Bargaining begins on greenhouse gas emission cuts

By BRIAN FALLOW

Talks beginning in the Hague today have potential ramifications for almost every New Zealand business or household.

If the "sixth conference of the parties to the United Nations Framework Convention on Climate Change" succeeds - and that is a big if - it will be an important step towards turning pious declarations about reducing greenhouse gas emissions into binding commitments.

The last big stride in that direction was three years ago at Kyoto. The upshot of the negotiations was to set 34 developed countries quantified targets for reducing greenhouse gas emissions.

In New Zealand's case the target is to get net emissions back to an average of 1990 levels, between 2008 and 2012.

The Hague talks are about putting some detailed flesh on the bare bones of the Kyoto Protocol, so that countries can ratify it.

The Government has said it wants to ratify the Kyoto Protocol in mid-2002. That will involve taking hard decisions about how to spread the burden among different sectors of the economy.

Energy Minister Pete Hodgson says New Zealand has a national interest in securing action on climate change.

"Our economy, more than the economy of any other developed country, is based on growing stuff. Our climate is a large part of why we are good at doing that," Mr Hodgson said.

"Biosecurity threats from imported pests and weeds can be magnified by climate change. Our primary sector is vulnerable to the storms, floods and droughts that seem to be occurring with increasing ferocity and frequency worldwide. We have much to lose if sea levels rise."

But the case for caution in this area is also clear, as Comalco director Kerry McDonald argued last week.

Policymakers had to be careful not to imperil the competitiveness of New Zealand exports, much of which consist of commodities with a high energy content, he said.

To get back from the relegation end of the league table of First World countries, further processing of those commodities is crucial. That would inevitably involve more emissions. It would also involve significant investment, which was unlikely to occur unless investors knew where they stood in terms of energy and environment policy, Mr McDonald said.

New Zealand faces a unique set of challenges in cutting greenhouse emissions which Mr Hodgson estimates are now about 7 or 8 per cent above 1990 levels and rising.

Although in a typical developed country the main greenhouse gas is carbon dioxide from the combustion of fossil fuels, in New Zealand's case about half of it is methane from belching sheep and cattle.

There are trial drenches around which may reduce the activity of the bacteria responsible; MAF is looking at whether that would be acceptable. Also, some sheep produce less methane than normal.

But a lot of scientific water has to pass under the bridge before it is obvious that much can be done about what is, in any case, a shrinking proportion of the problem.

Where some countries can make gains by shutting down old, inefficient coal-fired power stations, New Zealand is in the unusual position that only about a quarter of its electricity comes from fossil fuels.

Even if all the thermal generation capacity were shut down that would cut overall greenhouse emissions by only some 6 per cent, Mr Hodgson said.

What about big industrial users? Their lobby group in this area is called the Greenhouse Policy Coalition. Its chairwoman, Maria Robertson, argues that by definition heavy users of energy have a correspondingly heavy incentive already to be as fuel efficient as it is economic to be.

The coalition opposes an across-the-board carbon tax and wants its members to be able to negotiate their own greenhouse agreements with the Government.

The housing sector is one area where the Government sees "low hanging fruit" of energy efficiency gains. It has revised the energy performance requirements of the building code.

But in cabinet papers officials estimate that the cumulative savings from those measures would represent only 1.5 per cent of the projected growth in carbon dioxide emissions, above 1990 levels, during the 2008 to 2012 period.

That leaves the transport sector, which is responsible for 15 per cent of all greenhouse gas emissions and 42 per cent of the carbon dioxide.

New Zealand has 2.4 million vehicles, the second highest rate of ownership per capita after the United States. Ministry of Transport Deputy Secretary Roger Toleman says changing motorists' behaviour would be very difficult.

"There's a vast amount of international research which shows that whatever petrol tax is set at has no impact on usage."

However car manufacturers are working on developing new propulsion systems.

On the face of it, then, none of these areas - pastoral farming, electricity generation, heavy industry or transport - looks like providing easy answers to the problem.

Says Maria Robertson: "New Zealand faces a relatively high cost of adjustment because it starts from a relatively clean base."

The talks in the Hague over the next two weeks are about setting ground rules for mechanisms designed to ensure the most cost-effective measures to reduce greenhouse gas emissions are taken first, irrespective of where in the world that is.

One mechanism is emissions trading, where countries which reduce emissions more than the Kyoto target will be able to sell excess emission credits ("hot air") to countries which find it more difficult or expensive to reduce their own emissions.

The economic implosion of the former Soviet bloc since 1990 will enable countries like Russia and the Ukraine to meet their targets easily and have large amounts of hot air to sell. That would reduce the pressure on other industrialised countries to make domestic cuts. For that sort of reason the Europeans favour limits on trading away Kyoto commitments.

There are also difficult issues about trading in credits arising from carbon sinks. This is important for New Zealand, where forestry is an increasing form of land use.

Because it can be difficult to estimate how much carbon a given tree or forest absorbs, rigorous accounting systems are needed for determining base lines and measuring changes.

Decisions are also needed on whether to give credits for non-forestry sinks such as agriculture, as the Americans want.

Mr Hodgson said, "Our view is that some sinks can be adequately measured and we are keen to ensure those are included [in an international trading regime], but some sinks cannot."

The Hague talks begin with one crucial piece of information missing: Who will be the next US President, former Texan oil man George W. Bush or environmentalist Al Gore ? The Kyoto Protocol comes into force only if it is ratified by countries responsible for at least 55 per cent of 1990 developed country emissions.

The US represented 36 per cent of those emissions. While it is arithmetically possible to meet the 55 per cent threshold without it, it is unlikely other countries would be prepared to carry a free rider of that size.