Heavy cost of Kiwi carbon

OPINION: Academics from Victoria University and former Environment Ministry staffers Ralph Chapman, Judy Lawrence and colleagues wrote setting out "myths of climate change policy", effectively saying New Zealand must do better.

They don't think New Zealand's conditional emission reduction target of 10-20 per cent below 1990 levels is a credible effort compared with other countries' higher targets, but what they fail to explain is that in terms of equal effort, New Zealand has one of the most ambitious and expensive targets of any in the developed world.

The Treasury did an international literature search and summarised all the major think tanks' work in this area. The think tanks are trying to calculate what results in "comparability of effort", and to do so they look at a range of factors. Things like how much it will cost one country to reduce emissions compared with another, how much population growth a country has had since 1990, how rich or poor a country is in terms of GDP per capita, emissions per capita etc.

Factors which make emissions reductions more expensive in New Zealand than elsewhere are our high population growth since 1990, limited mitigation options for agricultural emissions and our relative poverty compared with other developed countries.

With 24 per cent population growth and 20 per cent emissions growth since 1990, it is easy to see why the challenge for New Zealand is hard, and our emissions in 2020 are projected to have grown by the same amount or more.

The Treasury has calculated that an emission reduction target of 10-20 per cent from 1990 levels is going to cost New Zealanders eight times more (in relative terms) than those faced by the average developed country and impose a cost of $3 billion a year to buy carbon units from overseas.

This is hardly doing the minimum, as claimed by the academics.

It is a shame that the idea of comparable effort is well-understood among international climate change negotiators and in the European Union, but less well-understood in New Zealand, where people tend to look at a simple equal percentage reduction below a certain date as being fair.

Add to this a requirement by developing countries that before they will take part in emission reductions they expect a large amount of funding from the developed world to go towards their adaptation to climate change and to invest in new technology. They say no money, no deal.

The UN supports this notion as does the European Union, although amounts being talked about so far fall short of where the developing world would like to see them.

New Zealand officials tell us New Zealand's share of this foreign aid could be as much as our total overseas aid budget at present - about $500 million annually. There has been no public debate on this aspect of negotiations, yet it is likely New Zealand will have to agree to some sort of wealth transfer to developing countries if a new climate deal is brokered.

The Victoria University academics make a case for exposing the productive sectors of our economy to a carbon price sooner rather than later, on the basis that to shelter them from the inevitable rising cost of carbon will increase costs in the long run and foreclose business opportunities.

However, this is a different situation from the economic restructuring of the 1980s. Removal of trade protection for industry and agriculture in the 1980s forced us to focus on our areas of natural competitive advantage.

It was clear we would never compete with Japan in manufacture of cars, for example, but we could still be competitive where we had natural advantages, such as in primary production and all the things we continue to produce today.

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The problem with putting a price of carbon on your productive sectors ahead of other countries is that you could lose your exports from sectors that would still be competitive if all countries faced the same price of carbon. Once they are gone, they would be hard to build back up.

The other thing that is different from the 1980s situation is that to move to a low-carbon economy we need a major change in technology in order to make significant emission reductions, and that is not going to happen in the next 10 years. Will high carbon prices speed that up? Possibly, but only if all countries are exposed to the high prices, otherwise it will be business as usual in the developing world and that will be where all our carbon-intensive products are made and in a more carbon-intensive way than had they been produced here.

One theme of the environmental movement which needs to be challenged is that "taxpayers will be forced to subsidise polluters". This is just sloganeering designed to demonise our largest employers and wealth creators.

The United Nations gives each developed country a certain amount of fee carbon credits, depending on their target to 2012. The latest report for New Zealand shows that we should meet our 2012 target, which was to stabilise emissions at 1990 levels. The reason we will meet the target is that our emissions growth has been offset by emission removals from the forestry sector. So for our current Kyoto protocol target, New Zealand is on track. What the Government does then with carbon credits allocated from the United Nations is up to it.

Like all governments that have emissions trading, it has decided not to sell all the free units to emitters, but to make them pay for between 10 per cent and 40 per cent of the emissions, depending on what allocation category they fall into. This is less generous than has been the case in the European emissions trading scheme, where companies were over-allocated units. Our agricultural sector and steel mill are the only ones in the world to be included in an emissions trading scheme.

There will be no free ride for industry, and it will still receive a price signal for carbon. For some it will be a big price signal and it is likely that not all businesses will survive the emissions trading scheme.

* Catherine Beard is executive director of the Greenhouse Policy Coalition, which represents the energy-intensive sector on climate change issues.

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Darren   #3   07:01 am Sep 24 2009

Humans are responsible for 1% of the carbon emmisions worldwide.

What a scam this all is..

Rick   #2   09:03 pm Sep 23 2009

The net result of this is that our manufacturers will go to Australia. To those who think Oz is doing the same thing as us - think again. Their bill has stalled in the senate, now that they realise what this nonsense is going to cost them, and that will be the end of that.

Meanwhile good old NZ takes a nosedive into the third world.

Rimu   #1   09:20 am Sep 23 2009

There WILL be a practically free ride for certain industries, which the taxpayer will pick up the tab for. There are serious problems with entry dates, a price cap, free credits to big emitters for the rest of the century and a two for one deal that halves the price signal.

However the worst feature of the new proposal is none of these. It is the proposal that free credits be allocated on the basis of how much a firm produces. It’s called “intensity based” or “output based” allocation. It means there is no limit ever to NZ’s emissions; they never peak and start to trend downwards; and the incentive is to grow our most polluting industries.

More on this at http://blog.greens.org.nz/2009/09/18/what%e2%80%99s-wrong-with-the-national-maori-party-ets/

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