Power price rise cost of climate fight

Power prices are likely to rise after the Government took a legislative stick to electricity companies, imposing a 10-year moratorium on the construction of thermal power plants.

In its climate change legislation introduced to Parliament yesterday, Labour's move means consumers and business are likely to face a significant increase in costs - a fact acknowledged in the 148-page Climate Change (Emissions Trading and Renewable Preference) Bill.

A set of tables of the likely impact of the new legislation on households shows considerable variance over estimates of the flow-on effects, ranging from $100 up to $660 a household a year, depending on the price of carbon.

Previously, Climate Change Minister David Parker has estimated the costs of the bill at no more than $200 a year for households, including a rise in petrol prices of 4c a litre.

The bill's analysis says the rise in petrol prices under the legislation could be as much as 12.2c a litre for petrol, and 13.3c for diesel.

The bill says electricity prices could rise by almost 20 per cent more than under a do-nothing scenario for domestic consumers, increasing by between 1c and 4c a kilowatt hour. For industrial users, the increases could be up to nearly 40 per cent.

"Action to address climate change is likely to incur real economic costs," the bill says.

It says the Government is considering an assistance package for those most affected, but gives no details.

When Parker unveiled the Government's climate change policy in September, he expressed a preference for the country's state-owned generators, such as Meridian Energy and Genesis Power, to halt the production of new fossil-fuel plants to meet a new target of 90 per cent renewable energy by 2025.

That has now hardened into a legal moratorium and will also include private generators such as Contact Energy.

The bill says this is because of the possibility that gas prices may fall as new fields are discovered, making fossil-fuel power generation significantly cheaper than investing in renewable energy.

This would lead to cheaper electricity prices but "jeopardise the Government's climate change and emission strategy objectives".

The Government has introduced an exemption from the moratorium, allowing the development of fossil-fuel power stations if the security of the country's power supply is at risk, if the development is minuscule (less than 10 megawatts) or required to power a small isolated community without another power source.

The legislation also ushers in the country's first emissions trading scheme (ETS) under which about 200 of the country's biggest emitters will be set a cap on their emissions equivalent to 90% of their current levels.

Emitters will be phased into the ETS from next year, starting with forestry, followed by liquid fossil fuels in 2009 and power generators in 2010.

Farmers, who are responsible for almost half of New Zealand's greenhouse gas emissions, will not enter the scheme until 2013.

The scheme will be self-regulating, but penalties under the new legislation for deliberately miscalculating emissions liabilities are tough - a fine of $500,000, plus up to three times the commercial benefit likely to be gained from the miscalculation.

Businesses will be given a grace period of a year if they make genuine errors.

Finance Minister Michael Cullen said the legislation provided the Government with important tools to respond to climate change.

The Government was still developing proposals to assist households most affected by the scheme, he said.

Green Party co-leader Jeanette Fitzsimons said the bill was full of holes and would take years to have any effect on greenhouse gas emissions.

"It is clever, and avoids a lot of fishhooks, but it does not reflect the sobering advice of climate scientists that we have just 10 years to put our emissions on a downward path to avoid dangerous levels of warming," she said.