Timing of higher ETS costs delayed as global action stalls

BUSINESSDESK: The government has sided with advice from industry and farming lobbies, pushing out the dates and levels at which New Zealand will face higher carbon costs under the emissions trading scheme.

Climate Change Minister Tim Groser told BusinessDesk today's decisions were akin to "maintaining the current speed limit" by changing none of the settings that could increase costs to businesses and consumers, while pushing the inclusion of the agriculture sector in the ETS to an unidentified future date.

Agriculture had been due to enter the ETS in some way in 2015. Agriculture is "still in", but without what Mr Groser said were artificial deadlines which ignored global progress on a climate change deal and the scientific progress required to reduce emissions from farming.

The decisions announced after today's Cabinet also mean the scheme will not be reviewed again until 2015, a year later than previously proposed, reflecting submissions complaining of "review fatigue" on the four year-old scheme, he said.

The temporary system whereby major emitters buy only half the offset units they need to cover half their emissions – known as "one-for-two" – will stay in place until "at least 2015", capped at $25 per tonne of carbon.

The government has also turned down recommendations from the review committee that reported last year to restrict the purchase of international carbon credits by New Zealand emitters.

Depressed global carbon prices have allowed emitters to buy units for as little as $6 a tonne in recent times, compared with the capped price of $25.

However, the weakness in carbon prices was an international political problem stemming from the European Union, and carbon prices were unlikely to be so low for long, Mr Groser said.

"This is a politically determined market. For us to expose our covered [export-competing] sectors when others aren't would force them to face costs that nobody else is." 

However, consultations will be undertaken on an auction system to encourage local emitters to buy New Zealand-produced offset units rather than import them.

Also announced today is a deal for so-called pre-1990 forest owners, who will still be able to collect a second tranche of compensation at harvest if they choose not to reforest the land.

However, if they plant an offsetting forest elsewhere such compensation won't be available, following changes to international rules on forestry offsetting at the Durban global climate change summit last December.

Mr Groser said the decisions would be likely to draw criticism from an "uber-green" lobby, but the government had a mandate only to act on climate change as quickly as the rest of the world.

While Australia now had a carbon tax that could eventually be aligned with the ETS, it had been in existence for "precisely one day" in a country where the incumbent government faced a tough election.

Australian Liberal Party leader Tony Abbott has vowed to repeal the scheme his first act in government, if elected.

Europe was the only other place a functioning ETS is in place, while international negotiations grind on, with no replacement yet for the Kyoto Protocol, which expires later this year.

On that basis, New Zealand was doing its fair share, Mr Groser said.

"There are major uncertainties around the international economy. We didn't want, just as we are consolidating jobs and growth here in New Zealand, to put extra costs on businesses and households."