KEY POINTS:
The Government has yielded to pressure from key industry sectors, including agriculture, and given them more time to adjust to a cost on their carbon emissions.
Prime Minister Helen Clark said yesterday that, as well as deferring until 2011 the inclusion of transport fuels within the emissions trading scheme, the Government proposed to delay the beginning of the phase-out of free allocations for trade-exposed sectors to 2018.
But as the emissions trading scheme is about transferring the cost of meeting New Zealand's international climate commitment from taxpayers to the emitters, these concessions will come at the expense of taxpayers.
Business Council for Sustainable Development chief executive Peter Neilson said the only way for New Zealand as a whole to reduce its Kyoto bill was to reduce emissions.
"The cost needs to be devolved to emitters so they change their behaviour," he said.
As the legislation - now before the finance and expenditure select committee - is drafted, large industrial emitters will be included in the scheme from 2010 and the farm sector from 2013.
But they will not have to cover the cost of every tonne they emit.
They will be "grandfathered", or given a free allocation of emissions units, equivalent to 90 per cent of their emissions in 2005.
They will only have to deal with the remaining 10 per cent, plus any growth in output, either by reducing emissions or buying units to cover them.
The bill, as drafted, reduced that 90 per cent free allocation to zero from 2013 to 2025.
Industry groups and companies complained that that was too tough and too inflexible for businesses whose international competitors were unlikely to face a similar impost.
The Prime Minister's announcement yesterday would put back both the start date and the end date by five years.
Climate Change Minister David Parker said the proposal to provide longer-term support for trade-exposed businesses and agriculture arose from members of the Climate Change Leadership Forum, a high-powered advisory group the Government set up. The select committee was getting a similar message from many groups, he said.
"The changes do not alter the fundamentals of the scheme, which are that it will include all sectors and all gases by 2013, and that participants face the full price of their emissions at the margin. This is key to influencing their behaviour, and thus reducing our greenhouse gas emissions."
Catherine Beard of the Greenhouse Policy Coalition, which represents large emitters, welcomed the move but said there were still major problems with the bill.
Firms needed to know how their sector's 90 per cent allocation would be divided up before they had any certainty about how much protection it provided. And there was no shelter for new entrants or for expanded production by existing firms, which would deter investment.
Business New Zealand chief executive Phil O'Reilly said the delayed entry into the scheme of transport fuels, which were to have been the first sector affected from the start of next year, created an opportunity to "pause the headlong rush into legislation".
"Business NZ has long advocated aligning our actions with those of our major trading partners, including Australia, which intends introducing its ETS in 2010."
But the Kyoto Forestry Association is concerned that its members, who have been earning carbon credits since the start of the year, will have no one to sell them to should they wish to.
"That would act as a major disincentive to investors planning new forests in 2008 and beyond and is counter to the Government intention of increasing forest cover." its spokesman Roger Dickie said.
Charles Finny of the Chambers of Commerce said it was good the Government had listened to business concerns.
"It will make it a bit better for companies whose competitiveness is at risk," Finny said.
CARBON SCHEME THREAT TO MILL
New Zealand Steel says the emissions trading scheme legislation as drafted is a threat to its medium-term viability.
Its submission to the finance and expenditure select committee, which has the ETS legislation before it, argues that the steel industry should be excluded, as it is in Europe, because of the risk of "carbon leakage". This is where emission-intensive production moves from countries where emissions face a cost of carbon to those where they do not, leaving the environment no better off.
NZ Steel says that 80 per cent of its carbon emissions are the unavoidable outcome of the chemistry of making steel from ironsands. The amount of coal it uses to combine with the oxygen in its feedstock is close to the theoretical minimum.
And it has already lifted its energy efficiency by installing a co-generation plant which generates electricity from waste heat at the plant.
In both domestic and export markets it competes with steelmakers from countries which do not impose a cost on emissions and show no signs of intending to.
Modelling the company commissioned from the New Zealand Institute of Economic Research showed that if exposed to a $30 a tonne carbon price and with a free allocation progressively reduced from 90 per cent initially to zero by 2025 - as in the legislation as drafted - its cost would rise to $60 million a year and tip the company into a loss.
The bill could result in the company's eventual closure through its inability to compete with steel from countries which do not apply a cost of carbon, it said.
Its Australian parent, BlueScope Steel, is considering plans to invest $1 billion at the Glenbrook mill over the next 10 years, the company said.
"This commitment depends on an ETS which does not result in the company becoming uncompetitive."
