We may have just voted for the status quo in government but keeping the climate policy as is is not an option.

If the country has just voted for three more years of the status quo, one area where that is not nearly good enough is climate policy.

Here is what officials' briefing to the incoming minister of climate change issues should say:

Since the last BIM three years ago the market failure climate policy is intended to address has only got worse.

PricewaterhouseCoopers estimates that to have a better than 50 per cent chance of limiting global warming to 2 degrees Celsius above pre-industrial levels - a target the New Zealand Government has endorsed - the carbon intensity of the world economy (its emissions per unit of gross domestic product) would have to reduce by 5.1 per cent a year from now to 2050.


Not once since World War II has the world managed that rate of decarbonisation; the average since 2000 has been a reduction of just 0.8 per cent a year.

PwC does not provide an estimate for New Zealand. However, as we have the fifth highest emissions per capita among 40 developed economies, but alas nothing like the fifth highest GDP per capita, it is clear that we are starting from a particularly adverse position on this score.

A key decision for the new Climate Change Minister will be who will conduct a review of the emissions trading scheme next year and what its terms of reference will be. The Government has already indicated it will include consideration of progress made in completing a new comprehensive international agreement.

The BIM three years ago said the first priority was to ensure the ETS was fit for purpose.

It is now clear that it is not. Not even close.

Unless, that is, the purpose of the scheme is not to provide a carbon price signal that will set the economy on a path to a low-carbon future, but merely to be a placeholder for a carbon price, to be filled in when the rest of the world gets serious about the issue.

It is telling that the carbon price used in the Crown's most recent financial statements, based on market prices prevailing last March, is just 30c a tonne.

That is about 1 per cent of the carbon price it was assumed the ETS would deliver when it was set up.


It is fatuous for the Government to pretend that this is "the world price of carbon", more than which New Zealand emitters should not have to pay.

It is only the world price of a particular kind of carbon credit - emission reduction units - generated by the likes of Ukraine and Russia under the Kyoto Protocol's Clean Development Mechanism. Their price is so low because most jurisdictions with an ETS will not have a bar of them.

But New Zealand does and for the past two years emitters with obligations under the ETS have used them to meet almost all of their liability, while hoarding the New Zealand units the Government has doled out free under various measures intended to soften the impact of carbon pricing.

As a result, of the 26 emissions trading schemes the World Bank reports on New Zealand's has the lowest prices by a long way. And only a fraction of the country's emissions are subject to a carbon price.

Nearly half of national emissions consist of methane and nitrous oxide arising from the bodily functions of livestock. They are entirely exempt.

Only half the emissions from transport fuels or from the natural gas or coal electricity generators burn incur a carbon price.

And trade-exposed industrial emitters only face a carbon price on 20 or 5 per cent of their emissions, depending on how emissions-intensive they are.

Consequently officials estimate that current policy measures mean that by 2020 New Zealand's gross emissions will be just 0.6 per cent lower than they would have been without them.

Emissions are projected to be 25 per cent higher than they were in 1990 - a figure starkly at odds with the unconditional pledge of a cut to 5 per cent below 1990 levels by 2020 which New Zealand has tabled in the international negotiations now under way.

Clearly New Zealand is not going to cut its gross emissions by a more than a quarter over the next five years.

Can we rely on the same thing which allowed us to meet our obligations under the Kyoto Protocol's first commitment period, 2008 to 2012, namely the offset for carbon dioxide taken up from the atmosphere by "Kyoto forests" (those planted since 1989 on land not previously forested)?

No we can't. By 2020 the plantation forest estate will be on the cusp of flipping from a net sink to a net source of emissions, as forests planted in the late 1980s and early 1990s are harvested and the carbon locked up in them is deemed to be emitted.

Officials estimate that by 2020 forestry will be offsetting only 2 million tonnes or less than 3 per cent of gross emissions.

That means net emissions in 2020 are projected to be 21 per cent higher than they were in 1990, not 5 per cent lower.

The forests will eventually revert to being a carbon sink, officials reckon, assuming (unsafely at current price levels) that they are replanted. But not until the late 2030s.

Shame about the long period in between.

The BIM three years ago stressed the need for climate policy to be internationally credible, not only in order to have any traction in the international negotiations but because of reputational risks to the clean, green national brand.

The new BIM could cut and paste this passage from the last one: "The global marketplace for New Zealand's goods and services is likely to change irrespective of progress in the negotiations as both companies and countries take action independently.

"How New Zealand's climate policies are perceived will impact on the New Zealand brand and the ability of our firms to access overseas markets."

Translation: "Standing before the world pretending to be clean and green while we have among the highest emissions per capita and are doing five-eighths of not much at all to reduce them is economically myopic to the point of blindness, minister. Please explain this to your colleagues."