Brian Fallow on the economy

Brian Fallow is the Herald's Economics Editor

Brian Fallow: Govt in bind over emissions target

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Promising technology takes a blow, while primary policy intended to curb growth is in utter disarray.

You cannot redesign a cow as readily as you can redesign a car. Photo / Greg Bowker
You cannot redesign a cow as readily as you can redesign a car. Photo / Greg Bowker

A big decision the Government has to make this year is the greenhouse gas emissions target for the 2013 to 2020 period.

We are the only developed country not to have tabled an unconditional single number target as part of the international climate change negotiations.

Instead what lies on the table, getting rather yellow with age, is an offer to reduce emissions to somewhere between 10 and 20 per cent below 1990 levels by 2020, subject to a string of conditions.

That would represent a cut of between 32 and 40 per cent from where national emissions will be in 2020 if it is business as usual, officials estimate.

The estimate is contained in a Cabinet paper from May last year obtained under the Official Information Act by the open government website FYI. It is plausible given what we know about the growth in emissions already since 1990.

Business as usual implies rising emissions.

The population is growing for one thing. And the Government is keen to encourage irrigation, in order to expand agricultural production.

Fair enough. The country needs to earn its living as a trading nation and building on a comparative advantage in producing the foods of affluence looks like a better bet than trying to compete with the Chinese in manufacturing.

But there is a price to pay in the form of the emissions - now almost half the national total - which arise from the bodily functions of livestock.

They are a big reason New Zealand's emissions intensity (emissions relative to gross domestic product) is high by international standards, and you cannot redesign a cow as readily as you can redesign a car.

One of the more promising technologies for reducing agricultural nitrous oxide emission, nitrification inhibitors, has received what may be a fatal blow with the discovery of traces of DCD derived from them in milk powder.

On the other side of the carbon ledger, the primary policy intended to curb the growth in emissions - and set us on the path to a low-carbon future - is in utter disarray.

The emissions trading scheme has been nullified by two rounds of watering down, including the fateful decision not to restrict, as others have, emitters' ability to use imported carbon credits to meet their obligations, even though world prices for carbon have crashed.

With emission reduction units trading for a few cents a tonne, the ETS provides no incentive to reduce emissions, or to plant trees to offset emissions.

It also means carbon prices provide no impediment to any owners of pre-1990 plantation forest who might be contemplating a change of land use. The barrier to exit arising from their liability for around 800 tonnes a hectare upon harvest if they do not reforest is now extremely low.

Fine for them, but a problem for the country because under Kyoto's accounting rules - which the Government has said New Zealand will still observe - those deforestation emissions are added to the national total. So where does this leave that provisional and spongy emissions target for 2020?

The Government could only contemplate such a deep cut - at least a third, remember, from business-as-usual levels - because of two factors.

One is the ability to offset gross emissions with credits for the carbon being sequestered (temporarily) in "Kyoto" forests: that is, those planted since 1989 on land not previously forested.

The problem is that most of that planting was done in the 1990s. Come the 2020s, those trees will be ready for harvest and New Zealand will be liable for the emission of most of the carbon stored in the trees when they are felled.

The forest estate will flip from being a sink to a source of emissions.

This would not matter so much if the forest estate had continued to expand.

But the incentives to plant trees have swung around wildly over the years, influenced not only by expected log prices but by the dizzying gyrations of climate change policy.

Right now the combination of an extremely low carbon price and an extremely high degree of uncertainty about the outlook provides no incentive at all to plant or replant.

Given that we are dealing with a biological process - it takes time for seedlings to grow, even if there are still nurseries in business producing them - this will put the country in a much weaker position in 2020 than it would have been, had there been stability in the policy and price signals for the forestry sector.

The other big factor the Government was relying on in that conditional 2020 target range was continued access to international carbon markets.

The principle is that the national target is a "responsibility" target.

If it is too costly to reduce emissions within New Zealand to target levels the difference can be made up by financing, via the market, emissions-reducing projects elsewhere in the world which would not otherwise occur.

The trouble is that the Government decided it would not sign up for a second commitment period under the Kyoto Protocol.

It thought that not making any new pledge under the Kyoto Protocol would not imperil New Zealand's continued access to international carbon markets, created by Kyoto, even though continued access is one of the conditions it had attached to the 2020 offer on the table.

It was a gamble and it lost.

The Doha climate conference last December decided that countries such as New Zealand and Japan, which had commitments under Kyoto's first period but walked away from the second one, would not be able to access the Kyoto carbon markets.

Such an outcome, officials warned in a pre-Doha Cabinet paper, would trigger a "reconsideration of New Zealand's conditional target range".

If multilateral carbon markets are closed to us it might still be possible to have bilateral linkage with another ETS.

But the prospects do not look good.

The Government is now in the invidious but self-inflicted position of having to firm up an emissions target for 2020 while caught between a chainsaw massacre in the forestry sector and exclusion from global carbon markets.

The clean, green national brand is liable to take a hit.


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- NZ Herald

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