The Government's proposed emissions trading scheme – now before Parliament – will cost motorists, householders and small businesses billions of dollars but make little difference to the nation's greenhouse gas emissions in the first Kyoto commitment period, says an environmental think-tank in Wellington.
The Sustainability Council today called for the Government to re-jig its emissions trading scheme (ETS), building on the central mechanism of a charge automatically indexed to the world price for carbon, said executive director Simon Terry.
But it wants the Government to ditch its proposed new carbon "currency", the NZU – equivalent to about one tonne of carbon dioxide emissions – and instead use the existing international carbon currencies established under the Kyoto protocol.
And it called for the blanket subsidies now being offered to farmers and other big industries to be dropped and the carbon charges fairly spread over all sectors of the economy.
The likely cost of the nation's Kyoto bill in 2012 could be covered if all emitters paid the world carbon price on a third of their emissions from 2008-2012.
But if the Government goes ahead with ETS in its proposed form, householders, road users and small and medium enterprises will pay 90 per cent of the money required by the scheme up to 2013 – even though they will generate only a third of the nations' greenhouse gases in that time.
The authors of a new report, The Carbon Challenge, published by the council, Geoff Bertram, a senior lecturer in economics at Victoria University, and Mr Terry, said farmers and big industries are being heavily exempted and rebated and will escape about $4 billion of the $4.4 billion worth of net payments through the ETS up to 2012.
"As the great bulk of transport fuel charges are paid directly or indirectly by small to medium businesses and households, it is these groups which will `carry' the ETS," said Mr Terry.
The $4 billion paid by these groups will include $2.8 billion in charges on emissions and $1.2 billion in "windfall profits" to generators of renewable electricity. These electricity generators will collect a total of $1.8 billion in windfall profits.
Mr Terry said farmers and the rest of the agricultural sector will also pick up a net subsidy of $1.31 billion up to 201, after paying for carbon charges on electricity and fuels.
But these subsidies will be hidden because the NZU will be off the Government's balance sheet "to trade in murky and ill-defined markets, exposed to manipulation and the exercise of market power," he said.
The existing scheme meant that when foresters are gifted 100 million NZUs, selling them will earn a cash reward of $3 billion, while big industries gifted 45 million NZUs are effectively being paid a covert subsidy to provide a rebate on their energy bills.
Mr Terry said the sharing the Kyoto bill equally across the country could provide incentives for dairy farmers to reduce their emissions, because technologies to do this at a profit were already available.
One possibility was to make overseas consumers of NZ food exports responsible for emissions created in producing that meat or milk. The report predicted that at the end of the first commitment period in 2012, New Zealand will be looking down from an "emissions cliff".
The current rules before Parliament for the ETS will deliver less than a 2 per cent reduction in gross emissions over the next five years, leaving the Government having to pay for credits for a further 30 per cent "reduction".
And the targets in the next commitment period, now being negotiated, are likely to leave the nation facing a gap of 55 per cent.
Instead the costs should be shared fairly.
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