NZ can't rely on the likes of Russia to meet our obligations.

New Zealand greenhouse gas emitters have been meeting their obligations under the emissions trading scheme with thoroughly debased coin.

The Environmental Protection Agency reports that 74 per cent of the emission reduction units (ERUs) surrendered to the Government to balance last year's emissions were imported carbon credits generated by the "joint implementation" provisions of the Kyoto Protocol. In 2013 they formed 91 per centof units surrendered; in 2012 it was 70 per cent.

The integrity of these units has long been questioned. A new and painstaking study by the Stockholm Environment Institute, commissioned by the Austrian, Finnish and Swiss governments, confirms those doubts.

It found that for 73 per cent of the ERUs issued, it was "implausible" to claim that a key condition required for them to be authorised was met, while for another 12 per cent it was "questionable".

Advertisement

The institute estimated the use of these dodgy units may have allowed global emissions of greenhouse gases to be 600 million tonnes of carbon-dioxide-equivalent higher than they would have been otherwise.

Remember that the ETS only covers a minority of New Zealand's emissions in any case. The agricultural gases methane and nitrous oxide, which represent nearly half the national total of greenhouse gas emissions, are exempt.

Large industrial emitters which are trade-exposed are liable for only 5 per cent of their emissions, and the transport and energy sectors benefit from a buy-one-get-one-free rule.

Not content with that degree of largesse, however, the Government has allowed essentially unrestricted use of Kyoto credits to meet emitters' obligations, crowding out of the market the New Zealand units it allocated mainly to forest owners in recognition of the carbon sequestered in their trees.

ERUs cost almost nothing, just a few cents a tonne, which renders the carbon price signal inaudible and defeats the purpose of the scheme.

And it turns out that the environmental integrity of those units was pretty much zero, too.

The theory behind international carbon trading is sound enough. The atmosphere does not care where emission reductions occur or who pays for them. Trading is especially useful in a country like New Zealand, where domestic reductions are relatively expensive.

But the Kyoto Protocol's rules governing ERUs require the government of the source country to attest that the reductions are "additional" - that they would not have occurred anyway, and only exist because the projects involved gave rise to credits which can be sold.

Four countries - Ukraine, Russia, Poland and Germany - account for 94 per cent of the ERUs issued. The institute's research found significant environmental integrity concerns for more than 80 per cent of the Russian and Ukrainian ERUs. In contrast, 97 per cent of the German ones and 70 per cent of Poland's were rated as high for integrity.

Source countries can establish their own rules for issuing ERUs, without international oversight.

The institute was also critical of the bodies conducting audits of the projects.

The New Zealand Government ignored such concerns when it resisted calls from forest owners and environmental lobbies to limit the use of ERUs in the New Zealand scheme.

The Government has, however, managed to get New Zealand excluded from the Kyoto markets and, as of the end of May, New Zealand emitters are no longer able to surrender international units to meet their obligations. But that leaves a problem.

The offer New Zealand has tabled for the global climate negotiations in Paris in December, which it is hoped will yield a comprehensive agreement for the post-2020 period, is provisional on "unrestricted access to global carbon markets" whose rules ensure environmental integrity of the units traded and preclude double-counting.

Indeed, modelling commissioned by the Government suggests it would be happy to see 80 per cent of New Zealand's targeted reduction in emissions achieved that way.

But will there be such a market?

As Lizzie Chambers of Carbon Match, a trading platform for NZUs, points out, the European Union's offer for Paris includes "no contribution from international credits".

The United States says, "At this time, the United States does not intend to utilise international market mechanisms to implement its 2025 target." In Paris, the focus will be on what countries are prepared to do to reduce their own emissions.

Being willing to buy credits that are, for some dubious reason, surplus to another country's requirements is unlikely to impress.

"The fact is, the last three years of our ETS should have taught us that every dollar spent on reductions overseas is a dollar that didn't generate any economic, social or environmental co-benefit in New Zealand," Chambers says.

While a global carbon market has always been a nice idea, the European and US commitments weaken the support that existed for international carbon trading, she says.

"Is it wise, or even honest, to hinge our commitments to the nirvana of a truly fungible global carbon market?"

The Stockholm Environment Institute pointed to the failure of efforts to tighten the environmental integrity rules for the Kyoto mechanisms and concluded that the role for similar mechanisms after 2020 "may be quite limited".

If the issue of international trading remains unresolved after the Paris conference, where would that leave New Zealand's climate policy?

One cannot say in limbo. Limbo was for innocent souls.

Purgatory would be more like it.

Trading in air

• Under the emissions trading scheme, some industries must pay for the greenhouse gases they emit.

• They do that by buying emissions units, and surrendering them to the Government.

• Each emissions unit represents 1 tonne of CO2, or equivalent, which has been saved.

• Those savings can be made in New Zealand or overseas.

• New Zealand emitters have relied heavily on cheap emissions units generated overseas.

• But a new study says most of those overseas units do not represent real emissions savings.