New Zealand: Fossil-fuel cost crunch to hit in 2010

Power companies will face the full cost of the carbon emissions arising from the fossil fuel they use from the start of 2010, under the emissions trading regime the Government unveiled yesterday.

They will be able to buy units from the forestry sector and on the international market for credits created under the Kyoto Protocol’s clean development mechanism.
The Government might also auction units but that is not expected to be a significant source of supply in the early years of the regime.

The design of the scheme draws a fundamental distinction, among firms with large carbon footprints, between those like oil and power companies which can pass on their carbon costs to their customers, and those whose international competitiveness would be at risk if they faced the full cost of their emissions.

Only the latter get an allocation of free units. But Climate Change Minister David Parker stressed it had to be for less than they currently needed, so they had an incentive to reduce their emissions and a disincentive to increase them. “It’s all about the effect at the margin.”

Large industrial emitters and energy-intensive firms which are exposed to international competition will be given a free allocation of units sufficient to cover 90 per cent of their emissions in 2005 and a similar proportion of the carbon price impact on their electricity bills.

The New Zealand Herald