Matter of "when not if" carbon subsidies were dumped

Big businesses emitting carbon will lose their right under the emissions trading scheme to offset only half of their emissions, Climate Change Minister Paula Bennett says.

It was a matter of "when not if" the so-called 'two-for-one" concession is removed, she says, leaving open the impression that the $25 a tonne upper limit "cap" on carbon prices may also be removed or placed at a higher level.

"It was always a temporary measure," Ms Bennett says of the two-for-one measure. "It is abundantly clear that if the ETS is going to work, carbon must cost more than it does right now."

It appears the widely expected decision has not yet been formally made by the Cabinet, but Ms Bennett says she expects to conclude the review of the ETS within "the next couple of months."

Most affected by the decision are likely to be the electricity and transport fuels sector because the removal will double the cost of offsetting the carbon emissions from burning coal, natural gas, petrol and diesel.

The price of carbon in the New Zealand scheme has already been rising towards $11 a tonne in anticipation of such a decision after collapsing to below 50 cents a tonne for a period after 2011, when New Zealand emitters had access to carbon units from international markets.

That access has since ended, meaning major emitters can only buy carbon as New Zealand units (NZUs) under the local ETS.

"This will have a direct impact on every part of the economy," she says, without nominating the impact on electricity, gas or petrol prices. "Whether it's forestry, farming, households or the transport sector, the effects of the decisions we make will be widespread."

A transition period lasting several years has been mooted for the two-for-one removal, which is seen as vital to raising carbon prices to a level capable of encouraging forestry plantations, which soak up carbon from the atmosphere and are an essential element of New Zealand's plan to meet its long-term greenhouse gas emissions reductions targets.

The impact of the ETS on New Zealand's emissions had been limited "due to the artificially low carbon price, which the government instituted following the global financial crisis so as not to further cost businesses that were already struggling," Ms Bennett says.

"I'm considering the options and potential implications of removing these artificial measures, including pricing emissions units at two-for-one, and the cap of $25.

"As some of you might have seen me say already, this isn't really a case of 'if', but more 'when and how'."

"If New Zealand is going to take the next steps to tackle climate change, we're going to have to see more investment in tree planting and big emitters making a greater contribution to our efforts," Ms Bennett says.

Carbon trader OMF was quoting NZUs trading at $10.75 a tonne this morning, having gone as high as $10.85 in the past day, and says $11 a tonne by the end of the month is possible. A carbon price of $15 a tonne is regarded as a trigger price for forest planting.

(BusinessDesk)