By BRIAN FALLOW
For business, the Government's long-awaited policy on climate change has a deep sugar coating around what at this stage is a small pill.
It gets most of what it wanted, short of having the country walk away from the Kyoto Protocol like the Americans and, most likely, Australians.
That was never on, because of the Government's conviction that global warming is a long-term risk to the climatic foundations of the economy and that New Zealand therefore has a vital interest in the preservation of the protocol as at least a start on effective international action.
Climate Change Minister Pete Hodgson concedes that Kyoto's current provisions will do little.
But they are an essential first step, a binding international agreement, if limited in scope.
Kyoto sets up systems to hold countries accountable for their emissions and mechanisms allowing them to reduce those emissions in a least-cost way.
Likewise, the policy is the thin end of a wedge. It would put a carbon tax in the statute book, which could later be increased to match more stringent Kyoto targets.
At this stage, though, a carbon tax would be five or six years away. And it would be capped at 6c a litre of petrol and 7c for diesel. It may be less, if the international price of carbon is less than $25 a tonne of CO2 equivalent, which it may well be with the absence of the United States from the market.
This is comparable to this year's 4c increase in the petrol excise to fund measures to relieve traffic congestion in Auckland.
Electricity prices will rise to reflect the fossil fuels used in thermal generation.
The Government estimates a rise of 9 per cent for residential consumers and 16 per cent for industrial. Commercial users would be somewhere in between.
That compares with increases of up to 50 per cent faced by some commercial consumers this year.
Gas and coal prices would also rise, by 24 and 44 per cent respectively, for industrial users.
But large emitters, whose competitiveness would be jeopardised by a one-size-fits-all carbon tax - such as those in the aluminium, steel and wood pulp industries, will be able to negotiate their own agreements.
Revenue from the carbon tax and from the international sale of forest sink credits, which the Government will retain, would be "recycled", Hodgson said.
That might take the form of tax cuts.
But some of the money, or carbon credits themselves, could also be used to provide financing for projects such as wind farms, which would reduce emissions more than would occur in a business-as-usual scenario.
The package was greeted with a chorus of disappointment from environmentalists.
Greenpeace spokesman Robbie Keman said, "Avoiding action now to tackle climate change is delaying the inevitable."
Greens co-leader Jeanette Fitzsimons said the Government was putting industrial growth first and the global climate second. A carbon tax should have been introduced immediately.
Jane Dawson of the Climate Defence Network called it a cop-out: "Pollution as normal, with a bit of window dressing."
Cath Wallace of the Environmental and Conservation Organisations said, "It is a big sell-out of the future, the environment and the people of the Pacific states, whose homelands will be at risk from rising sea levels."
The Council of Trade Unions said the policy addressed most union concerns.
But business groups gave at best grudging and wary approval.
Federated Farmers welcomed confirmation that there would be no "flatulence tax".
But president Alistair Polson said farmers would be affected by higher transport and energy costs.
Research might provide a solution to ruminant methane emissions, but there were no silver bullets on the horizon and there was a risk of consumer backlash at manipulating livestock digestive systems.
The forestry industry seems to have achieved as much shelter as agriculture.
Although the Government will retain ownership of the forest sinks credits, it relieves forest owners of any obligation to account for the carbon released upon deforestation, eliminates a potentially distortionary distinction between pre- and post-1990 forests, and holds out the prospect of shelter for not only existing pulp mills but for future plants need to process the coming wall of wood.
Nevertheless, Forest Industries Council chief executive James Griffiths said it was too soon to say how the policy would influence investment in forestry.
Concerns remained about the implications of the Government having a pecuniary interest in the carbon density of forests on forest owners' right to manage their forests as they saw fit.
Greenhouse Policy Coalition chairman Chris Baker said negotiated greenhouse agreements gave an opportunity for some companies and industries to reduce the costs and risks associated with climate change policies and would enable them to invest with confidence.
"But these will not be costless arrangements for industry, and until we see what the Government is prepared to accept, we won't know the real impact."
Business New Zealand chief executive Simon Carlaw described the intention to ratify Kyoto at all as the biggest economic gamble since Think Big.
"Only New Zealand and some European Union countries are now likely to take action in response to a flawed agreement that will not for many years, if ever, bind those countries responsible for most global atmospheric pollution," he said.
The protocol cannot come into force unless it is ratified by countries responsible for at least 55 per cent of developed country emissions in 1990, Kyoto's year zero.
In practice, that means Europe, Russia and Japan, as the United States has walked away.
The US pullout intensifies the free rider/competitiveness problems for those who stick to the protocol.
But they would exist anyway, as developing countries, including many of New Zealand's trading partners and competitors, have yet to undertake any obligations under the treaty.
Collectively, they are expected to overtake the developed countries in emissions before 2020.
Intergovernmental Panel on Climate Change (IPCC)
United Nations Environment Program
World Meteorological Organisation
Framework Convention on Climate Change
Executive summary: Climate change impacts on NZ
IPCC Summary: Climate Change 2001