Govt ignored Treasury advice on emissions target

In deciding on New Zealand's carbon emissions target for 2020 the Government comprehensively disregarded Treasury advice which called for a much softer range.

Cabinet papers released yesterday reveal the Treasury recommended a target range from 15 per cent above 1990 levels to 7 per cent below.

The range the Cabinet went for - 10 to 20 per cent below 1990 levels - was only sightly less ambitious than the 12 to 20 per cent below called for by Climate Change Minister Nick Smith and his colleague, Tim Groser, who is in charge of the international negotiations. It also accepted their recommendations on conditionality attached to the target range.

The Treasury argued that the range the ministers wanted would mean New Zealand incurred costs much greater in relative terms than those faced on average by developed countries.

It based this on an "equal cost" approach to calculating comparability of effort among countries, which takes into account differences in populating growth, wealth and the potential to reduce emissions.

The Treasury said cutting emissions to 15 per cent below 1990 levels across the developed world - which is where existing offers on the negotiating table are clustered - would represent a reduction of 0.1 per cent in gross domestic product in 2020 (compared with business as usual).

By contrast in New Zealand's case 12 per cent below 1990 would mean GDP was 0.8 per cent lower and 20 per cent below would shave 1 per cent off.

Such conclusions are open to dispute on at least two grounds.

One is that while it is relatively easy to establish what different countries' population growth rate or per capita GDP are, abatement cost curves are more debatable. These reflect how much they can cut emissions at progressively higher costs. The Treasury advice released yesterday contains no such information.

The targets the Treasury advocated took no account of forestry. That is despite the fact that the chance to offset growth in gross emissions by expanding the country's forest estate is seen as one of the most cost-effective means of meeting targets.

The Treasury argued that there is too much uncertainty about what the accounting rules for forestry will be, it is too hard to predict how domestic forestry investors will behave, and that credits trees earn while growing have to be repaid when harvested.

It also suggested expressing the targets relative to a base year of 2005 rather than 1990. "The US Administration has proposed a target of 15 per cent below 2005 levels and the Europeans' unconditional target of 20 per cent below 1990 also translates to 15 per cent below 2005 levels.

"New Zealand could justifiably announce an unconditional target of 15 per cent below 2005, which correlates to a target of 6 per cent above 1990 levels."