Hon Pete Hodgson
Thursday 30 August 2001 Speech Notes

The Government's approach to climate change

[Address to IIR Conference on Climate Change, Duxton Hotel, Wellington]

When I accepted the invitation to address this conference, I thought I might be speaking to you from quite a different vantage point to the one I have today.

Six weeks ago, I arrived in Bonn with other climate change Ministers to try to reach a political deal on the remaining issues in the Kyoto Protocol negotiations. The prospects of success did not look great. The United States' rejection of the Protocol seemed set to stop the process in its tracks.

But that gloomy view was not borne out. The situation has changed — and remarkably so.

In Bonn the rest of the international community made it clear that it was not prepared to wait indefinitely for a new US position and for specific proposals. So without the United States we finished work on the Protocol’s rules. We now know how it will work and we have agreed on extra support for those few developed countries that were clearly going to have the most trouble meeting their obligations.

Hard political negotiation produced a workable compromise. I think the result was a good one for New Zealand and an adequate one for the environment. It offers us a chance to get started on the long road towards a solution for climate change.

So what do the decisions taken in Bonn mean for New Zealand?

The Government has consistently said it intends to ratify the Protocol. With the decisions taken in Bonn, the case for ratification is all the more compelling.

I am not asserting for a moment that the Protocol is perfect. It isn’t. As it stands it will, at best, only slow the rate of climate change. But that misses the point.

The Protocol is the necessary first step in setting in place a global regime to address greenhouse emissions. While the US may wish to remain outside for the present, the agreement at Bonn showed clearly that other developed nations believe it is the best mechanism on offer.

Global negotiations will continue to build on what was achieved at Bonn. As a small player in this process, New Zealand can not afford to take the view that waiting is best. Waiting for what?

For the US to come up with a better framework? Why would the rest of international community, having come this far, decide that it would then junk the Protocol?

For the rules to be more favourable to New Zealand’s situation? That to me is very unlikely. We were treated fairly in the negotiations in two important respects. Our unique greenhouse gas profile was recognised when we were assigned the target of stabilising emissions at 1990 levels, while the average for developed nations is a 5% cut below that.

New Zealand also gains from the recognition of the carbon sink value of forests planted since 1990. This gives New Zealand more options for meeting its obligations than we’d otherwise have.

Would we be waiting because the science might be wrong?

Well, you’ve heard from Rick Pridmore of NIWA today about the evidence for global warming, and from some dissenting voices as well. I’m not saying anyone is dead right or flat wrong. But I’ve spent enough time on this issue to see that the weight of scientific evidence is increasingly supportive of the global warming thesis.

Would we be waiting for the international negotiations to produce softer targets?

Hardly. The targets will certainly become tougher in future commitment periods. Delaying a response will only make it more difficult to reach them.

So we're not waiting.

But I accept that we need to explain why New Zealand should be committed to playing its part in responding to a global problem to which it is such a very small contributor. We produce less than half of one percent of the world's greenhouse gas emissions, after all.

The answer, first, is that New Zealand’s economic wellbeing is heavily dependent on its climate. Although the likely impacts of global warming on our primary production sector are mixed, the long-run effects of threats such as more extreme weather and increased infiltration of warm-climate pests and weeds are expected to be negative.

New Zealand in other words is a "climate taker". We may contribute comparatively little to global warming ourselves, but we are economically more vulnerable to its impacts than many other developed nations.

That means we need the international community to take action, which means in turn that we must be an active contributor to the international effort. Doing nothing domestically would consign us to a marginal role, at best, in international negotiations.

A second reason to play our part is that New Zealand's credibility would eventually suffer in all areas of international co-operation if we did not. Being a respected multilateral player – which New Zealand is – does not allow you pick and choose on the big issues.

Our international commercial reputation would also start to take a hit. We are a major supplier of food to world markets, many of them sophisticated and increasingly influenced by perceptions of environmental integrity. Ducking the climate change issue would increasingly tarnish the image of New Zealand’s products.

Thirdly, the global response to climate change will affect nearly every aspect of human activity by challenging the ways we use energy. New Zealand is as dependent on energy as every other advanced economy and, sadly, less efficient with it than many of our competitors. We will only be left behind if they respond to climate change by improving the efficiency of their energy use still further, while we do not.

New Zealand has been left behind in the past, delaying decisions until we were forced into change. We need only look back to the mid-1970s and our inaction in the face of energy crises and a changing world economy to understand this point.

Inaction is not the stance other countries and their business sectors are taking. Businesses that keep their competitive edge by creating or embracing innovation and new technologies are the ones that succeed in the knowledge economy. The Kyoto Protocol creates new pressures in favour of such businesses.

From 2008 onwards — the beginning of the Protocol's first commitment period — we will be operating in a different world. We need to start adapting now.

An impressive example of forward thinking is now occurring in the US, despite the US Government's rejection of the Protocol. Thirty-three companies have signed on to the newly created Chicago Climate Exchanges, signalling their willingness to look seriously at market-based steps for limiting emissions through a voluntary cap.

