Costly side-effect from delaying ETS provision

Climate Change Minister Tim Groser said today's decisions would be likely to draw criticism from an "uber-green" lobby. Photo / NZH

Moves to water down the emissions trading scheme which the Government announced last week will cost the taxpayer $328 million over the next four years.

Just over 80 per cent of the impact, or $265 million, arises from the decision to extend indefinitely the "transitional" buy one, get one free provision of the scheme, under which oil companies, power companies and industrial emitters with obligations under the scheme need to surrender only one unit to the Government for every 2 tonnes of emissions they are liable for.

Under the present law that was to have expired at the end of this year.

By contrast a Cabinet paper released yesterday puts the fiscal impact of deferring the entry of agriculture into the scheme at just $35 million over the next four years, even though agricultural emissions represent 47 per cent of the national total.

That is because it was not due to happen until 2015 and would in any case have been subject to the same generous allocation of free units as other trade-exposed sectors. The calculations assume a carbon price around $8 a tonne.

Climate Change Minister Tim Groser objects to describing a decision not to increase a charge or a tax as a "fiscal cost".

"If I said 'Let's do a tax increase to raise $1 billion' and the Finance Minister said 'I don't think households and companies can afford $1 billion' could I then say, "But minister, there's a fiscal cost of $1 billion to your not agreeing to my proposal'?" Groser said. "We never saw this as a revenue-earning mechanism."

In this case, however, the "proposal" is the current law of the land.

Sustainability Council executive director Simon Terry said that with the latest changes the et of ets now stands for "eternal transition".

"Delay is not a smart plan because putting off the hard work of getting to a low carbon economy makes the task much more costly to achieve ... ," Terry said. "Delay is not a fair plan because it shifts costs from today's polluters to tomorrow's taxpayers."