Brian Fallow: NZ back in black but hold the champagne

Dependence of New Zealand's emissions figures on the planting and harvesting of forests makes accurate forecasting difficult. Photo / Alan Gibson

Climate Change Minister Nick Smith has news that might put at least a wry and fleeting smile on the face of Finance Minister Bill English.

The annual recalculation of New Zealand's projected net emissions of greenhouse gases for the 2008 to 2012 period, relative to our commitment under the Kyoto climate treaty, has swung back into the black to the tune of 9.6 million tonnes.

A year ago the estimate was a deficit of 21.7 million tonnes. At today's carbon price of $25 a tonne that's a $775 million improvement.

But now for the "howevers".

There is a wide margin of error or uncertainty around these numbers. It's really a case of being 10 million tonnes in surplus, give or take 50 million tonnes.

Since 2002 when New Zealand ratified the treaty the estimates of the net position have ranged from a surplus of 55 million tonnes to a shortfall of 64 million.

Much of the improvement from the 2008 estimate is the result of factors which are unfortunate, like last year's drought, or perverse, like deforestation claiming younger trees.

The underlying picture, as Smith emphasises, is still one of pretty much untramelled growth in gross emissions.

"These figures do not signal any progress in abating New Zealand's gross greenhouse gas emissions, which are 23 per cent above 1990 levels," he said.

What has saved our bacon, in terms of reducing the net emissions New Zealand will be accountable for in 2015, when it squares up with other Kyoto countries, is the 600,000ha of new forest planted in the 1990s.

But there are three issues there.

The trees only earn the country credits under Kyoto's rules while they are growing and taking in carbon from the atmosphere. When they are harvested the carbon stored in them is deemed to be emitted.

The shadow of all that planting will be a surge in national emissions in the 2020s. The second problem is that new planting has all but dried up.

"There's not a lot of investment capital around right now," Smith said.

"There's increasing realisation in the sector that it's not all upside; there's a big liability when the trees are harvested. People are cautious about what carbon prices may be then."

And there is continued uncertainty about the policy environment.

The third issue is that the numbers released yesterday are an estimate of New Zealand Inc's gross emissions and offsetting removals by qualifying forests.

The Crown's position, by contrast, will depend on how many Kyoto foresters opt to take up their credits (and the associated liability upon harvest).

So far only five have applied to. Officials' wet-finger-in-the-air assumption is that ultimately about half of the country's Kyoto forest credits will be devolved to the forest owners and will therefore not be available to reduce the taxpayer's Kyoto bill.

It makes a material difference to the Government's books.

The current estimate is Kyoto forests will sequester 92 million tonnes of carbon dioxide-equivalent over 2008 to 2012, give or take 22 million tonnes.

If half of that is devolved to the forest owners, even at today's cyclically depressed carbon prices, it is over $1 billion less in the Crown's coffers in the short-term but potentially a much large liability offloaded in the medium term.

Some 8.2 million tonnes of the latest 31-million-tonne improvement in the net position is an upward revision in the calculation of how much carbon will be taken up by Kyoto forests during this five-year period, reflecting the fact that the trees have been planted on better land and are growing faster than older plantation forests.

Another 9.6 million tonnes of the improvement reflects a lower estimate for deforestation liabilities, which arise when pre-1990 forests are cut down and not replanted.

Based on an updated survey of forest owners' intentions the main change there is not in the area projected to be deforested but in the age of trees being felled.

It is a perverse outcome from the environment's standpoint if smaller trees, containing less carbon, are felled and not replaced, but it reduces the national liability.

The biggest change from last year is a 14.4 million-tonne reduction in agricultural emissions.

Most of that, 10.3 million tonnes, reflects the impact of last year's drought. Fewer and lighter cattle, sheep and deer mean less belching of methane.

The Government estimates it will take two years for stock numbers to recover.

The recession has made surprisingly little difference to the projections, partly because they are based on the Treasury's distinctly optimistic economic forecasts last December.

Lower electricity demand and reduced activity in the industrial sector between them shave barely 1 million tonnes from projected emissions.

Transport emissions are projected to increase by 700,000 from last year's estimates, reflecting the lower fuel prices and the previous Government's decision to defer transport's entry into the emissions trading scheme by two years to 2011.

Between 1990 and 2006 road transport emissions climbed 69 per cent. The fact that transport emissions have continued to grow pretty much unabated "should flow through to decisions you make about entry into the ETS," Smith said.

But when pressed he was non-committal about whether he expects the 2011 date for transport to stand. He does not want to pre-empt the select committee which is reviewing the scheme.

The figures released yesterday should not be used to justify a do-nothing approach, he said. A carbon price was essential if we were going to bend the curve of rising emissions down.

The Government has a target of reducing New Zealand's emissions to 50 per cent of 1990 levels by 2050.

That is so far into the future as to be meaningless, so it is under mounting pressure to commit to an intermediate target for 2020, at least by the time of the next big international conference in Copenhagen next December.

The sponginess of the numbers released yesterday demonstrate how tricky that exercise would be for an economy half of whose emissions arise from agriculture, and the bodily functions of ruminants in particular, and whose most promising avenue for reducing net emissions also depends on a biological process - growing trees.

If it is difficult to get a reliable quantified handle on these trends in a country as small as New Zealand with a lot of experience of dairy cattle and pine trees, imagine how hard it would be in, say, vast and diverse South America.

Might it not be better, when trying to design a successor regime to Kyoto, to set those land-use issues to one side and concentrate on carbon dioxide emissions? Unfortunately, no.

Back in 1997, Smith recalls, when the Kyoto treaty was being drawn up, there was a strong push by some to focus on CO2.

"The counter-argument is that if you look at global emissions, about 30 per cent is from the felling of indigenous forests, and the lowest-cost way of reducing emissions is to stop that."