Stephen Knight: Kyoto Protocol Working
Kyoto Protocol Working
By Stephen Knight
19 June 2005
Now we know New Zealand may no longer make money on the international carbon exchange market. That is a good thing. It demonstrates how the Kyoto Protocol should work, by making us aware of the costs associated with booming economies.
The 1997 Kyoto Protocol recognized two ways for countries to achieve reductions in carbon emissions, that is, through economic productivity efficiency, and through offset forests. Largely for internal political reasons, New Zealand focused on to the second option as a major way to meet our obligations to reduce greenhouse gas (GHG) emissions down to at or below 1990 levels. This was justified on the grounds that plantation forests absorbed more carbon from the atmosphere than they emitted – at least, while they were growing to maturity – and that New Zealand had a strong production forestry sector.
However, it also meant we underplayed the need to be more efficient. We relied too much on growing trees as a primary means of reducing our contribution to the risk of climate change.
The Government has released reassessed projections showing New Zealand may be a net emitter of GHGs by about 36 million tonnes of carbon dioxide equivalents during the first Kyoto commitment period of 2008-2012. At an indicative price of $15 per tonne of carbon, this means it will cost the economy about $500 million. Previous estimates suggested New Zealand would make about $500 million.
The absolute figures are less important than what this tells us about the way we do business.
The turn-around is due to a combination of a growing but relatively energy inefficient economy; fewer than expected Kyoto-legitimate forests being planted; and a re-categorisation of exactly what is considered a legitimate form of planting under Kyoto.
While the last two variables are subject to at times ad hoc changes in politics and interpretations of the science, Kyoto assessments still provide valuable sources of information.
If we continued without Kyoto-style feedback mechanisms, there would remain a lack of connection between pursuing the goal of being in the top half of the OECD for economic performance, and the true cost of getting there. Failing to value the cost of getting there means less incentive to invest in efficiency. Instead, there would remain a preference to invest in the generation of more power.
On the other hand, including the cost would reinforce existing but at present relatively minor action designed to influence consumption patterns in power, transport and land use. For example, there is a relatively minor investment in controlling the demand for domestic and commercial power, or making transport more efficient. This is despite strong evidence of the benefits of doing so. Such evidence has led to New Zealand formulating national energy and transport strategies, and associated policies and legislation, which accept the need for a change in consumption patterns. However, to date, investment to realize these particular goals has been relatively minor.
Hence the value of the Kyoto process lies in its highlighting some of the true costs of growth, thereby creating both a direct incentive to change the way we consume power, as well as improving the public understanding of the need to do so.
It also reinforces the message that managing atmospheric emissions is part of managing risk. Firstly, as noted recently by NIWA, New Zealand’s productivity will be directly influenced by climate change, with an associated high economic cost. Secondly, we are also at risk from increasing competition for oil supplies, and creating an economy less dependent on increasingly expensive and hard-to-get fuel seems a sensible way to reduce our exposure. Currently, neither of these issues is having as great an influence on strategic planning as they should.
So Kyoto, and the costs of carbon, should be seen as one of a number of feedback mechanisms providing us with information as to why – and to an extent how – we need to change the way we run our economy. The Kyoto process is not primarily a money-making exercise.