Pete Hodgson: Uncertainty doesn't mean paralysis

COMMENT

Uncertainty is often deployed as an excuse for inaction and it has become the mantra of those who oppose the Kyoto Protocol - or indeed any attempt to do something about climate change.

Now it is said that there is fresh uncertainty about the viability of the protocol, arising from renewed speculation about whether Russia will ratify the treaty.

In fact President Vladimir Putin's latest comments on Kyoto, at a climate change science conference in Moscow, have changed nothing. Moscow has said several times that it will ratify, but has not said when. At the conference Mr Putin again declined to specify a timetable for ratification. Hence the latest flurry of pessimistic punditry.

To the many observers of the Kyoto process who did not expect Mr Putin to name a date, the President's cameo was an unremarkable event. The reasons for assuming that Russia will ratify still hold true: it has said it will and as the world's biggest prospective seller of carbon credits it stands to make a considerable amount of money.

Russia's ratification is needed to bring the protocol into force, which puts the Kremlin in a powerful position in negotiations with pro-Kyoto Europe. It is in no hurry. We should expect to wait for some months yet.

The entry into force of the protocol will usefully reduce uncertainty in the global investment environment, particularly where energy supply or consumption is concerned. It will enable the nascent international carbon market to develop further and begin to discover a global price for carbon.

Uncertainty about the protocol's entry into force and the future price of carbon does not induce paralysis in the boardroom.

And uncertainty about Kyoto has no special significance among the many other variables affecting investment decisions, including global economic conditions, trade negotiations, currency fluctuations, the cost of capital, oil prices and the long run marginal cost of electricity.

The Government has set out to provide certainty where it can. New Zealand has more clearly developed domestic climate change policies than most of the other 117 countries that have ratified the protocol.

We cannot unilaterally determine what the price of carbon will be, but we have set un upper limit of $25 a tonne of carbon dioxide equivalent on the emissions charge that will apply to fossil fuels and industrial process emissions from 2007-08.

Worldwide, businesses are factoring climate change and the transition to the post-Kyoto world into their investment decisions. They include corporations in Australia, which has committed to meeting its Kyoto target despite its refusal to ratify, and in the United States. International carbon trading is already occurring as businesses and Governments anticipate the advent of constraints on emissions.

Businesses with an eye for the opportunities that Kyoto creates are beginning to seize them. In NZ the prospect of carbon credits has already accelerated investment in two wind farms.

By putting a price on carbon, the protocol creates a more favourable market for renewable and low-emission energy. It encourages innovation and efficiency in our use of energy and natural resources.

There are uncertainties and risks for those who seek to take advantage of change but that is true wherever there is something to be gained.

* Pete Hodgson is Convener, Ministerial Group on Climate Change