Carbon deal lifts taxpayers' bill

Labour leader Phill Goff says the changes are fiscally irresponsible. Photo / Greg Bowker

A deal between the Government and the Maori Party on emissions trading legislation will halve the impact on power and petrol prices over the first 2 years of the scheme.

But those concessions, and more generous terms for large industrial emitters and farmers, will transfer the cost of meeting Kyoto targets to taxpayers.

The cost will be at least $400 million by 2013 and possibly much more thereafter.

The existing scheme, passed in the final days of the previous Government, would have increased power prices by about 10 per cent or 2c a kilowatt/hour and petrol and diesel prices by about 7c a litre.

That is at current international prices for tradeable rights to emit the greenhouse gases blamed for global warming which oil companies and coal or gas-burning electricity generators will have to buy and surrender to the Government.

They would then pass the cost on to consumers.

The Maori Party regarded this burden as falling disproportionately on low-income households.

The deal with the Maori Party gives the Government a bare majority for amending legislation that makes the emissions trading scheme more emitter-friendly, at least to the select committee stage.

But it has killed the prospects of negotiating a scheme that Labour could accept, giving business investors certainty beyond the next change of government.

Labour leader Phil Goff said the changes announced yesterday were fiscally irresponsible and could be expensive to the taxpayer, as well as weakening the incentive for emitters to reduce their emissions.

"It's an absolute about-face by [Prime Minister John] Key. Less than one week from the restart of the negotiations, and without notice, they have gone in a different direction."

The transport and stationary energy sectors will now come into the scheme on July 1 next year, six months earlier and later respectively than under the existing law.

That will provide a local market in which owners of post-1990 forests can sell carbon credits should they wish.

But for the first 2 years, oil and power companies will now have to surrender only a one-tonne carbon unit for two tonnes of emissions. The taxpayer would pay the cost of the other one. Alternatively they could pay the Government a cash price of $25 a tonne.

Agriculture, which is responsible for half the country's emissions, will still come into the scheme, but two years later, in 2015.

It will also get a more generous allocation of free units.

So will the smokestack industries - large industrial emitters like the Glenbrook steel mill, the Tiwai Point aluminium smelter and the Marsden Point oil refinery - whose international competitiveness would be jeopardised if they had to pay the full cost of their emissions.

The deal announced yesterday loosens the rules for them so that they resemble those applying in Australia - a more liberal allocation of free units which will then be phased out much more slowly, at a little over 1 per cent a year rather than the 8 per cent enshrined in the current scheme.

* The deal includes

* Revised entry dates of July 1, 2010, for transport, energy and industry and January 1, 2015, for agriculture.

* Transitional phase until January 1, 2013 for the transport, energy and industrial sectors.

* Proposal to enhance energy efficiency assistance, including home heating and insulation, for low income households.

* Treaty clause in the legislation to ensure Crown's obligations to its Treaty partner are not compromised.

* A commitment from the Government to work with iwi and the Maori Party to find solutions for iwi with forests returned in pre-ETS Treaty settlements.

- ADDITIONAL REPORTING: NZPA