KEY POINTS:
The climate change debate has moved on from whether we need to bear costs to curb emissions of greenhouse gases to who should pay and how soon.
Two reports out this week have helped crystallise the hard choices Parliament faces as it wrestles with the design of an emissions trading scheme (ETS).
Both find fault with what the Government has proposed, but for very different reasons.
The Sustainability Council's analysis is by Geoff Bertram and Simon Terry who have been working in this area since at least the early 1990s. They argue that the big polluting sectors are getting a free ride - worth $1.3 billion to agriculture over the next five years - at the expense of households, small businesses and road users. At a time when they are beset by cost increases at every turn, the idea of paying more than their fair share of this new one is liable to rankle.
The New Zealand Institute of Economic Research, by contrast, has set out to quantify the costs of the scheme in terms of economic growth and therefore the cost to households through lower incomes and fewer jobs. It sees the scheme as full of dangers to the international competitiveness of sectors, agriculture most of all, which earn the country's living as a trading nation.
The elements of the scheme which seem to be politically in play mainly relate to timing. One is the phasing in of various sectors entry into the scheme. The other is the phasing out of the free allocation of emissions units to the trade-exposed sectors which have a problem with international competitiveness.
As designed and enshrined in the bill now before the finance and expenditure select committee, the ETS will bite first on the users of transport fuels, from the start of next year.
Electricity consumers and large industrial concerns are next from the start of 2010, and finally the agriculture sector from 2013.
But petrol and diesel prices are already high because of world oil prices, and likely to go higher still when the New Zealand dollar falls.
Bertram and Terry point out that because of the staggered entry of sectors into the scheme, two-thirds of the country's total emissions over the next five years fall outside the scheme.
But four-fifths of transport emissions are caught by it (only this year's are not). They conclude that road users will end up paying $1.34 billion more than would be required to fund their "fair share" of the Kyoto bill. They also note that on the Government's own projections that is only likely to reduce national emissions by 400,000 tonnes, or 0.1 per cent.
NZIER, on the other hand, emphasises that you don't do households any favours if you gratuitously hobble the productive sector.
Their modelling of the impacts of the scheme by 2025, by which time any free allocation of emissions units to trade-exposed sectors will have ceased - reflects the prospect of "carbon leakage".
Leakage is the loss of emissions-intensive production from countries which impose a carbon price on it to those which do not, with no gain to the global environment.
They conclude the economy will be $6 billion or 2.1 per cent smaller than it would be on a business-as-usual basis.
But that just means it will have grown by 59 per cent between now and then instead of 61 per cent.
New Zealanders' standard of living would still be much higher than it is now.
If historical rates of growth continued per capita gross domestic product would rise 39 per cent with the ETS compared with 42 per cent under business as usual. It would represent the sacrifice of one year's growth out of the next 18. But NZIER says it would mean New Zealand's per capita GDP in 2025 would be slightly smaller than Australia's is now.
Many of the concerns business has raised relate to the initial grandfathering arrangements and to the speed with which that shelter is to be withdrawn.
The scheme proposes to initially allocate free emissions units to trade exposed sectors, including agriculture, equivalent to 90 per cent of their emissions in 2005. As it stands, that would give no recognition for early efforts to reduce emissions which had been taken before then; instead it would perversely penalise firms which had taken such steps. So there is a push for the allocation to be on an intensity basis, which reflects differences in emissions power unit of production.
There is also a push to have more than one review of the speed at which that free allocation is reduced.
NZIER's modelling concluded that the indefinite continuation of the initial level of grandfathering would reduce the impact on GDP from 2.1 per cent to 1.2 per cent, a gain of $3.5 billion in 2025.
But it would also roughly halve the expect reduction in national emissions.
THE SCHEME
* The emissions trading scheme (ETS) is covered by the Climate Change (Emissions Trade and Renewable Preference) Bill.
* The ETS will make greenhouse gas emitters pay for their emissions through the trading of carbon credits.
* The ETS is to be phased in by sectors. Transport fuel users will be hit next year and electricity generators and large industrial plants have obligations from January 2010.
* Agriculture will be included from 2013.
POTENTIAL COST
A report from the NZIER says:
* NZ economy will be $6 billion smaller by 2025 as a result of the ETS than it would be if the scheme wasn't implemented.
* Household spending will be $3000 lower per house.
* Hourly wage rates will be $2.30 lower.
* Dairying land could drop in value by 40 per cent.
