The Emissions Trading Scheme Act 2008, was rushed through Parliament with many last-minute changes and skimped the requirement for a regulatory impact statement. A proper impact statement would have established whether there was a need for the legislation, ensured all possible options had been investigated and demonstrated that the benefits of the legislation were greater than the cost.

According to Cabinet rules, an impact statement must be undertaken diligently, impartially and from a national interest perspective. In the event, the Government obscured the need, evaded the options, and ignored the costs and benefits.

Fortunately, the new Government's emission trading scheme review includes a rigorous regulatory impact statement.

The essence of the statement process is prudent risk management. Few would doubt that the current economic crisis would not have happened if governments, bankers, lenders and borrowers had exercised prudent risk management.

If they had, governments would not have pressured bankers into lending to people with little income and no equity. Bankers would not have parcelled up "sub-prime loans" and sold them off as good investments, investors would not have bought them, and so on.

What are the risks in the emissions trading scheme? The need for the legislation is driven by a belief that man-made global warming is real and dangerous and that if New Zealand - hopefully followed by others - takes action, the danger will be averted.
Is there unequivocal evidence that such global warming is real and dangerous? Well, actually, no. In the opinion of the UN Intergovernmental Panel on Climate Change (IPCC), there is a roughly 90 per cent "risk" that climate change is man-made and a 10 per cent "risk" that it is natural.

If it is natural, there is no need for the emissions scheme. There is a large body of evidence - some of it very recent - telling us that climate change is natural.

This evidence needs to be weighed against the "projections" of IPCC climate models that failed to predict the steady decline in temperatures since 2002.

We also know that the panel ignored the close correlation between sunspot effects and temperature that has existed over many thousands of years. Hence the "risk" that climate change is natural is much greater than 10 per cent.

If man-made global warming is a myth, then many investments are at risk. Last year, $125 billion was "invested" worldwide in carbon trading and $160 billion in heavily subsidised renewable energy schemes such as wind farms. If climate change is natural, these investments will crash.

Under stock exchange rules, anyone who issues a prospectus is obliged to set out all the risks. I searched the internet and failed to find any evidence that anyone warned investors and others that the value of man-made global warming-driven investments would be at risk. If they crash, the promoters could be sued, many wind farms would lose their subsidies and wind turbines that break down could be abandoned.

Fraudulent carbon trading is another risk associated with the emission trading. Because carbon dioxide cannot be measured accurately and serves no useful purpose for the seller or the buyer, there are huge opportunities for fraud.

An internet search of "carbon trading fraud" gets about 300,000 hits.

A major objective of the trading scheme is to promote renewable energy projects such as wind farms. I have analysed the economics of wind farms in New Zealand and concluded that carbon charges of about $100 per tonne are needed for them to break even with fossil fuel generation.

The current price of carbon on the European market is just over $20 per tonne. At this price, sensible generators will pay the tax and avoid building loss-making wind farms. As a carbon charge of $20/tonne will increase electricity costs to consumers by $800 million per year and increase the windfall profits of hydro generators by $600 million, the generators will win and the consumer will lose. The only benefit might be a tiny reduction in CO2 emissions.

The "risk" that man-made global warming is real must be considered. A carbon charge is not going to make much difference to the climate because, according to the IPCC's computer models, Kyoto, if fully implemented, would decrease world temperatures by 0.06C by 2050. So we can be confident that we will never notice any climate change from the trading scheme.

All it will do is damage our economy and make it even more difficult to adapt. And humankind will adapt - as it has done through past ice ages and warmer periods.

It will be interesting to see if the emissions trading scheme review concludes that adaptation to climate change - whether it is warming or cooling - is the option with the lowest risk and lowest cost.

* Bryan Leyland is a power industry consultant and secretary of the International Climate Science Coalition.