Business lobby groups welcomed proposed changes to the emissions trading scheme agreed by the Government and the Maori Party yesterday, which transfer cost from emitters to taxpayers.
Small and medium-sized businesses, like households, will benefit from a deal that will halve the potential impact on their power and fuel bills, at least for the first 2 years of the scheme which will now come into effect in the middle of next year.
Large industrial emitters have secured three things they argued for consistently. One is a price cap, set at $25 a tonne, at least until the end of 2012. Beyond that there is no commitment of a price cap like that proposed in Australia, though a review in 2011 might reconsider the issue.
Another is an allocation of free units based not on what plants emitted in some arbitrary base year (90 per cent of 2005 emissions) but on an intensity basis.
On that basis how many units an emitter gets free will depend on their performance relative to an industry average, reducing the carbon cost of increased production at least by relatively efficient firms.
The existing law allows for intensity-based allocation but only within a fixed over cap for the smokestack sector as a whole. As that cap becomes a constraint everyone's allocation would be scaled back.
No such cap is envisaged in the amended scheme.
"This appears to be capitulation to Fonterra," said Greenpeace adviser Geoff Keey.
The other major change is a more gradual phase-out of free allocations, at 1.3 per cent a year rather than the 8.5 per cent envisaged under the existing scheme.
These changes to the free allocation provisions align the New Zealand scheme with the Australian one and reflect the agreed position of the two Governments that business should not choose to locate in one country rather than the other on the grounds of its softer climate policy, Climate Change Minister Nick Smith said.
They were condemned as fiscally irresponsible by the Labour Party and as corporate welfare by Greenpeace.
The Greenhouse Policy Coalition which represents the energy intensive sector, said a slower phase-out of assistance to 2050 sent a better signal to industry looking to make new lower carbon investment in New Zealand, which would be good for the economy and good for the global environment.
"We need to remember that our industry is already close to world's best practice in energy intensity and we have one of the highest percentages of renewable electricity of any country in the world."
Business New Zealand chief executive Phil O'Reilly said the Government had listened to business concerns about potential economic damage by providing for a more measured transition into a full trading scheme, while still placing a price on carbon.
"Business was most concerned that the scheme should have an intensity basis of protecting at-risk businesses to avoid penalising firms that are growing."
One area of the existing scheme which is not changed is the provisions relating to forestry, including deforestation liabilities seen as a prohibitive barrier to exit from what can be a suboptimal use of some land currently under forest. This is an ongoing bone of contention with some iwi, especially Ngai Tahu.
However, the agreement with the Maori Party envisages joint ventures between the Crown and iwi to plant new forests that will deliver both climate and biodiversity benefits as well as work. And the Government has reaffirmed its commitment to try to secure international agreement to allow "offsetting" under which deforestation liabilities can be avoided if a new forest is planted somewhere else to replace one harvested on land which has a higher and better use.
Owners of post-1990 or "Kyoto" forests will be free to sell their credits on the world market and will not be bound by the transitional price cap domestically.
The agreement also sweetens the transitional provisions for the fishing sector, lifting the grandparenting or free allocation provisions from 50 to 90 per cent of existing levels.
* Change of plan
$25 a tonne carbon price cap for three years at least.
Agriculture emissions not in scheme until 2015.
Incentives to plant more trees.
Impact on electricity and petrol prices halved.