Emissions scheme could cost NZ up to $5b

New Zealand's failure to cut greenhouse gas emissions has left taxpayers staring down the barrel of a Kyoto Protocol liability of at least $1 billion and possibly more than $5 billion, according to a book analysing National's emissions trading system.

The authors of The Carbon Challenge - Victoria University researcher and economist Geoff Bertram and climate-change analyst and researcher Simon Terry - also describe the Government's current ETS as "technically obsolete" and "beyond rescue" as a sustainable framework for tackling climate change.

They say the scheme will not make any inroads into cutting New Zealand's gross emissions levels.

On top of that, the ETS was so unfair in the way it distributed benefits to high emitters with political influence, while placing a regressive quasi-tax burden on households, that there was a risk it could undermine the public's willingness to support a stronger regime in the future.

Such was the scale of subsidies that only one in every five dollars charged under the ETS would become available to the Government to pay off the Kyoto liability. Households already bore half the total costs resulting from the ETS during its first five years while accounting for just a fifth of all emissions,

Households, small to medium industry, commerce and services and transport operators would pay 90 per cent of the costs resulting from the ETS during the first five years while being responsible for only 30 per cent of total emissions.

The book says New Zealand can expect countries importing its products to become aware of the "hollowness" of the current ETS, thereby upping the pressure for a complete rethink of that policy "from the ground up".

Otherwise, New Zealand was likely to face general tariff penalties or targeted imposts on particular goods which had not been fully costed and exposed to emissions charges.

"If New Zealand producers find themselves excluded from key overseas markets through their failure to meet required standards, the ETS will provide no protection."

The authors say the bulk of the financial liabilities of several billion dollars arising from New Zealand exceeding its Kyoto Protocol target will fall on future taxpayers, making it a "massive intergenerational transfer of liability".

"The ETS completely fails as a mechanism to make today's polluters meet today's emissions bill."

The book says there is complacency in New Zealand that credits for storing carbon in forestry crops will save the country from having to seriously address reductions in greenhouse gas emissions.

But this year's Budget had broken with the past by flagging the real cost of New Zealand's 22 per cent overshoot of its Kyoto target. Depending on the price of carbon, it said the Kyoto liability could be as much as $5.7 billion.

That Budget reference officially scotched the myth that the Government did not face any financial effects under the protocol because it could rely on offsetting credits from plantation forests.

"The credits must be paid back when the trees are harvested in the 2020s." The authors say using these credits to pay the Kyoto bill is like putting it "on the plastic" for the next generation to pay.