Carbon price may push up Kyoto bill

Photo / Alan Gibson

The Budget disclosed a contingent liability for the taxpayer of $1.5 billion under the Kyoto Protocol.

That is down from $1.7 billion in last year's Budget, reflecting the issuance of 10 million carbon credits to eligible foresters in the interim.

The credits come with an associated liability to account for the carbon deemed to be emitted when the trees are harvested.

But the Sustainability Council says the contingent liability could be significantly larger than suggested by the Budget figure, which only relates to forest credits, depending on the future track of carbon prices.

Its executive director, Simon Terry, said that on official estimates, New Zealand is expected to exceed its Kyoto target for gross emissions in the 2008 to 2012 period by 18 per cent.

Only a fifth of that liability has been devolved to emitters under the emissions trading scheme; the rest lies with taxpayers.

Nevertheless New Zealand is expected to outperform its target by around 22 million tonnes when it comes to squaring accounts with other Kyoto countries.

That is because the treaty's rules allow it to claim credits for the carbon removed from the atmosphere by forests planted since 1990 on land not previously forested.

The flipside is that when the trees are felled that carbon is deemed to be immediately returned to the atmosphere (a rule New Zealand is seeking to have changed). When the bulge of forest planting in the early and mid-1990s reaches maturity, starting around 2020, the plantation forests will flip from being a net sink of carbon dioxide to a net source.

In effect the Government is borrowing forest credits to cover the gap between targeted and actual gross emissions, Terry said.

"When this is properly accounted for New Zealand today is 49 million tonnes in deficit."

That is a $1 billion liability at the $20.33 a tonne carbon price used in the Budget.

But it is a $2.45 billion liability at the $50 the Government uses elsewhere for modelling after 2012, when credits are much more likely to be purchased.

A key reason this carbon debt is treated as only a contingent liability is that Kyoto's first, and so far only, commitment period ends at the end of next year.

It is highly uncertain what the international environment will be after that, including the future of the Kyoto treaty. So whether the Government will have a financial liability (as opposed to a moral or reputational one) after 2012 remains unclear.

"There may not be a quantitative cap like Kyoto's," Terry said. "But I can't see any global plan for the response to climate change which will allow New Zealand not to be measured in this way. Whatever the mechanism, it is going to cost."