Kyoto may cost NZ $300m plus

The Treasury has put a figure of $303 million on the cost to taxpayers of New Zealand's international obligations under the Kyoto climate change treaty.

The latest monthly Government accounts, for May, quantify the cost for the first time.

It is now thought New Zealand will overshoot its Kyoto target in the 2008 to 2012 period by 36 million tonnes of carbon dioxide equivalent, which will have to be covered by buying tradeable emission units, commonly called carbon credits, on the international market. The figure for the liability uses a "best estimate" of the price of those credits of US$6 a tonne based on a report from the Allen Consulting Group in Australia.

At an exchange rate of US71c at the end of May, when the estimate was crystallised, carbon credits would cost $8.45 a tonne. The kiwi dollar has since fallen, which would increase the Government's Kyoto bill to $320 million at yesterday's exchange rate.

Allen Consulting's figure is lower than the $15 a tonne the Government used to set the carbon tax due to come into force in 2007 and well below the prices around $41 a tonne at which carbon credits are trading in the European Union's internal emissions trading system.

But Allen Consulting says current prices on the European market are unlikely to be a reliable indicator of future prices in the Kyoto community as a whole.

The European market is still undergoing a bedding down process, and crucially does not include large Kyoto countries such as Russia (expected to be a major seller), Japan (a major buyer) and Canada.

The principal source of carbon credits will be Kyoto countries' "assigned amount units" which equal their target for emissions under the treaty. In New Zealand's case they equal our emissions in 1990. Countries, mainly in eastern Europe, which emit less than they did then will be able to sell the surplus.

Supplementary sources of credits allowed under Kyoto's rules include credits for the carbon dioxide taken out of the atmosphere in new forests established since 1990 - an important source of extra Kyoto currency for New Zealand, though less than was once expected.

And they include credits from certified projects in developing countries which reduce their emissions but which would not occur without the extra cash from the carbon credits they engender.

International markets in the latter two kinds of credits are still developing, though they turned over more than 100 million tonnes last year and 43 million tonnes in the first four months of this year.

Allen Consulting argues that prices in those markets (in which the buyers are often Governments) are a more reliable indication of where carbon prices will settle when the system is fully up and running and the different kinds of credits are fully interchangeable. They form the basis of its indicative price of US$6 a tonne.