The new carbon currency proposed under the Emissions Trading Scheme (ETS) is likely to come under major pressure as a result of the two-year delay on charges to apply to transport fuels announced by the Government.

The change will cut demand for the new carbon currency, the NZU, as one-third fewer carbon credits will now be required to be surrendered to the Government over the first five years of the scheme, and this could significantly reduce what the NZU will sell for. Only if Kyoto forest owners stay away in droves from the ETS, or the Government props up the new carbon currency with taxpayer funds, will the squeeze on its value be avoided. Any drop in the value of the NZU will directly reduce the earnings forest owners can achieve for the carbon their trees absorb. The change provides further reason to dump the idea of creating the NZU and to use instead just the international carbon currencies already created by the Kyoto Protocol.

While the delay in applying emission charges to transport fuels will reduce costs to road users by a billion dollars, households, SMEs and road users will still carry over 90% of the net charges resulting from the ETS up to 2013. Under the scheme’s original rules, these groups that generate only a third of the nations emissions would have paid 91% of the charges. They will now pay 92%.

The new set of Kyoto accounts, which the Government says have reduced the Kyoto deficit to half its previous level, does not alter the Sustainability Council’s estimate that the ETS will reduce gross emissions by less than 2% over the first five years of the scheme. The Sustainability Council will be presenting this update on its recently released report, The Carbon Challenge, when it appears before a Parliamentary select committee today.

The delay in putting a price on emissions from transport fuels is disappointing because the scheme is already far too reliant on promises that something will happen in the distant political future, when the time to start to apply charges is now. There is no case for delaying the time at which road users begin to pay their share of the Kyoto bill. However, the amount they would have to pay each year could be reduced very significantly if agricultural producers and the major emitters also paid their fair share, starting at the same time.

The fair and efficient way forward is for everyone to face a charge on the same proportion of their emissions, at each point in time, with that proportion rising over time along a progressively-rising ramp. What we have instead is a scheme that allows most sectors to start late, and provides blanket subsides to major emitters and the agriculture sector, rather than case by case consideration of transitional assistance for individual producers. The Kyoto bill is not going away. Rather than trying to put off paying it, the focus needs to go on beginning early and securing broad agreement around the starting point and slope of the ramp.