Dialogue: Businesses fear big bill from Kyoto gas decisions

By BRIAN FALLOW

One issue with potentially seismic effects on business confidence this year is the Government's plan to ratify the Kyoto Protocol on climate change.

Apart from a handful of large companies whose businesses produce a lot of greenhouse gases and who have been closely watching developments for years, the issue has been off the radar screen for most business people until recently.

Now they are confronted with a proposal that will add to their costs - but how much it will add, no one can tell them.

So far, the reaction from business lobby groups has been overwhelmingly negative.

This reflects uncertainty about what domestic policies would be adopted after ratification. A process of consultation has begun on that question, and is likely to stretch into next year.

But the decision on whether to ratify is to be made by August, while the policy detail is still in the air.

Another unknown is the "international price of carbon" (the tradeable permits to emit greenhouse gases), to which New Zealand emitters would be exposed.

Serious doubts exist about the dynamics and efficiency of that future carbon market now that the United States, which would have been the main source of demand and liquidity, has pulled out.

The protocol would require that, by the "first commitment period" of 2008 to 2012, New Zealand would make no more of a net contribution to the amount of greenhouse gases in the atmosphere than it did in 1990.

The key word is "net".

As well as adding gas from car exhausts, belching sheep and cattle and the occasional smokestack, New Zealand has been subtracting it by planting pine trees on land not previously forested. While the trees are growing they take in carbon dioxide from the atmosphere.

Under Kyoto's rules New Zealand would get credits for that - more than enough to cover the likely increase in emissions.

Cabinet policy is for those credits to be distributed to the owners of forests established since 1990, and not used as a national hedge to shield New Zealand emitters against international carbon prices.

Whether that policy needs to be modified is one of the tough decisions for this year.

Others include whether agriculture (the source of half of New Zealand's emissions) should be exempted and what special deals need to be made for sensitive industries such as steel, aluminium and cement.

nzherald.co.nz/climate

Intergovernmental Panel on Climate Change (IPCC)

United Nations Environment Program

World Meteorological Organisation

Framework Convention on Climate Change

Executive summary: Climate change impacts on NZ

IPCC Summary: Climate Change 2001