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Australia’s carbon pricing policy and what it means for NZ business

BusinessNZ has today released a report looking at how Australia’s newly announced Clean Energy Future Plan (CEFP), and the associated Carbon Price Policy, could impact New Zealand businesses. It’s asking New Zealand approach the CEFP with caution when it comes to comparing it with our own Emissions Trading Scheme (ETS). 

Speaking of the report, prepared by Frazer Lindstrom and Castalia, BusinessNZ chief executive Phil O’Reilly says the Australian scheme announcement is welcome, however there is a significant amount of water to go under the bridge before any changes are made to the New Zealand scheme because of the Australian proposals. 

“Let’s take time before jumping to conclusions based on headline carbon prices.” 

The report acknowledges that overall, the Australian policy has in fact been carefully designed so as to ensure the impacts from an economic and environmental stance are minimised.  But it also reiterates there are fragilities within the scheme, not least because it is “heavily reliant on carbon revenue being raised, which increases the risk of Government intervention through price controls, changes to shadow carbon pricing in the transport sector, and other mechanisms”. 

Other conclusions from the report, which can be downloaded in full HERE, include: 

Investment certainty in Australia is undermined by the political risks and design of the scheme. 
Whether the Australian scheme is legislated and its longer term durability is far from certain. Even if durable, the structure of the scheme is more heavily reliant on carbon revenue being raised, which increases the on-going risk of Government intervention through price controls, changes to shadow carbon pricing in the transport sector, and other mechanisms. 
Simplistic comparisons of stringency based on carbon price alone are inappropriate. 
Due to its narrow coverage and high compensation, the Australian scheme is likely to have a lower impact on business competitiveness and or on business practices compared to its New Zealand counterpart. This lower cost impost is, in turn, likely to have a limited impact on rectifying the competitive disadvantage currently faced by New Zealand businesses trading into Australia, though a more detailed sector and firm-level analysis is required to determine the precise impact. 
New Zealand and Australian Schemes require different corporate risk management approaches.
The differences in the schemes present a challenge for New Zealand businesses with Trans-Tasman operations or those who are looking to invest in Australia. Corporate risk management approaches in respect of trading mandates, regulatory requirements and economic evaluations will need to be differentiated. 
New Zealand needs to retain full control of its NZETS and take into account broader international policy than that of Australia.
Any integration of the New Zealand and Australian schemes by bilateral trade of fungible units—as long as the basic design elements of each scheme remain as at present—would disadvantage New Zealand businesses relative to their Australian counterparts.

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