KEY POINTS:
The Government's short-sighted decision to scuttle the Serious Fraud Office comes at a time when other countries are facing up to the new era of climate change fraud.
Let's put to rest here (quickly) the notion that this column will attack the basic science of global warming as a crock.
There's nothing to be gained from reopening that debate.
But there is good reason to question, based on the experience of the European countries that have already launched their own market, whether the proposed NZ emissions trading regime will perform to heightened expectations.
UK-based investigations into carbon trading have shown the new international market is a valuable hunting ground for new generation white-collar crooks, tax dodge specialists and ruthless companies which buy dubious offsets in Third World countries to assuage their corporate consciences without doing anything significant to reduce their own emissions level.
Energy Minister David Parker and his team have come down in favour of a cap and trade mechanism to curb the exponential growth in greenhouse gas emissions which New Zealand will adopt once legislation is passed.
The documents underlying the Government's announcement are illuminating. Greenhouse emissions are growing (NZ is now producing 25 per cent more than in 1990); per capita comparisons show New Zealanders produce nearly twice as many emissions as British people and five times as many as Chinese .
The energy sector has shown growth of 43 per cent; but, the real issue is the fact that agriculture emissions: methane and nitrous oxide are expected to grow to over 70 per cent above 1990 levels by 2012.
Parker has released targets for the reduction of emissions by various sectors. But the problem is that by exempting our most egregious emitter, the NZ agriculture sector, from joining the cap and trade regime until the first commitment period for the Kyoto Protocol has expired (2013), the Government has slapped the taxpayer with a double whammy.
The NZ taxpayer already faces a potential liability for nearly half a billion dollars in the 2008-2012 period because New Zealand will not meet its existing Kyoto agreement to reduce carbon emissions to 1990 levels in that time.
By leaving agriculture out of the trading regime equation, the Government exposes the taxpayer to increased risk that the liability will be even higher as there is no incentive for farmers to reduce their pollution meantime.
This would have been lessened if the Government had opted for a light carbon tax instead of an emissions trading regime.
The Government's Framework for an Emissions Trading Scheme points out the key conceptual change that has taken place since NZ first adopted Kyoto.
* Taxes set the price emitters have to pay per unit of emissions and leave industries and firms to decide how much to reduce their emissions.
* A trading scheme sets the quantity of emissions and leaves the market to determine the price of emissions used.
The Government rejected taxes as a blunt instrument (in truth this was the result of a concerted business-led lobbying campaign) then goes on to admit that in practice no one knows exactly how a country's emissions will respond to the changes in the price of emissions which occur through trading regimes.
Buried in the back of the 149-page document is this gem: If there were to be an international shift away from emission trading regimes and the NZ scheme were to become anomalous, the administrative systems being put in place could be relatively easily transformed to a tax-based system at a later date.
The other issue which has not received enough airplay is the fact that the difficult decisions over which industries or companies will get free credits has been shelved until after the 2008 election.
The key issue is the integrity of the emissions trading market. On this score, Parker has pledged a top-class compliance regime complete with auditors to check companies' emissions levels, and the integrity of offset schemes.
Investigations in the UK by the Financial Times and the Guardian have uncovered widespread fraud in such areas.
The FT found companies rushing to go green had spent millions on carbon credit policies that yielded few environmental benefits.
It found:
* Widespread instances of people and organisations buying worthless credits that did not yield any reductions in carbon emissions.
* Industrial companies profiting from doing little, or gaining carbon credits on the basis of efficiency gains from which they had already benefited substantially.
* Brokers providing services of questionable value.
* A shortage of verification.
* Companies being charged over the odds for the private purchase of EU carbon permits that had plummeted in value because they did not result in emissions cuts.
The Guardian found serious irregularities at the heart of the Kyoto process itself which the world relies on to control global warming.
The Clean Development Mechanism that is supposed to offset greenhouse gases emitted in the developed world by selling carbon credits from elsewhere has been contaminated by gross incompetence, rule-breaking and possible fraud by developing countries' companies.
The Guardian investigation relied on United Nations documents and feedback from projects on the ground. For instance, one-third of the projects registered in India were commercial ventures that did not produce any additional cut in greenhouse gases.
The two papers are ideologically opposed at the editorial level: The FT has a strong pro-business bent; the Guardian a more liberal bias.
But the fact that both have independently found problems with the Kyoto framework is not encouraging.
There are other issues such as whether carbon trading can be adequately monitored in the first place; whether the international legal framework will be strong enough to overcome clear fraud by corrupt regimes that issue bogus carbon credits, and, whether planting trees is a solution to climate change in the first place.
This suggests that NZ needs to treat the compliance aspect of the proposed regime much more seriously than has so far been indicated.
Keeping the SFO in place to chase down climate change scamsters might also be a good idea if we are to preserve our international trading reputation.
