Key Points:

The Government stands to make windfall gains of billions of dollars from its emissions trading scheme, says Solid Energy chief executive Don Elder.

Appearing before Parliament's finance and expenditure select committee yesterday, he highlighted the extent to which the Government would over-recover from New Zealand emitters the cost of complying with the country's obligations under the Kyoto Protocol.

It requires New Zealand to reduce net emissions to 1990 levels or cover the over-run by buying emissions units on the international market, representing emission reductions somewhere else in the world.

The treaty does not require New Zealand to take responsibility for every last tonne of greenhouse gas it emits, only the excess over 1990 levels.

But the Government scheme in its present form would impose a carbon liability on every litre of transport fuel (from 2011) and every cubic metre of gas and tonne of coal burnt in power stations (from 2010).

While Kyoto gives the Government a free allocation of units up to 1990 levels, under its proposed scheme, petrol and electricity consumers get no such break.

The scheme does give free allocation - to 90 per cent of 2005 levels - to large industrial emitters and the agriculture sector when they come into the scheme, but that will be reduced to zero between 2018 and 2030.

Dr Elder told MPs that in 2012 the Government would get units in excess of what it needed worth $500 million, assuming a conservative carbon price of $30 a tonne.

By 2030, when farmers and the smokestack sector would also be paying for 100 per cent of their emissions, and with a carbon price of $100 to $200 a tonne, the Government would make an extra $5 billion to $10 billion a year.

In effect that represented a substantial change to the tax system, which should be debated up-front and not introduced as the unintended consequence of an environmental bill.

A spokeswoman for Climate Change Minister David Parker said that if such a scenario was emerging, changes would be made during the scheme's five-yearly reviews.

The fact that more than one review is now envisaged is another change to the scheme. "It didn't make it into Tuesday's announcements," she said.

Dr Elder's analysis is in line with the Sustainability Council's report last week which said households, small businesses and road users were set to bear 90 per cent of the cost of the emissions trading scheme in its early years.

The transport sector emits about 16 million tonnes a year of carbon dioxide. At $30 a tonne, a charge on 100 per cent of that would cost road users $480 million a year.

But the Government's current estimate of its total liability under Kyoto for the whole period from 2008 to 2012 inclusive is only $480 million. And transport accounts for only a fifth of national emissions.

Dr Elder said the longer-term carbon prices he used were at the levels his international peers were talking about as likely if emissions trading was to make a significant difference to global emissions.

"The European and Australian approach is to say: What's our country's obligation? What part of that do we devolve to emitters. No one else is talking about how quickly we can get to zero," he said

Greens co-leader Jeanette Fitzsimons asked if the longer-term projections factored in emissions-reducing changes in behaviour in response to higher carbon prices.

Dr Elder said the projections factored in no big technological breakthroughs but a steady improvement in economy-wide energy efficiency of about 0.7 per cent a year.


As the planned emissions trading scheme stands, the Government will be raking in a lot more than it requires to meet its international obligations, says Don Elder, head of the State-owned Solid Energy.

The over-recovery will be $500 million in 2012 and could rise to up $10 billion in 2030, depending on how high world prices for "carbon" (tradable rights to emit greenhouse gases) go.

Such a big increase in the tax take should not be done through the back door of an environmental bill, he said.

The Government said if it was heading for that sort of overshoot, the scheme would be adjusted at one of its periodic reviews.