$50b rise in ETS costs 'shows process too rushed'

MPs are pointing to a last-minute $50 billion increase in the Treasury's estimate of the cost to taxpayers of the Government's proposed changes to the emissions trading scheme as evidence of how rushed the process has been.

The finance select committee split down the middle so the ETS amendment bill was reported back unchanged to the House yesterday. Five minority reports from the parties represented on the committee was all it had to show for its deliberations.

Climate Change Minister Nick Smith is in negotiations with the Maori Party over what changes it requires to give the Government the numbers to pass the legislation before Christmas.

Act's report said "the committee was subjected to the bizarre spectacle of having to adjourn its last meeting on Wednesday, November 11 for half an hour while Treasury officials withdrew to clarify whether they had made a $50 billion error or not. This is not a refection on the officials but on the speedy and reckless process National adopted to push the bill through the committee."

Labour said the bill would add "enormous costs on to future generations".

Labour MP and former Climate Change Minister David Parker said that since the Cabinet had approved the proposed amendments on the basis of a 6 to 8 per cent increase in Government debt, the fact it would be twice that should give ministers pause.

But Dr Smith said estimates of fiscal impacts beyond, say, 2020 depended on so many unknowns as to be of little value.

The Treasury's advice to the Government in September was that emitter-friendly changes it plans to make to the Labour scheme already on the statute books would add between 6 and 8 per cent of gross domestic product to Government debt by 2050.

But last week it told the committee it estimates the cumulative difference between the two versions of the scheme to be between 13 and 17 per cent of GDP by 2050, or $100 billion.

This is not what the ETS will cost the taxpayer. It is the estimated difference, making assumptions about carbon prices and emissions, between the schemes.

The two key differences are that Labour's scheme caps the number of free units that trade-exposed emitters, including from 2015 farmers, will receive from the Government and how fast that free allocation is phased out. Labour's phase-out rate was 8.5 per cent a year, National's is 1.3 per cent.

Both are seen as default options; the phase-out rate is expected to be modified according to what trade competitors do.

The Government says the 1.3 per cent rate is consistent with its declared target of reducing emissions to 50 per cent of 1990 levels by the middle of the century.

But the Parliamentary Commissioner for the Environment, Dr Jan Wright, disputes that and other critics of the target contrast it with reduction of 80 to 95 per cent which the United Nations Intergovernmental Panel on Climate Change says developed countries need to achieve by mid-century.