ASEC ETS Study Quoted in Fletcher Building Submission

Andrew Shelley Economic Consulting Ltd (ASEC) recently conducted a study for Fletcher Building, the Impact on NZ Steel Manufacturing of the Australian and New Zealand Emissions Trading Schemes. This study was cited in Fletcher Building's Submissions on the Climate Change Response (Emissions Trading and Other Matters) Amendment Bill, submitted to the Finance and Expenditure Select Committee. The executive summary from the ASEC report is included as an annex to Fletcher Building's submission.

This study compared the impacts of the NZ ETS and the scheme proposed for steel manufacturing under Australia's Clean Energy Futures Plan. The relatively favourable treatment received by Australian steel manufacturers would make steel production in New Zealand less attractive, possibly resulting in the long-term run-down of the Pacific Steel plant. The potential shift in production to either Australia or Asia would result in consequential increases in greenhouse emissions. Given the difference in emissions intensity, the increase in global emissions from production in Australia rather than New Zealand would be in the order of 125,000 tCO2 given projected production volumes in 2015.

The Fletcher Building submission also cites two early studies conducted by Mr Shelley while working for CRA International. Those studies, conducted for the Ministry for the Environment, analysed the impact of the (then proposed) NZ ETS on Golden Bay Cement and on Pacific Steel.

Studies by Andrew Shelley cited in Fletcher Building ETS Submission

In 2008 Andrew Shelley conducted two studies for the Ministry for the Environment concerning the effect of the (then proposed) emissions trading scheme (ETS) on the competitiveness of two of New Zealand's large trade-exposed emissions-intensive industries: Pacific Steel, a large steel recycling plant; and Golden Bay Cement.

Mr Shelley's studies were cited by Fletcher Building in their Submissions on the Review of the New Zealand Emissions Trading Scheme, submitted to the Emissions Trading Scheme Review Panel.

The first study was the Impact of the NZ ETS on Cement Manufacturing, prepared by CRA International for the Ministry for the Environment, 2008. This study analysed the potential impact of the ETS on Golden Bay Bay Cement. The analysis indicated that the ETS would create significant incentives to switch to the import of lower-cost clinker¹, particularly with high exchange rates. Importing clinker could result in emissions leakage, i.e. an increase in global emissions.

The second study was the Impact of the NZ ETS on Pacific Steel, prepared by CRA International for the Ministry for the Environment, 2008. This analysis indicated that under some plausible scenarios the NZ ETS could provide the incentive for Pacific Steel to cease production. If that occurred, then Pacific Steel's production of rebar and steel wire would switch to more emissions-intensive plants, and further emissions would be generated as scrap steel (e.g. old car bodies) were shipped offshore rather than recycled locally.

Summaries of both reports are provided in the annex to Fletcher Building's submission.

Note:
1. Clinker is a key intermediate product in the manufacture of Portland cement. It is produced in a high temperature kiln from the raw materials (limestone plus additives). Clinker is easily stored and transported, and is traded internationally.