ETS Changes to Cost At Least $1.3 Billion – and an Eternal Transition

Media Statement – 12 July 2012

The total cost to taxpayers of changes to the ETS is at least $1.3 billion, based on the $25 per tonne carbon price the government currently uses to assess policy options.

And the removal of dates for an end to so called ‘transitional provisions’ means there is now an Eternal Transition until a government is willing to make the case for imposing meaningful charges.

80% of the total additional cost of the changes arises from what the government describes as the “big ticket item”. This is the extension of the concession that allows polluters to pay just one emission unit for every two tonnes of carbon they release. This change is estimated to cost $80 million a year - and it alone represents a considerable break with the pre-election promise that “our changes to the ETS will be fiscally neutral”.

The government puts the total cost of the package of changes at $328 million. While this is based on the carbon price it regularly uses in its accounts – the current market price – at present that is a very low $6/tonne. When undertaking analysis to assess future liabilities arsing from climate policy, the government uses projections of future market prices. It has until recently used $50/tonne for this but has lately reduced this to $25/tonne. A future price is a better measure of the value at stake and at $25/tonne, the changes will cost taxpayers $1.3 billion in lost revenue.

Yet these estimates are only for the period until June 2016. A further review of the ETS has been signalled for 2015, but the Cabinet paper outlining the changes makes clear that no date will be set in legislation to end the extended holiday for polluters.

So if the transitional measures are not abandoned by June 2016, the taxpayer will continue to sacrifice revenue for every additional year. And as the ETS makes polluters pay for a greater proportion of their emissions over time, the annual loss will rise each year.

The potential cost to taxpayers of the change in legislation is therefore much greater than the $1.3 billion for the first three and a half years covered in the Cabinet paper. As there is no certainty when the Eternal Transition will be abandoned, the full potential loss is the revenue forgone for many years ahead. And as carbon prices are expected to rise over time, this would further push up the losses.

The practical effect of setting no dates to end the holiday is that the ETS becomes the Eternal Transition Scheme. It changes from something that provides a limited holiday period for polluters, to something that presents no real incentive for change until a government has the courage to make the case for meaningful emission charges.

The government has given up holding the threat that the scheme will bite at some defined date and is resting with a regime that does not even have gums.

ENDS

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