Kyoto bill creates $1 billion deficit

Taxpayers will be at least $1 billion worse off under revised Government estimates of the costs of the Kyoto treaty to combat global warming.

National's environment spokesman, Nick Smith, says the party, if elected, will consider pulling out of the Kyoto Protocol, despite the cost to New Zealand's international reputation, given the "hammering" the economy will take under the latest numbers. "It's a huge stuff-up."

Revised projections released by the Climate Change Minister Pete Hodgson yesterday show we are likely to exceed our Kyoto target for net emissions of greenhouses gases by 36 million tonnes of carbon dioxide during the treaty's first commitment period, 2008 to 2012.

New Zealand would have to buy carbon credits from other Kyoto countries to cover that shortfall.

That is a big turnaround from last year's projections which had us in credit to the tune of 33 million tonnes.

At an indicative carbon price of $15 a tonne (the value used to set the carbon tax due to come into effect in 2007), that is a switch from a gain of nearly $500 million to cost of more than $500 million, which would fall to the taxpayer.

Taking the current price of $34 a tonne taxpayers would need to find $1.23 billion to buy credits on the international market.

The biggest change from last year's estimates is a 24 per cent or 38 million tonne increase in the emissions expected from vehicle exhausts and smokestacks, especially the former.

That is driven by more refined modelling of the impact of economic growth on energy use.

Petrol and diesel represent about 35 per cent of energy demand and there has been little observable improvement in the efficiency with which those fuels are used.

The other major change is on the credit side of the ledger, where Kyoto's rules allow credits for the carbon dioxide taken out of the atmosphere by forests planted on land not previously forested.

The benefit from these forest sink credits has been revised down by 24 million tonnes or 25 per cent.

Most of that, 15 million tonnes, is because pine trees planted on land previously covered with scrub are not now to be counted as eligible for credits.

But it also reflects a collapse in the rate of new planting of commercial forests and an increase in deforestation, which creates a liability under Kyoto's rules.

The 36 million tonnes deficit is officials' "most likely scenario" estimate.

The outcome could be up to 25 million tonnes better or worse than that, depending on the assumptions made.

But even the optimistic scenario has New Zealand as a net buyer of carbon credits in the end.

When we ratified Kyoto in 2002 one of the reasons Hodgson gave for doing so was that not to ratify would be to set fire to "a very big cheque". Then we were assumed to have a net credit position of 55 million tonnes.