Catherine Beard: Rushed emissions law will cost Kiwis dearly

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The "game on" emails are already flying around from carbon market brokers. They are gleeful that Labour has enough backing from NZ First and the Green Party to ensure the passage of legislation to introduce emissions trading in New Zealand.

They are rubbing their hands at the thought of this new market to trade in and make money on.

Unfortunately for the consumers and businesses that will be bearing the costs of the scheme, the process for passing this law - which is a major economic and tax reform - has been fast and opaque, with Labour forced into horse trading with the Greens and NZ First to get their support.

While all the details of the negotiated changes have yet to emerge, you can bet your bottom dollar the changes will have resulted in a more expensive scheme for consumers and business, despite the sweetener of a billion-dollar fund for energy efficiency and a one-off rebate for all households to offset the increase in electricity prices.

Apparently the Green Party has successfully argued that the UN Kyoto units that were going to keep the price of carbon affordable (AAUs, of which there are a surplus due to the collapse of Eastern Europe and Russian economies after 1990) should not be able to be purchased by New Zealand companies unless they have been "greened" first.

This is a major change to the bill that was in front of the select committee.

The requirement to "green" AAUs by only allowing the purchase of those associated with an emission reduction project will effectively increase the cost of the scheme from $15 a tonne of carbon dioxide equivalents to $40 to $50 a tonne.

Surely a major change to the cost of the scheme such as this should have been debated and analysed so the additional cost could be worked out - and the impact on consumers and businesses assessed.

At $50 a tonne of carbon, households are looking at having to find an extra $500 to $600 every year to pay for electricity and fuel, and carbon analysts are expecting the price of carbon to reach $100 a tonne in the next four years, taking the increase in the cost of living to around $1000-plus a year by 2012.

To compensate for this, the Government is promising a $1 billion fund aimed at insulation and efficient heating and a one-off electricity rebate to offset the increase in power bills in the first year. A one-off rebate to counteract the first year's increase in electricity prices will be of little help once prices settle at 20 per cent higher than they were previously on a permanent basis.

Details of how the $1 billion fund for energy efficiency will be divvied up are not clear yet, but of course not all households will be entitled to access this fund as it will be "targeted" assistance. All these increases in costs are of course magnified many times over for businesses, especially those that are energy intensive.

Most businesses in the energy-intensive part of the economy are also our biggest employers and exporters. They are the engine room of our economy.

They are looking at what has emerged from Labour's negotiations with NZ First and the Green Party with dismay, as they can see that the entitlements that were supposed to help them remain competitive internationally have been whittled away.

The Emissions Trading Bill was supposed to have provisions that ensured New Zealand did not lose its efficient industries and large employers to other countries that do not price carbon. It is looking increasingly like the policy intent will fail, and that many of our largest employers will struggle to continue to justify their existence in New Zealand if it becomes an increasingly high-cost place to do business.

This is a bad environmental outcome as well, given our industry and agriculture are among the world's best when it comes to energy efficiency and are sourcing electricity from one of the highest percentage renewable electricity systems in the world.

An emissions trading scheme could be implemented in New Zealand that did not cause the amount of economic pain we can expect with this one. Most other countries that are setting up ET schemes are being very cautious about scheme design and are ensuring a gradual exposure to the cost of carbon.

Australia is talking about a low and stable price of carbon (using price safety valves if necessary to achieve this). The EU has exposed only 40 per cent of emissions to a price on carbon and has largely shielded its energy-intensive industries through generous allocation of permits to emit.

The US is trialling limited emissions trading. One of its first schemes, called the Regional Greenhouse Gas Initiative, is limited to electricity generators only, with a carbon price trading at $5 a tonne CO2 - a far cry from New Zealand, where the economy will be exposed to $40-$50 a tonne.

New Zealand can have an effective emissions trading scheme that incentivises new investment in cleaner technology, has a stable and relatively low price of carbon and has the support of industry and the community because it is affordable and is reducing emissions below business as usual.

But the scheme that has just been rushed through before an election is not that scheme.

* Catherine Beard is executive director of the Greenhouse Policy Coalition, an industry association representing the views of the industrial/energy-intensive sector.

- NZ Herald

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