, how holey will the cheese get?

To address this involves a political consensus and a national consensus.

The leadership forum was intended to broaden the pool of contributors to policy. It was a rare attempt in a political system dedicated to adversarial confrontation. And, remarkably, almost all business and green members stayed on board.

But the forum did not include some critically affected businesses. And Business New Zealand boss Phil O’Reilly, who was a forum member, dissented loudly from its recommendations.

And it was set up late. If climate change is as big and as multi-decadal as the government insists, the national interest suggests trying to build a real consensus, using Scandinavian techniques canvassed in this column for two years. Such mechanisms take years to work, not a few months.

Until the forum, the government’s attitude to consensus was that of David Lange’s 1980s one-liner that consensus is people following the government’s lead.

MMP changed that a bit because a government must get 61 votes in the House and Clark has set textbook standards in managing relations with small parties and especially Winston Peters. Her staff constantly works the small-party rounds.

But if climate change is as big as her past rhetoric portrayed it, that points to a need for agreement between the two big parties — as there is now on foreign affairs, defence and trade after decades of dispute. Climate change is a foreign relations issue among other things.

And actually National would like an agreed law, even if much detail must be cleaned up next year (and inevitably much will). Given its special constituencies, it doesn’t want to have to relitigate the issue from the ground up if it wins power.

But there is limited time to build a solid, durable bipartisan agreement in or outside the select committee process. The select committee is to report on June 11; the election looms.

Key will focus on climate change and the environment at a party regional conference this coming weekend. The cabinet might do worse than mine his speech for inviting clues.

After all, bipartisan agreement worked for smacking 13 months ago after Key looked for a compromise. And cheddar is more solid than Swiss.