KEY POINTS:
Hundreds of amendments notwithstanding, the emissions trading scheme legislation reported back to Parliament by the finance and expenditure select committee yesterday leaves large areas of uncertainty in matters of concern to business.
Climate Change Minister David Parker said the bill preserved intact the scheme's fundamentals: It will encompass all sectors of the economy and all the greenhouse gases by 2013 and expose all emitters, at least at the margin, to the price of carbon.
Agriculture does not come into the scheme until 2013 and the taxpayer will bear the cost of the great majority of the sector's emissions - half the national total - for five years after that.
As the bill stands, that protection will be progressively withdrawn between 2018 and 2030, unless scheduled reviews of the scheme before then change the rules.
The bill does not say whether the point of obligation for participating in the scheme should be at the farm or the processor level, only that that will have to be decided by mid-2010.
For large trade-exposed emitters, the bill now permits the allocation of free units to be done on an intensity or per-units basis rather than an absolute cap, as many submitters advocated.
But allocation will still need to be within an overall collective cap fixed at 90 per cent of 2005 emissions.
So the stage is set for a fight for these increasingly valuable property rights during a regulation-making process.
"It has the potential to be pretty divisive," said Catherine Beard of the Greenhouse Policy Coalition, which represents large industrial emitters.
Another change would enable the setting up of a pool of units to be allocated free to new entrants or to firms, such as cement maker Holcim, undertaking large but emissions-efficient expansions of their local operations.
But again this would be within the existing cap for an industrial sector and would be at the expense of incumbent competitors.
A technical advisory group with private sector representatives is wrestling with how these things might work.
"In the end it will be a decision by the minister to promulgate regulations through the normal Cabinet processes, taking into account criteria in the act," Parker said.
Smaller trade-exposed emitters were alarmed by a proposed threshold of 50,000 tonnes a year for eligibility for a free allocation of units.
That was never part of the legislation, Parker said, and he agreed with the select committee's majority report that when a minimum threshold is set it should be "significantly less" than that.
Meanwhile that area of uncertainty remains.
On the vexed area of deforestation, there has been some movement. Owners of the land under pre-1990 plantation forests who want to switch to another land use upon harvest will still have to account for the carbon deemed under the Kyoto Protocol's rules to be emitted then and there.
But the allocation of free units to those owners of pre-1990 forest who acquired them before 2002 (when the policy of a "deforestation cap" was first announced) has been increased by 50 per cent. This will reduce the quantity of units retained by the Crown to cover forest lands earmarked for Treaty settlements; Treaty claimants will be compensated by receiving a larger area of land.
The Flexible Land Use Alliance has argued that the rules ought to allow "offsetting", where a landowners can avoid a deforestation liability by planting a new forest somewhere else, with the same carbon sequestration potential, instead of replanting land that might have a better use. That will be allowed - but only if, or when, the minister is satisfied future international rules will permit it.
The select committee has rejected calls for a price cap, saying it merely transfers price risk from emitters to taxpayers and would distort the workings of the carbon market.
Both National and the Greens attached dissenting minority reports.
National said it was unsatisfactory for Parliament to defer the many significant design issues raised by submitters to regulations to be determined in the future.
"Issues such as where the point of obligation is for agriculture, whether there will be an industry allocation for new entrants, where the threshold will be for trade-exposed industries, whether allocations will be intensity-based, and whether forestry will be allowed an offset provisions are fundamental to the success of the ETS," it said.
The Greens said it would take a long time for the ETS to have any effect on emissions "because some sectors are slow to enter and are grandparented for most of their emissions for far too long".