The list of companies includes names like BP, Ford, DuPont, International Paper, and Waste Management. The Exchanges will enable them to get credits for voluntary reductions in emissions and then trade them, to find the most cost-effective way of achieving reductions.

To quote the leader of the project: "The private sector’s response to the proposal has been incredible. These companies really believe that a proactive approach to climate change advances everyone’s long-term interests. It’s simply good business."

Other companies thinking ahead are members of the Business Environmental Leadership Council in the US. That list includes some of the climate exchange members and other major players such as Toyota, Rio Tinto, Enron, IBM, Lockheed Martin. They have signed up to four clear statements:

1. Enough is known about climate change for members to take action to address its consequences.
2. Businesses can and should take concrete steps in the US and abroad to reduce emissions and invest in new, more efficient products, practices and technologies.
3. The Kyoto Protocol represents a first step. The market-based mechanisms must be used and the rest of the world must be more involved.
4. Significant progress is possible in addressing climate change and sustaining economic growth by adopting reasonable policies, programmes and transition strategies.

These companies are alert to the importance of climate change and to the opportunities as well as the risks it presents. The trend is clearly in this direction. We would buck it at our peril.

I think the opportunities that will come out of addressing climate change will be an important part of the new knowledge wave. Officials have begun a process of working with business to identify these opportunities, to find where this country’s best prospects lie and identify areas where Government can work with business to develop a successful "climate change sector".

With the key elements of the Kyoto Protocol’s rules finalised in Bonn, we now have enough assurance to enable us to move to ratification. Our intention therefore is to work towards having legislation passed by Parliament next year that enables New Zealand to ratify the Protocol in September 2002.

September 2002 is the date for the World Summit on Sustainable Development, usually referred to as Rio+10 — the ten-year review meeting following the 1992 Rio Earth Summit. It was at Rio that the world set in place the United Nations Framework Convention on Climate Change that underpins the Kyoto Protocol. The countries that met in Bonn hope to have the Protocol enter into force by that time.

I am in the process of seeking Cabinet approval for a work programme aimed at developing the ratification legislation and the policy decisions required for New Zealand to meet its obligations.

While the Government believes that New Zealand should ratify, we also understand that the issues are very big ones. We will be consulting widely and carefully before we take a formal decision to proceed with ratification.

The package of polices needs to be credible. The message I hear consistently from business is that the measures we take must be carefully balanced and integrated. That is precisely what we want to achieve.

The timetable for getting the necessary policy work done has been put under considerable pressure by the delay in securing international agreement on the Protocol's rules. There will be a lot of officials working nights and weekends over the coming few months to get the policy package finalised for consultation.

This compression means the legislation introduced next year will provide a framework for ratification, rather than set out chapter and verse of how, for example, emission trading will operate. Later there will be a second Bill. We are taking this two-step approach to ensure we do not crimp on the consultation we must undertake.

The National Energy Efficiency and Conservation Strategy will be crucial to getting early and on-going action in reducing emissions. The strategy could be described as a very large number of generally small steps, which together will start to redirect the way we provide and use energy.

I will be releasing the final draft of the strategy — which is, rather unfortunately, New Zealand's first — on September 27. Some aspects of it will be subject to further consultation, especially issues concerning new renewable electricity generation.

An important issue in the strategy is the relationship with climate change policies. Also linked is the question of whether we introduce a carbon charge before the commitment period.

The carbon charge issue is currently with the Taxation Review Committee, which is due to submit its final report to the Ministers of Finance, Revenue and Economic Development by the end of September. If there is a decision to introduce a carbon charge as part of our action plan for ratification of the Protocol, we will take that as a policy proposal into the next general election. The Government's policy is to introduce no new taxes before 2003 and that is not changing.

Some of the biggest decisions in front of us concern who takes responsibility for emissions in the 2008-12 period. Should management of emissions be the responsibility of businesses or sectors? Should the government take responsibility for some sectors? If so, how does the government ensure equitable treatment between sectors? How do we ensure that everyone has broadly comparable incentives to abate emissions?

Emissions trading is a significant part of the Kyoto mechanisms, designed to ensure abatement at lowest cost. But establishing trading mechanisms is easier and more sensible in, say, the energy sector, than it is in some areas of primary production. Those decisions are still in front of us.

Adapting to a new framework won’t be easy for everyone. But the Government is committed to setting policies in a manner that help firms reduce emissions in the most cost-effective way possible and with as little disruption as possible. That is what the flexibility mechanisms in the Protocol are for. Carbon trading will help us ensure that costs are kept to a minimum, while those incurred are a sensible investment in the future.

Two weeks ago I launched a process to secure Negotiated Greenhouse Agreements with significant emitters. Such agreements aim to secure lower emissions while ensuring the parties to them get fair credit for reductions. They will be an important point of engagement between the business sector and government as the policy process continues.

My message to the business sector on climate change is simple: engage with the issue, understand your emissions and your abatement opportunities, look for the innovations and technological advances that will give you an edge, and contribute to the wider process of policy development. Do that and you’ll stay ahead of the game.

Thank you.

ENDS

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