Planned carbon tax legislation 'too harsh'

Industry calls to soften the impact of climate change legislation on carbon emissions trading have been disregarded and the economic consequences are being ignored, a consultants' report says.

A review of the planned law, which went to a parliamentary select committee before Christmas, was carried out by economic consulting group Castalia for big industry group the Greenhouse Policy Coalition.

Castalia's report says the draft law does not fix any problems identified with the Government's earlier proposals.

The overall thrust of the proposed law is to transfer all the risks associated with climate change policy to businesses and households.

The Government appears indifferent to its industry and agriculture being exposed to a high price for carbon, with too little protection available for sectors that may become uncompetitive internationally, the Greenhouse Policy Coalition says.

If the law goes through in its present form it will need big changes in the next few years, and that expectation would create uncertainty and unneeded economic costs, Castalia's report says.

The bill fails to allow for an effective price "safety valve" to cap the price of carbon.

"Industry and consumers could be exposed to a high and volatile price of carbon which would do significant economic damage," the report says.

Much of the Government's economic modelling is based on a carbon price of $15 a tonne, whereas the international price is already more than double that.

The Government should announce an acceptable price ceiling for carbon for the next five years, to give industry certainty for investment planning, the report says.

The Government's own economic modelling indicates big declines in exposed sectors such as dairying, the biggest single goods exporter.

Castalia executive director Alex Sundakov said the Government seemed to be taking a riskier and more costly approach to introducing a price on carbon than any other country, including those in the European Union.