Householders face the biggest Kyoto burden

Climate Change Minister Nick Smith. Photo / Mark Mitchell

Taxpayers will be stuck with 84 per cent of the bill for meeting New Zealand's obligation under the Kyoto Protocol, while farmers and large industrial emitters get hefty subsidies, according to a report out today.

The report on the Government's planned changes to the emissions trading scheme by the Sustainability Council's executive director Simon Terry and economist Geoff Bertram says farmers will be subsidised to the tune of $1.1 billion by the end of 2012, while large emitters get nearly $500 million.

Kyoto requires New Zealand to take financial responsibility for any increase in its emissions over 1990 levels during the five years from 2008 to 2012 inclusive. Current estimates are that we will exceed that target by 76 million tonnes, which would cost $2.3 billion (at the carbon price of $30 a tonne the report assumes).

The cost gets much bigger beyond 2012 if the national target gets tougher and emissions continue to climb.

Among those emitters who will bear a cost under the ETS, households will pay just over half, Mr Terry and Dr Bertram say.

Combined with small and medium-sized businesses and transport operators, they will pay 90 per cent of the charges the ETS imposes, though they are only responsible for 30 per cent of total emissions.

Changes to the ETS being considered by a parliamentary select committee lighten the burden on "trade-exposed" sectors, including farming, which account for around two-thirds of the country's emissions, to protect their competitiveness when most of the world has yet to impose a price on carbon emissions.

Climate Change Minister Nick Smith said the Government was providing allocations of free emissions units more generously for those emitters because they were trade-exposed.

"It has nothing to do with favouring big over small," he said.

"The Government makes no apologies for being pretty pragmatic about climate change and the ETS. We want to get the economy moving again and particularly to get growth in the trade sector."

Dr Smith said it was misleading to talk about subsidies to farmers on the basis that they are not paying for their emissions during Kyoto's first commitment period (2008 to 2012).

"No country ... is imposing a cost on their agriculture industry in the first commitment period. We are likely to be the first in 2015."

Furthermore, agricultural emissions had risen the least since 1990, he said, 12 per cent compared with 22 per cent across all sectors.

The taxpayer would not be picking up a big bill in the next few years: "In the latest reports I have received New Zealand is about $300 millon in credit."

That is because credits generated by forests planted since 1990 would more than cover the overshoot in gross emissions.

But Mr Terry and Dr Bertram point out that if those forest sink credits are used to square accounts with other Kyoto countries in the short to medium term, they will not be available to cover liabilities when the trees are harvested in the 2020s and the carbon locked up in them is deemed to be released to the atmosphere.

Future taxpayers would bear the cost of buying units to cover those emissions when the carbon price was liable to be much higher. The Treasury has estimated the potential liability at $18 billion at a carbon price of $100 a tonne.

The minister conceded the point but said New Zealand was seeking a change to the rules to acknowledge that at least some of the carbon in those trees - that used for building timber, for example - was not returned to the atmosphere for many decades.

"If we are successful in the international negotiations in getting recognition that not all of the carbon is emitted when the tree is harvested that will make a big impact on the scale of those future liabilities when those post-1990 trees are harvested."