The Government has agreed in principle that most of the credits from those forests will be distributed so they can be traded on the international market. In other words, it will not hoard forest sink credits to cushion New Zealand emitters from the need to reduce or pay for their emissions
New Zealand's emissions are projected to be between 14 and 20 per cent above 1990 levels during the 2008-2012 period.
A climate change consultation paper released yesterday says: "Also our emissions tend to be from sources such as transport and agriculture where reductions are not easily carried out.
"This means it is likely we will need to purchase emission units on the international market."
Many of the policy questions that have to be decided boil down to how the costs of doing that are to be distributed within the economy.
Theoretically, one option would be for the Government to buy all the emission units needed and pay for them out of general taxation.
This option does not score well in terms of economic efficiency - as it provides no incentives for emitters to cut back - or on fairness grounds either.
But as the costs would be spread across the whole taxpaying community, the impacts on businesses' international competitiveness would be minimised.
A second option is a carbon tax. Although this is usually discussed as a transitional measure for the period before 2008, it could also be used post-2008 instead of a domestic system of emissions trading.
It would have to be decided who had to pay the tax.
Also, to be economically efficient, the rate of the tax would need continual adjustment to reflect the international price of carbon, as that would reflect the marginal cost of reducing emissions.
A carbon tax would give rise to competitiveness concerns, especially from sectors whose international competitors were outside the Kyoto regime. The consultation paper suggests such concerns could be addressed through some form of transitional assistance.
The third option is to rely on emissions trading.
The Government would devolve at least some of the responsibility for managing emissions to individual firms.
They might be emitters themselves or be chosen because their activities are linked to emissions downstream, such as refining oil.
They would be required to hold enough carbon credits to cover the emissions they were responsible for over a given period.
An initial stock of credits would be allocated, but more would have to be bought on market.
The initial allocation would require policy choices between auctioning them, selling them for a fixed price or grandfathering - that is, allocating them free on the basis of past emissions.
The rationale of a trading regime is to ensure that the lowest cost emission-reducing measures are taken at any stage, regardless of where in the world (or at least the Kyoto-compliant world) that is.
So it scores well on economic efficiency.
Its feasibility varies from sector to sector, though.
In the energy sector and the smokestack industries, emissions (or a proxy such as refined fuels) can be accurately measured.
But the methane emitted from belching livestock, or from landfills, is much harder to measure. Agriculture accounts for 54 per cent of greenhouse emissions; landfills 4 per cent.
Another option is levies, where the governance or a sectoral body charges a levy on activities not directly related to emissions, with the aim of recouping the cost of the carbon credits needed to cover them.
An officials' working paper says levies could be appropriate for sectors such as agriculture where there are many diffuse producers, where emissions at the individual (animal) level cannot be precisely measured and are therefore uncertain, and where options for reducing emissions are not well developed.
If applied before 2008, levies could be used to pay for research.
The levy option has the same sort of efficiency and equity drawbacks as the leave-it-all-to-the-taxpayer one, but on a smaller scale.
In the case of big industrial emitters the focus is on negotiated greenhouse agreements (NGAs).
These are deals yet to be struck between the Government and the companies, along the lines of voluntary agreements which were negotiated for the 1995 to 2000 period as an alternative to the low-level carbon tax being proposed at the time. But they are intended to be more rigorous.
The NGAs now being negotiated are intended to cover the period until 2008, but the consultation paper says they could be extended beyond that because of competitiveness concerns about a carbon tax, should one apply from 2008.
An alternative approach for the smokestack industries post-2008 would be for them to participate directly in an emissions trading regime, perhaps with grandfathering or some form of revenue recycling (such as an offsetting tax break) in the case of firms whose international competitiveness would be at risk.
Big industrial emitters account for only 4 per cent of New Zealand's greenhouse gas emissions.
Finally, a set of issues surrounds the sector which stands to make a windfall gain from the Kyoto Protocol - the owners of forests planted since 1990 on land that was not already forested.
Under the protocol, they earn credits for the carbon dioxide they mop up from the atmosphere while they are growing. About a third of the plantation forest estate qualifies.
Yet to be decided is what proportion, if any, of those "sink" credits the Government should retain and who should get the rest, the owners of the trees or of the underlying land.
This round of consultation runs until mid-December. Another round will begin in mid-March next year once the Government has decided its preferred policy options.
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
