Emissions plans still up in the air

Nick Smith prefers an emissions trading scheme to a tax. Photo / Richard Robinson

Industrial emitters are caught in a triangle of uncertainty.

On one side is the law, in the form of the emissions trading scheme (ETS) legislation passed in the dying days of the previous Parliament, under which they will be bound by the ETS and accountable for their emissions from next year.

They will receive an allocation of free units, at the taxpayer's expense, to cover 90 per cent of their collective emissions at first. But how they will be allocated and how quickly or slowly the allocation will be phased out remain up in the air.

The second side of the triangle is the Government's desire to align the New Zealand scheme - assuming there will still be one - with Australia's.

The third side is the review of the ETS by a special parliamentary select committee set up under National's government-forming agreement with the Act Party. Its terms of reference are extremely broad and pursued thoroughly it could take years. It has received 276 submissions.

When Climate Change Minister Nick Smith appeared before the committee yesterday it became clear that many of the issues in the terms of reference are being quietly taken off the table.

Peter Dunne, who chairs the committee, has made it clear it will not be relitigating the science of climate change.

The question of whether New Zealand should forget about trying to mitigate climate change by reducing its emissions, and instead concentrate exclusively on adapting to it, also looks likely to get short shrift. The overwhelming weight of the parliamentary numbers would not support that, in Smith's view.

On the issue of whether a carbon tax would be a better way to go than emissions trading, Smith said the National Party's view since the late 1990s has been that trading is better.

Most developed countries were going that way, he said. Europe has had an ETS for four years. US President Barack Obama favours one, and the Australian Government plans to introduce legislation for its scheme in the middle of the year.

A major advantage of an ETS is that carbon prices would rise and fall with the economic cycle, Smith said, as evidenced by their recent crash; carbon taxes by contrast would be a more rigid impost.

National's preferred position remained an ETS, appropriately amended, he said.

The Government took the select committee reviews seriously, Smith assured the MPs, and would wait for it to report back before making substantive decisions.

He hoped that would be "timely", given the timetable pressures.

"If there's a deep level of engagement with Australia it may require a slower timetable," he said. "I'm open to that."

Climate change was a global and long-term issue and it was worth spending time getting the response right.

Smith said a key difference between the Australian and New Zealand schemes was their degrees of openness to international carbon markets. The New Zealand scheme allows for the import of AAUs (units from Governments' initial floats) provided they meet still hazy criteria; the Australian one does not. AAUs are expected to lower the cost of carbon.

There are differences in the timing of the introduction of different sectors into the scheme and Canberra has yet to decide whether to include agriculture at all.

Australia has a much gentler phase-out of the allocation of free units to trade-exposed emissions-intensive industries - 1.3 per cent a year instead of 8 per cent here, a rate which National considers too aggressive.