Kyoto Protocol taxpayer liability more than doubles to $656 million

The taxpayer's liability under the Kyoto Protocol has risen to $656 million, after the Treasury revised up the international carbon price on which the liability is based in the Government's books.

A year ago it was put at $313 million.

The estimate depends on three factors, all of which have changed markedly since the Government began in May last year to quantify the potential financial obligation under the climate change treaty.

One is the volume, measured in tonnes of carbon dioxide equivalent, by which New Zealand is expected to exceed its allotted emissions target under the treaty.

The excess will have to be covered by buying rights to emit greenhouse gases on the international market before 2013, when the country has to square accounts with the others which have accepted obligations under the treaty.

The excess was estimated at 36 million tonnes in May last year, a turnaround from a year earlier when New Zealand was predicted to beat the emissions target. It was then revised up to 64 million tonnes in December when the Government scrapped the planned carbon tax and took account of higher rates of deforestation.

It has since been revised down again to an excess of 41 million tonnes.

The other two factors are the cost, based on present prices in euros and US dollars, of buying credits on the international market, and the exchange rate.

These factors led to the $656 million figure released on Wednesday in the Crown accounts for the year to June 2006.

It reflects a rise of 5 million tonnes in the volume to be covered, a drop in the exchange rate from US70c to 60c, and a higher carbon price of US9.65 a tonne instead of the US$6 previously used.

That figure is based on World Bank and European prices for certified emission reductions (CERs) arising under provisions in the Kyoto Protocol which allow countries with obligations under the treaty to claim credits for projects which reduce emissions in developing countries.

But the estimate comes with a health warning: the figures reported by the World bank vary widely, from US$3 to US$24, reflecting big variability in the risk that a project's promised emission reductions will eventuate.

The European data is affected by the fact that there is a limit on the use of CERs in the internal European market and that prices in that market crashed in April.