While there have been plenty of column inches devoted to picking over the entrails of the failed UN climate change meeting in Copenhagen, there has not much discussion of what it means specifically for New Zealand.
In short, the failure of the major economies of the world to agree on a way to price greenhouse gas emissions leaves New Zealand in a very exposed position. We remain the only country outside of the EU to have an emissions trading scheme legislated and the only country in the world with a scheme that puts a price on every tonne of greenhouse gases emitted. No other country has been so bold, mainly due to concerns about the cost to industry and consumers.
While there has been plenty of political rhetoric in countries such as Australia and the US, the public is not showing much support for measures that would result in higher energy costs and threaten the competitiveness of domestic industry and jobs. Politicians are talking the talk, but are not able to convert this into action domestically, let alone internationally.
Australian PM, Kevin Rudd was recently quoted in the media saying his recent drop in popularity could be due to his proposed emissions trading scheme. His problem is not unique. There are a growing number of public opinion polls around the world, including one undertaken for the Greenhouse Policy Coalition, that show climate change ranks quite low down on most people’s list of concerns.
Where does that leave New Zealand? We have pushed ahead with an emissions trading scheme that has been modified to mirror a non-existent Australian scheme. It is about to get more expensive to do business in New Zealand which is the last thing we need as we struggle to pull ourselves out of a recession.
The start date for our scheme for the industrial and energy sectors is the middle of this year. The time to get all the implementation details finalised is extremely tight. Reliance on the Australian developed methodology for working out which industrial activities need to be given an allocation to keep them internationally competitive has been a tactical mistake. Australia is a very different economy to New Zealand, with larger and more energy intensive industry. When we use their thresholds for allocation of assistance to industry, most of New Zealand industry will get no assistance at all. Fonterra falls into this category and if our single largest exporter gets not one jot of protection against the price of carbon, then the majority of industry will be in the same position in New Zealand. This is not exactly a recipe for trade success, new investment or job creation, quite the opposite in fact.
Adding to our challenges, the failure to reach a global agreement on emission reductions in Copenhagen puts the future of the carbon markets at risk. The whole point of emissions trading was that it was supposed to use the market mechanism to find the least costly way to reduce each tonne of emissions. All the easy, low cost emission reductions happen first and in industrial New Zealand they have largely already been done. There are still cheaper emission reduction opportunities in the developing world (investing in renewable energy projects etc) but that whole market opportunity is a creation of the Kyoto Protocol, and if Kyoto cannot be extended or replaced (and it looks increasingly like it won’t be) then where do New Zealand companies buy credits from two years from now and who will we be able to trade with?
We can’t trade with the European Union ETS, because they do not allow forestry credits in their scheme. Australia and the US are potentially a long way off creating emission trading markets that will be open to other countries. New Zealand is dependent on the Kyoto created trading which allows us to buy (supposedly) cheap emission reduction units from developing countries. If this opportunity dries up, then we have no-one to trade with and no international market. While there will be some NZ forestry credits to buy, they can also be sold overseas and there is no guarantee how many foresters will enter into the market, since by doing so they create a corresponding liability for themselves when the trees are harvested.
The best thing New Zealand could do with its domestic policy is take a tea break until our main trading competitors have enough political support to introduce their own trading schemes. We could use the tea break wisely by working out all the details of our emissions trading scheme so that we can hit the ground running when others are also in the starting blocks.
The next step for New Zealand at the international level is to signal to the UN what our emission reduction target by 2020 will be. So far we have a conditional 10-20% emission reduction target by 2020. However, with continuing population growth, our emissions are projected to be 40% above 1990 levels by 2020, which means a 20% reduction would require 43% emission reductions below the business as usual emissions in 2020. This is a huge ask and economic modelling shows it would be ruinous to the economy unless there were major new technology breakthroughs (unlikely in the next 10 years) and all other trading competitors took on similar targets (again unlikely due to the high cost to energy and jobs).
Public opinion research by the Greenhouse Policy Coalition tells us that Kiwi’s are in favour of New Zealand playing its part globally to reduce greenhouse gas emissions, but not if it is going to cost too much. How much is too much? People started to baulk at anything over about $250 per year. The current policy path we are on could cost each New Zealander $1400 or more a year, which was unacceptable to the majority (73%) surveyed.
Executive Director, Greenhouse Policy Coalition
Catherine Beard attended the climate change conference in Copenhagen on behalf of the energy intensive sector in New Zealand.