Treasury unimpressed by emission scheme logic

The coal-burning Huntly Power Station, owned by the SOE Genesis. Photo / Amos Chapple.

Treasury officials are evidently unimpressed by some of the thinking underpinning the Government's proposed changes to the emissions trading scheme.

In the guarded language of the explanatory note which prefaces the amending legislation introduced to Parliament last Thursday, the Treasury says the bill's regulatory impact statement "does not provide an adequate basis for informed decision making" and that the quality of the analysis "is not commensurate with the significance of the proposals".

Submissions on the bill, which has been referred to the finance and expenditure select committee, close on October 13.

Treasury is particularly dubious of the case for aligning key design elements of the New Zealand scheme with the Australian Government's proposed scheme, especially as that scheme has yet to be enacted and may yet be significantly revised.

It is also critical of the lack of information about the transition path for firms over the medium to long term "given the proposal is for a temporary period of greater assistance coupled with an ambitious long-term emissions reduction target".

Without this, they say, it is hard to say whether the changes will in fact allow for a smoother transition for business.

The existing legislation passed late last year grandfathers 90 per cent of current emissions from trade-exposed firms but would expose them, and new entrants like the proposed lignite-to-urea plant in Southland, to the full cost of carbon for any increase in their emissions.

Under the amended scheme the taxpayer will bear the carbon cost, by an allocation of free emission units, for most of any increase in emissions.

The new bill also slows the rate at which free allocation will be wound back. Those arrangements will be subject to review, the first scheduled for 2011, but it provides that "any significant changes to the provision of free allocation will require a five-year notice period".