Nigel Brunel: Climate inaction risks high costs

The long-term risks of pursuing a low-carbon economy are outweighed by the risks of continuing down the high-carbon track. Photo / Alan Gibson

The current review of the emissions trading scheme has given climate change sceptics such as Garth George an opportunity to trot out some familiar arguments against the scheme itself - or indeed any moves to reduce New Zealand's greenhouse gas emissions and encourage the development of a low-carbon economy.

Their central argument runs roughly as follows - some scientists disagree with the consensus around human contribution to climate change, therefore the scientific case underpinning the scheme is not proven and we should dismantle it forthwith.

While even the most sceptical person can usually accept that an overwhelming proportion of peer-reviewed scientific evidence supports the argument that human activity makes a significant contribution to climate change, sufficient uncertainty remains for them to argue for inaction.

Scientific truths cannot be established by majority vote, irrespective of the voters' credentials. That is indisputable.

However, the uncertainty argument for inaction on climate change ignores one vital consideration - financial and economic decisions. A climate change policy is both of these and is rarely, if ever, based on an absolute certainty.

Instead, such policies are arrived at by considering the balance of probabilities. They are about risk management rather than philosophical absolutes.

For New Zealand, the long-term risks of pursuing a low-carbon economy are outweighed by the risks of continuing down the high-carbon track.

Our approach to managing our greenhouse gas emissions will be closely watched by our trading partners. We need to remember that we are a long way from our export markets, many of which are in Europe - the home of emissions trading.

Kyoto may be coming to an end but individual emissions trading schemes will survive, and will play the same role in reducing carbon emissions that similar schemes have played in reducing sulphur dioxide emissions.

Continuing that analogy, the European Union's designation of the Baltic Sea, North Sea and English Channel as Emission Control Areas, effectively forcing ships using those waters to run on expensive, low-sulphur fuels, demonstrates its willingness to act decisively.

The EU has an established emissions scheme of its own and its per capita carbon emissions are less than half of New Zealand's. It would be naive for us to think we have no economic imperative to develop low-carbon production methods.

The introduction of a carbon tariff by at least some of our trading partners is a real threat. A long-term low-carbon strategy is not economic and financial suicide. It is economic and financial common sense.

Garth George argues that even if the scientific consensus is right, New Zealand's contribution to climate change is so small that acting to reduce it is pointless. In absolute terms it is small, but we need to accept that on a per-capita basis we are well up the list. Behind the United States, perhaps, but far ahead of the likes of China, whose current economic growth and pursuit of a lifestyle enjoyed by Westerners for several generations is seeing them labelled as the villain of the piece by many.

Far from providing New Zealand with an excuse for inaction, China's development emphasises the importance of pursuing a low-carbon path for economic development.

Advocates of inaction point to the number of new coal-fired power stations China continues to open. They ignore the fact that China is rapidly becoming the world's leading developer of renewable energy and that the coal-fired stations are intended as a short-term solution for China's energy demand.

China is positioning itself for a low-carbon future; New Zealand needs to do the same. The ETS is not a perfect solution but it is a realistic and workable one.

It does not mean the abandonment of our traditional industries - New Zealand's agricultural and horticultural producers are some of the most economically and environmentally efficient in the world, and will continue to be.

The introduction of a scheme will not see demand for high-quality New Zealand-produced protein evaporate. It also does not mean we cannot develop new industries. It creates opportunities for us to profit from our expertise in geothermal-energy production.

It does not even preclude the development of fossil-fuel resources. The Raukumara Basin may contain natural gas, in demand as a replacement for out-of-favour coal, while developments in carbon capture could give coal a part to play in a low-carbon economy.

Economic incentives are the best way to encourage behavioural change. The ETS gives us an opportunity to create a system that fosters low-carbon development while protecting trade-exposed industries. We need to take that opportunity and run with it.

Rather than consoling ourselves with the US Government's unwillingness to ratify the Kyoto protocol, we need to consider the determination of California and other US states to introduce emissions schemes of their own.

Rather than focusing solely on the short-term costs of change, we need to consider the long-term benefits as well as the likely costs of inaction. And we should act while we still have the opportunity to make changes in our own way, at our own pace.

Nigel Brunel is head of carbon and energy futures at OMFinancial