KEY POINTS:
Most casual observers would not accuse the Government of rushing into a response to climate change. The emissions trading scheme announced last month followed years of discussion papers and consultation exercises. But an independent economic think tank, the New Zealand Institute, begs to differ.
New Zealand, it thinks, needs to decide whether it wants to be one of the first countries to impose the adjustment costs on its industries or to wait until others are moving. The institute believes this country should be not a leader but a "fast follower". It recommends putting off our emissions reduction targets from 2012 to 2020.
But is New Zealand moving so far ahead of the field? The institute cites Canada's recent renunciation of its Kyoto commitment because of the penalties it faces for failing to fulfil them. The United States and Australia are also well known laggards, having refused to ratify the Kyoto Protocol. But preparatory work is proceeding in both countries, and changes of government are likely to see them join an international consensus within a year or two. Australia has plans to start an emissions market in 2011. Some parts of the US are taking initiatives.
The pace has been set so far by the European Union, with jurisdiction over the big economies of Britain, Germany and France among others. The EU has had emissions limits and a market operating since 2005 for trading in carbon credits. Just on NZ$17 billion of credits were traded in its first year, and this year the value is estimated to have tripled.
Europe's main board, the Climate Exchange, has already spawned a small futures market and attracted a rival, the NYSE Euronext, to be launched next year. Almost as much trade in carbon credits is said to be done outside exchanges in direct deals between companies.
New Zealand, by contrast, has announced a tentative programme for imposing emissions limits in the form of tradeable units in phases from next year. Forestry will be first, followed by transport fuel in 2009 and electricity generation in 2010. Some of these sectors are impatient to begin. Forest owners stand to reap credits for trees planted since 1990 on land not previously forested, and electricity generators have been waiting for direction on climate change to make investments in renewable resources.
If the programme seems too fast to the institute, and to industry organisations, they might find comfort in the detailed market design-work still to be done. Further discussion documents and consultation periods are promised at each stage.
The institute is wrong to suggest the Government has not made a "strategic" decision whether to lead or follow international developments. Climate Change Minister David Parker extols the opportunities available to "those at the forefront of carbon friendly services and technologies". That is plainly where he hopes New Zealand will be, particularly on solutions to agricultural emissions, our worst contribution to global warming.
Agriculture will not be subject to emissions limits until 2013. The sector thinks that is too soon, but its dairy producers are looking forward to bumper world prices over the next season or two, largely thanks to the diversion of US crops from cattle feed to biofuels. The dairy industry has this opportunity to invest in feeds that will reduce methane and nitrogen releases.
There is nothing like a deadline to concentrate minds, and the five years' grace given agriculture should not be wasted. The Government's timetable is a signal to all sectors that it is serious. To sit and wait and go back on an international agreement, while planning to be a "fast follower", would almost ensure we are left behind.
