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Home / Business

<i>Brian Fallow:</i> Both Kyoto factions need reality check

Brian Fallow
By Brian Fallow
Columnist·
8 May, 2002 12:14 AM5 mins to read

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A dispiriting feature of the debate about the Kyoto Protocol is the way the two sides - business and the green camp - tend to talk past each other, neither seeing any merit in the other's position.

The Government cannot afford the tunnel vision of the advocates. It has had to strike a balance and make a decision.

The decision it has made is pragmatic and recognises realities which the partisans of business and the environment tend to brush aside.

Both need to get real.

The environmentalist lobby has to realise that New Zealand's greenhouse gas emissions are about 0.4 of 1 per cent of the global problem. Any amount of self-sacrifice here would on its own make an imperceptible difference.

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The business lobby has been loath to accept that if we take what the climate scientists are saying seriously, as we must, it is inevitable that we will have to find new, sustainable ways of generating electricity, propelling vehicles and otherwise meeting our energy needs.

The longer we delay that transition the more costly it will be.

By capping or rationing the right to emit greenhouse gases, the protocol provides a mechanism for progressively raising consumer prices for energy to the point where alternative technologies become commercially viable.

The idea is to have energy prices which reflect the environmental costs associated with fossil carbon use, costs which are now diffused by the greenhouse effect over the whole planet and which are accumulating.

The aim to is to end a situation where a bunch of 19th century technologies are protected by the moral equivalent of a subsidy from poor countries to rich ones, and from future generations to the present.

That is why New Zealand should not be party to the undermining of the protocol.

But the dismal reality is that the withdrawal of the United States dealt the protocol an almost lethal blow.

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It represents more than a third of the rich world and about a quarter of world emissions. That is a big hole in Kyoto's coverage.

Ironically, President George W. Bush justified the US position in part on free-rider grounds, namely the absence of developing countries and especially major emitters such as China and India from Kyoto, at least in the first commitment period to 2012.

Developing countries are forecast to overtake developed ones in aggregate emissions before 2020, so without a U-turn in US policy, there has to be serious risk that Kyoto could end up covering only about a third of world emissions, a degree of free-riding which would be fatal to the protocol.

That is the Government's dilemma.

New Zealand's economy, as Energy Minister Pete Hodgson never tires of reminding us, depends on an equable climate which is threatened by climate change in the long term.

Kyoto, a ground-breaking agreement which is the product of 10 years tough negotiation, is the only game in town to seriously address that.

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On the other hand Kyoto may come to naught.

Business concerns about international competitiveness relative to countries with no Kyoto commitments cannot be brushed aside as short-termism and greed, especially when New Zealand is struggling to earn a first-world living.

Hence the pragmatic decision to exempt agriculture and forestry from a carbon charge, and to offer negotiated greenhouse agreements to emitters whose competitiveness would be jeopardised if subject to a one-size-fits-all carbon tax.

At this stage of the game the only reasonable measures to expect the Government to take are the no-regrets measures already in train, such as encouraging energy efficiency, the transport strategy and the waste strategy (landfills are about 4 per cent of emissions).

There will also be contestable grants for projects which deliver defined reductions in greenhouse gas emissions, over and above business as usual.

The Government is also right to shelve the ideas of directly exposing New Zealand emitters to the international carbon market.

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It remains to be seen whether there will be a functional carbon market ceaselessly discovering the marginal cost of abatement any time soon.

Provision for such a market is one of the best features of the Kyoto Protocol, as a mechanism for enabling the lowest cost emission abatement measures to be taken first regardless of where in the (Kyoto) world that is.

But the dynamics of such a market have been hugely disturbed with the withdrawal of the United States, which would have been its main source of demand and liquidity.

The proposed carbon tax inserts a buffer between emitters and the international carbon market, capping the upside risk at $25 a tonne of carbon dioxide equivalent - but not locking in the downside.

At most it would add 6c a litre to petrol, 7c to diesel and increase a typical residential power bill by around 9 per cent. Nobody would expect that to alter consumer behaviour much. But it is the thin end of a wedge which will widen if, and only if, Kyoto survives.

Dialogue on business

nzherald.co.nz/climate

Intergovernmental Panel on Climate Change (IPCC)

United Nations Environment Program

World Meteorological Organisation

Framework Convention on Climate Change

Executive summary: Climate change impacts on NZ

IPCC Summary: Climate Change 2001

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