NZ-Europe ETS link a long way off, says official

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A direct trading link between the European and New Zealand emissions trading schemes is unlikely any time soon, senior European Union climate official Jill Duggan says.

A key obstacle to linkage - where New Zealand units and EU allowances were interchangeable and emitters in each scheme could use them to meet their obligations - is that forest sink credits are integral to the New Zealand ETS but are not permitted under the EU one.

At the moment there is an indirect link between the two schemes in that carbon credits called CERs generated under the Kyoto Protocol's Clean Development Mechanism (CDM), designed to foster climate-friendly developments in developing countries, can be used up to a point in the EU scheme, and because of its size it exercises the main gravitational pull on prices for those credits. New Zealand emitters can also use them.

But the future of Kyoto and CDM is in doubt after its first commitment period ends at the end of next year.

European policy is focused on reducing its own emissions rather than allowing emitters to meet their obligations by importing carbon from the rest of the world.

"There is an increasing understanding that in order to reach a stabilisation goal of a two-degree increase in temperature you have to reduce developed country emissions by 80 to 95 per cent, and you are not going to do that by buying credits from China or somewhere," Duggan said.

"There may be some possibility of a limited link [between the two schemes]. But at the moment I think a direct link in the immediate future between the EU ETS and the New Zealand one seems unlikely - though we would never want to shut thedoor."

Europe's ETS does not include transport fuels - other policies target that sector - but it does intend to extent the ETS to aviation emissions next year. That will include not only purely internal European flights but any which begin or end in Europe.