By John Pagani*
It looks like the government is looking at once again backing away from its commitment to bring agriculture into the emissions trading system.
The core issue here is taxpayer subsidies. If agriculture is not in the emissions trading system, that is another way of saying taxpayers should write out cheques and hand them over to farmers.
Every dollar that goes into subsidising agricultural emissions is a dollar someone else has to pay.
There is no easy option here. You can't say 'leave agriculture out and no one will pay.' Someone has to pay for emissions.
At the moment, the government takes all our international credits and all our liabilities, and then allocates them through the ETS. If it allocates free credits to meet agricultural liabilities then someone else misses out on those credits and someone has to pay the liability. (If you say 'no ETS', then you have to explain how you are going to meet your Kyoto obligations.)
Reporters have to stop pussyfooting around the main issue here: Subsidies.
Emissions are a 'who pays' issue.
All of the meaningful argument is around who should foot the bill, and why some people should avoid it.
Framed that way, the farmers' argument seems to be: taxpayers should subsidise agriculture because it's so important to our economy. That is the exact same argument farming used to cling to subsidies in the 80s.
The most efficient way to resolve 'who pays' issues is to create a market, which is what the ETS does. The least efficient is to put cows on Working for Famiies, which is what 'leaving agriculture out of the ets' amounts to.
Let's say we had a 'petrol trading system' similar to the ETS.
The government would buy all the petrol coming into New Zealand, and then distribute it. Most people would buy petrol from the government, and the government would then use that cash to pay for the imported fuel. Now say the government decided that farmers are so important to our economy they should have some cheap petrol (or free petrol). What would happen?
The government would still have to pay for all the petrol coming into the country, so everyone else would have to pay more to make up for the lost revenue from farmers getting free gas. Or else taxes would have to be higher. Somehow the government would have to make up the shortfall.
And farmers would use more petrol because it would be so damn cheap.
They would use petrol generators instead of electricity to milk the dairy herd because the petrol would be free to them - even though it would be more expensive and inefficient for the New Zealand economy as a whole.
We would not contemplate a scenario like this for petrol. Why do we contemplate it for emissions?
Subsidies need special economic justification.
It is a road to bankruptcy to subsidise your main industry.
*John Pagani is an independent political consultant and writer who has worked as an adviser to Labour Leader Phil Goff. He writes his own blog at Posterous.