KEY POINTS:
It is neither fair nor efficient that households, small businesses and road users will bear 90 per cent of the cost of the Government's planned emissions trading scheme over the next five years, a report for the Sustainability Council says.
And the scheme would do little to reduce emissions or prepare the economy for a much more stringent international regime to come.
The report by economists Geoff Bertram and Simon Terry says households, small businesses and road users face costs of $4 billion over the five years, including $1.2 billion in windfall profits which electricity generators with renewable generation assets stand to make when wholesale power prices include a carbon charge.
But the agriculture sector does not come into the scheme until 2013, while the smokestack sector will have the lion's share of their emissions covered by a free allocation of New Zealand units - the local carbon currency created, unnecessarily in the authors' view, for the scheme.
Bertram and Terry propose amending the scheme so that all emitters pay the carbon charge on the same proportion of their emissions from the outset. "If spread equally in this way the cost of the Kyoto bill would be covered if all emitters paid the world price on about a third of their emissions from 2008 to 2012," they say.
"If individual emitters face difficulties as a result, and if there are benefits to the nation in providing transitional assistance, the required subsidies could be paid transparently from the Government's accounts." The delayed inclusion of agriculture represents a subsidy of $1.3 billion over the next five years, Bertram and Terry say, even allowing for farmers' share of higher fuel and power costs.
They dispute claims that the agriculture sector has few economic options to reduce emissions, citing amongst other work a Government-commissioned report by ICF International which concluded there were at least 5 million tonnes a year to be had at a cost of less than $30 a tonne.
Because so much of the country's emissions fall outside the scheme and because there are limits to the extent to which people cut back their petrol and power usage in response to higher prices, the ETS is likely to reduce the country's greenhouse gas emission by less than 2 per cent compared with what would happen otherwise, the report says.
That would leave gross emissions by 2012 about 30 per cent above 1990 levels, when climate scientists are calling for developed countries to reduce their emissions to 25 to 40 per cent below 1990 levels by 2020.
"New Zealand would commence the next commitment period staring down from the top of an emissions cliff," Terry said.
HOW IT WORKS
* The Climate Change (Emissions Trade and Renewable Preference) Bill sets up a trading scheme which will eventually affect all sectors of the economy, including agriculture.
* The system will make greenhouse gas emitters pay for their emissions through the trading of carbon credits.
* The scheme is to be phased in by sectors. The stationary energy sector - electricity generators and large industrial plants - has obligations from January 2010.
* Large trade-exposed companies, especially in the aluminium, steel, cement and glass industries, will get a free allocation of most of the units they need, but still face a carbon price at the margin.
