Kyoto protocol time frame too short

As New Zealand hurtles towards the possible, or probable, introduction of a price on carbon in the form of an emissions trading scheme, a number of influential industry associations have been concerned enough to write collectively to the Minister of Climate Change issues, David Parker, to register significant concern about the timetable being pursued (emissions trading to be introduced by 2008) and the process being followed.   BY CATHERINE BEARD

These industry association groups are expecting to see a thorough cost/benefit analysis to support the choice of policy to tackle climate change and adequate timeframes for stakeholder input and analysis.

We believe that all consumers – business and domestic – have the right to know what the price impact of any climate change policy is and what emission reductions will be achieved.

It is our collective concern that the time frame for the introduction of emissions trading is simply too short given the complexity of what is being proposed. If the Minister is proposing an “all sectors, all gases scheme covering the whole economy” it will be the most ambitious and comprehensive scheme in the world. Australia by way of comparison, is aiming for the launch of an ET scheme by 2011 or 2012 at the latest, which will give them time to decide on the architecture and design of the scheme, build capacity in the collection and verification of data, build the systems and most importantly – get good economic analysis done to weigh up the costs against the benefits.

As an example of the work that needs to be done, an absolute starting point is working out what your emission reduction goal is going to be, because this will determine the emission cap and the emission cap and mitigation potential will determine the price of carbon in an emissions trading scheme.

The Australian Treasury has established an economic modelling group to work out what various caps over various time periods would cost – so that they can set an aspirational, though realistic goal. In the recently released Federal Taskforce report on emissions trading, they calculated that to reduce emissions by 20 percent from 1990 levels by 2020 you would need to replace Australia’s entire fossil fuel electricity generation capacity with nuclear energy and remove all existing vehicles from the roads. This sort of analysis reminds you that 2020 is not that far into the future. It also begs the question of why no such analysis has been done here, despite the ambitious targets like ‘carbon neutrality’ that are being bandied about.

Most New Zealanders are well aware by now that what was to be a big cheque for signing up to the Kyoto Protocol and taking on an emissions reduction target turned out to be a big bill. Now that is what I call inconvenient! It would have been great if we had been able to meet our Kyoto Protocol commitment in a relatively economically painless way, like the EU (post 1990 economic collapse of eastern block countries etc), but instead we fall into the same camp as the US, Canada and Japan (to give a few examples), of countries that will find it an expensive challenge – which is why the US ultimately backed out of the treaty.

Exactly how big that bill will be – no one is quite sure. It depends on a number of things like how much our population and economy grows, how many trees are deforested and how much the price of carbon is trading at on international markets. In the case of New Zealand it also depends on whether it rains or not (more hydro and less fossil fuels in the electricity generation sector) and what happens to land use. Will the bullish prices for milk products accelerate the land use change from forestry to dairying? If it does it is hard to see how we will be able to reduce our emissions in the near term.

Treasury estimates the projected Kyoto  Protocol deficit to be in the region of $500-600 million, however recently Business New Zealand calculated it to be closer to $3 billion plus if the liability is passed on to the private sector through some price based measure like emissions trading. Business New Zealand argued that the government could purchase emission reductions cheaper on the international carbon markets than would be the case for private firms on a smaller individual scale.

So why will it be hard to find least cost emission reductions domestically? There are a number of reasons. In our two biggest greenhouse gas emitting sectors, agriculture (nearly 50 percent) and transport (20 percent), the potential for significant mitigation (in the near term) does not look very promising. In agriculture the greatest emission reduction potential at present looks to be the use of nitrification inhibitors which are available now, though better suited to some climates and soil types than others. Overall however, MAF expects emissions from this sector to continue to grow and to reduce emissions to even a 2005 baseline would  be a challenge.

In transport there are various strategies that could be put in place, but due to inelasticity of demand, they are unlikely to be successful unless the price of carbon is very high. For example, I read in some papers prepared by the Ministry of Transport that the petrol price increase between 2005-2006 (which did get people out of cars and on to public transport) was equivalent to about a $150/t carbon tax. It would be pretty hard to get elected on that sort of promise, but maybe the international price of oil will do the job instead!

Other sectors that are a logical target for emissions trading are industry and the electricity sector, but not much should be expected to be able to be achieved in these sectors. This is largely because percentage wise they don’t account for many emissions (electricity eight percent, industry around 15 percent). In addition to that we have the fourth highest amount of renewables in our electricity generation sector in the world already, and we know that most large industrials are already close to ‘world’s best practice’ in emissions intensity.

To conclude, the cost of an emissions trading scheme will depend a lot on what our emission reduction goal is and over what time period. A near term goal (like 2012) is going to be harder to meet than a longer term goal. Many of the countries that are setting up emissions trading schemes outside of the EU, are setting themselves longer term targets from a more recent base year. This will make a big difference to the cost of their scheme and the chances of them meeting their emission reduction targets.

• Catherine Beard is the executive director of the Greenhouse Policy Coalition, which represents New Zealand’s energy intensive sector.