Commissioner for the Environment strongly criticises Government plans to water down climate change scheme

Critics and supporters of Government plans to water down the emissions trading scheme began making their case to Parliament's finance and expenditure select committee this week.

Parliamentary Commissioner for the Environment Jan Wright said the amendments to the Climate Change Response Act made a farce of New Zealand's response to climate change.

"By making taxpayers subsidise the cost of pollution indefinitely, the amendments distort the market and limit the incentive to reduce emissions," she said.

Officials had estimated the direct cost to the taxpayer of the changes would be about $330 million over the next four years, Wright said.


But that was based on a carbon price of $6 a tonne. "At the price carbon was just over a year ago this figure would be $1 billion."

Under the ETS major trade-exposed polluters receive a free allocation equivalent to 90 per cent of their emissions.

Another transitional measure - buy one, get one free - reduces their effective liability to 5 per cent of their emissions.

The provision is now to be extended indefinitely, and the gradual whittling down of the 90 per cent free allocation is on hold indefinitely.

"In such circumstances there is no way New Zealand would reach its legislated target of a 50 per cent reduction in emissions by 2050," the commissioner said.

But Business New Zealand's John Carnegie told the select committee that what was thought to be a transitional period now seemed permanent, or close to it.

"Caution is required, rather than continuing to base policy on over-optimistic assumptions on international action, in order to ensure that changes do not place a burden on businesses disproportionate to the costs faced by our trading partners, not just Australia, or excessive at a time of global economic weakness," he said.

For the scheme's first year, to mid-2011, the carbon price was stable at about $20 a tonne and money flowed from energy consumers to forest owners with carbon credits to sell.


But since then international carbon prices have collapsed, and New Zealand units can be had for around $4.

Emitters have loaded up on cheap imported carbon, prompting calls to limit the extent they can meet their obligations from that source.

The commissioner advocates limiting it to 50 per cent, in line with Australia's proposed ETS.

Forest Owners Association chief executive David Rhodes backs Wright's criticism of the planned changes to the scheme. "With carbon prices hovering around $5 a tonne, there is no incentive for emitters to invest in clean technology when even that price is halved for them.

"Nor is there the incentive for land owners to plant trees to store carbon," he said.

For carbon forestry to stack up as an investment, a minimum carbon price of between $15 and $20 tonne was needed.

"At present carbon prices it is once again economic for forest owners on suitable land to pay any conversion liabilities and convert forests to dairying, tourism or lifestyle blocks," Rhodes said.

But Carnegie reminded the select committee that a limit on imported units was not supported by the 2011 review of the scheme chaired by David Caygill, on the basis that it would contravene the principle of least cost compliance.

Export New Zealand executive director Catherine Beard argues that low carbon prices reflect how slow and uncertain international action to price carbon remains, whatever the rhetoric.

"For these reasons we support the bill's maintenance of the moderating features, until such time as the world's major emitters move top price carbon in a comparable way."