Drawing a line on climate commitment

The electricity sector is considered one of the most promising for finding alternatives to coal or gas-generated power. Photo / Christine Cornege

Where do we draw the line? Where does New Zealand doing its fair share on climate change end and futile self-sacrifice begin?

Those are key questions facing the panel set up to review the emissions trading scheme, and its terms of reference make clear that central to the answers has to be what is happening in the rest of the world.

The review, to be chaired by David Caygill, is a statutory requirement. It is expressly not to revisit the issues, debated at tedious length for at least the past decade, about whether New Zealand should be taking action on climate change at all or whether an emissions trading scheme is the most appropriate response.

"We accept the science," says Climate Change Issues Minister Nick Smith.

"We want to reduce emissions. We want to do that in the most efficient way possible and we want to try and do in a way that is fair between different sectors of the economy. And what's more we have an overall objective of New Zealand doing its fair share on climate change."

On what constitutes a fair share of the global effort, Smith said New Zealand had to acknowledge it was a developed country whose per capita emissions were 11th highest globally.

On the other hand, New Zealand tends to rank in the bottom third of the OECD by most measures of economic performance and has an emissions profile that is unusual for a developed country in that nearly half of it arises from the bodily functions of livestock, while the electricity sector is predominantly renewable already.

The Labour Government passed an ETS into law in its last few days in office and the incoming National Government watered it down.

One was to push back to 2015 the extension of the scheme to agricultural emissions.

Another was a half obligation - buy one, get one free - under which oil and power companies only have to buy and surrender to the Government carbon credits to cover every other tonne of carbon emissions. Together with a price cap that effectively imposes an upper limit of $12.50 a tonne on their emissions until the start of 2013.

The terms of reference require the review to consider the timetable for extending the coverage of the scheme to agriculture "taking into account the domestic actions of key competitors".

Smith said the Government had no interest in simply imposing an additional cost on the most important export industry. "We are only interested in a pricing instrument if there are going to be practical ways in which farmers can respond to that price and reduce emissions."

But the minister denies that he is signalling that the 2015 date is likely to be pushed back.

"I don't want to pre-empt the decision of the review and 2015 is four years away and a lot can happen in four years," he said.

"I would want to signal that a National-led Government will not be including agriculture unless there are practical technologies that farmers can employ to reduce their emissions and there has been significantly greater progress than we have seen to date by our key trading partners in pricing emissions."

The geopolitics of climate change are more than usually vexed.

It is not clear the Kyoto Protocol will survive beyond 2012. Its largest non-European members, Japan, Russia and Canada, have indicated they are not interested in continuing in an agreement which does not include the United States.

The Obama Administration has acknowledged that a national cap-and-trade (emotions trading) scheme is a non-starter for at least the next couple of years. Japan has shelved its plans for an ETS. Climate policy in Australia remains up in the air.

And the major emerging country emitters, including China, have been very clear that whatever action they take to restrain the growth in their emissions, economic development is their overriding priority.

In light of this uncertainty Smith said it would not surprise him if the review panel's recommendations were conditional.

"They may say New Zealand should take this next step until this test is met internationally."

Labour's climate change spokesman Charles Chauvel said agriculture needed to come into the scheme no later than 2015.

"Otherwise the message to the biggest emitting sector is that they can just continue as they are because there is going to be no discipline."

Smith said that the most important sector for changing the track of emissions is electricity.

"It is the sector which has had the biggest increase - a doubling of emissions since 1990. It is also the one where New Zealand has the most opportunities, between geothermal, wind, hydro and tidal, to find alternatives to coal or gas-generated power," he said.

"Seventy per cent of the generation built during the Clark years was thermal. Since the ETS was passed we have had over 85 per cent renewables, especially geothermal. In the last six months of 2010 over 2000MW of renewable projects have been approved. I'm hugely encouraged," he said.

"One of the key questions for the ETS review is whether the practical price of $12.50 for the electricity sector is going to be enough to continue to drive that renewable investment or whether we need to step it up to $25 in 2013 as proposed."

Chauvel said the half-obligation blunts the price signal and the scheme should be scaled up to full obligation immediately.

"Having served on Meridian Energy's board for four years I know that the generators factored in the likelihood of an ETS into their investment decisions years ago," he said.

"The fact that we have seen a lot more consenting of renewable generation has a lot more to do with the renewables preference, which the present Government repealed, and the fact that we brought in the original ETS. These are not decisions boards make in six months. They are lumpy investments with long lead times."

Smith also points, as evidence the scheme is working, to a turnaround in forest planting.

Forestry was the first sector included in the scheme.

"In 2009 we saw a weak increase in the size of the forest estate, but a switch from the substantial deforestation in 2008. The provisional figure for 2010 is an increase of 8000 hectares and the projection for 2011 is a 14,000ha increase," he said.

"In our view expanding the forest estate will be one of the cheapest ways of meeting current and any future international obligations."

Another question for the review is whether to include refrigerants - which are especially potent greenhouse gases if they escape to the atmosphere - in the scheme from 2013 as planned.

"They make up less than 1 per cent of New Zealand's emissions and all of them are also ozone-depleting chemicals for which we already have a regulatory framework. The key issues are around the maintenance of refrigeration plant, making sure they don't leak, and the collection of the gases at end of life," he said.

"The Australians have decided to go down the regulatory path. We need to do a cost/benefit analysis and not be religious about having an ETS which includes all sectors and all gases."