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Government Sets Greenhouse Policy Principles

Cabinet has adopted a set of key principles to guide the development of New Zealand’s climate change policies.

The principles are included in the National Interest Analysis accompanying the Kyoto Protocol to the United Nations Framework Convention on Climate Change, tabled in Parliament today. The analysis is to be referred to the Foreign Affairs, Defence and Trade Committee, which will seek submissions and report back to the House.

Pete Hodgson, Convenor of the Ministerial Group on Climate Change, said the Government had agreed in principle to ratify the Protocol, subject to the further steps required to achieve ratification. These include the select committee’s consideration of the National Interest Analysis, introduction of the necessary legislation for ratification and final policy decisions on the Government’s preferred policy approach.

A final decision on ratification of the Protocol will be made by the Government after final policy decisions and a further round of public and stakeholder consultation.

Mr Hodgson said the overall goal of New Zealand’s climate change response was that:

- New Zealand should have made significant greenhouse gas reductions on business as usual and be set towards a permanent downward path for total gross emissions by 2012.

The following principles would guide Government policy on climate change:

- policies must result in permanent reductions in emissions over the long term;

- policies need to be responsive to the changing international context;

- policies need to be consistent with a growing and sustainable economy;

- policies will not disadvantage the vulnerable in our society.

“These principles are an important foundation for policies that will enable New Zealand to take responsibility for its greenhouse gas emissions, while maximising benefits and minimising risks to our economy,” Mr Hodgson said.

NZ Government goal and principles for climate change policy

Goal: New Zealand should have made significant greenhouse gas reductions on business as usual and be set towards a permanent downward path for total gross emissions by 2012.

This goal means that:

- New Zealand will be on a path to reshaping its energy use;

- there will be an increased rate of technology uptake on renewables, energy efficiency, lower emissions production;

- all sectors will be addressing emissions and positioning themselves greenhouse-wise on world markets;

- research findings to date will have been transferred to agricultural practice;

- new buildings dwellings, plant, vehicles and machinery will be at the optimal edge of energy efficiency;

- the New Zealand population will be knowledgeable about greenhouse gases and taking responsibility for them.

Key principles for future policy development

Policies must result in permanent reductions in emissions over the long term

- Policies must achieve real and sustainable reductions in emissions across all commitment periods - both to protect New Zealand’s international credibility and to ensure that we are prepared for future commitment periods.

- Policies should avoid “carbon leakage”: that is, policies will avoid high emitting industries moving their greenhouse gas emissions offshore to countries that do not have emissions reduction targets. This will protect the objectives of the Protocol pending the creation of a truly global emissions regime.

- Policies will aim for long-term, permanent changes in New Zealanders’ behaviour, including behaviours that contribute to emissions through use of transport, energy, industrial and agricultural processes.

Policies need to be responsive to the changing international context

- The policy approach needs to recognise the uncertainty about future changes up to 2012, including changes in our emissions profile, in technology, and the international environment.

- Policy development will be incremental, building from low cost policies now to policies that expose emitters to the full emissions price as factors such as knowledge and certainty increase and as countries currently without emissions targets take on targets and expose their economies to the international price of carbon.

- Policies therefore will be adaptable and flexible, recognising the need for businesses and other stakeholders to be able to accept and respond to policy changes. They should allow for a transitional, staged approach to give affected emitters time to adjust.

- Policies must be as simple and comprehensible as possible to effect the necessary behavioural changes.

- Policies will be increasingly globally focused as targets under the Kyoto Protocol become increasingly globally based.

- Policies will be developed in close consultation with stakeholders, and will include processes for partnership and cooperation with key affected stakeholders.

- The policy package will include regular reviews of progress with emission reductions and effectiveness of policies, and criteria or milestones for when policy changes or new policy might need to be set in place. This includes periodic review of the goal, having regard to our domestic actions and the evolving international market situation.

Policies need to be consistent with a growing and sustainable economy

- Policies will recognise that competitiveness now and tomorrow is important for all our industries (including new entrants).

- Policies will move progressively to a full cost on emissions when competitiveness issues have been addressed by a full global targets regime.

- Policies should avoid inappropriate distortionary effects on investment.

- Policies will promote economic opportunities in climate change.

Policies will not disadvantage the vulnerable in our society

- Policies should aim to ensure that lower socioeconomic groups are not disadvantaged as a result of Kyoto commitments.

National Interest Analysis: New Zealand and the Kyoto Protocol to the United Nations Framework Convention on Climate Change

Executive summary

New Zealand’s national interests and the Kyoto Protocol

More than any other developed nation, New Zealand depends for its prosperity on an equable and stable climate. The New Zealand economy is grounded in primary production. The strength of the primary sector is due in large part to New Zealand’s excellent climate for pastoral farming.

Increased climate change is predicted if global emissions of greenhouse gases continue to grow without constraint. These emissions are projected to increase atmospheric greenhouse gas concentrations significantly, producing increases in global mean temperatures over time. The resulting climate change threatens to have significant long-term adverse effects on the global economy, societies and ecosystems.

New Zealand’s economic base in primary production means it is particularly vulnerable to climate change. Threats to human health, land and water quality, infrastructure, biosecurity and native ecosystems are also significant. New Zealand has a clear and direct interest in supporting efforts to minimise climate change.

Climate change is a global problem and effective action to counter it is beyond the ability of any single country. The United Nations Framework Convention on Climate Change is the global response to climate change and it has been ratified by almost all countries. The Kyoto Protocol is the next development of this Convention. It will introduce legally binding commitments for countries to limit greenhouse gas emissions, as voluntary commitments agreed under the Framework Convention were not successfully implemented. No viable alternative international approaches to the Kyoto Protocol have been developed or proposed, and any alternative would likely involve many more years of delay in reducing greenhouse gas emissions.

New Zealand has taken an active and constructive role in more than ten years of international negotiations leading to the formulation of the Kyoto Protocol. Continued commitment to the Protocol will maintain New Zealand’s standing and influence in future negotiations. Abandoning the Protocol would have the contrary effect, damaging New Zealand’s credibility and its reputation as a global citizen - not only in climate change forums but also over a wide range of international issues.

New Zealand’s effectiveness in climate change negotiations means it is one of the few developed countries that stands to make a small net economic gain from the first Kyoto Protocol commitment period. This gain arises because the carbon sink credits New Zealand will receive in recognition of the greenhouse gas absorbing properties of its plantation forests will more than offset the emissions reductions required to meet New Zealand’s emissions target. Carbon sink credits will be an internationally tradable asset.

Economic benefits of the Kyoto Protocol are also likely to include technology and energy efficiency improvements. Limits on greenhouse gas emissions will create incentives for Protocol countries to develop and adopt new energy technologies less reliant on fossil fuels. Energy efficiency incentives will also be enhanced, producing the double benefit of lower emissions and higher productivity per unit of energy. Rejection of the Protocol would carry the contrary risk of falling further behind competing nations in energy efficiency and trailing a significant shift in energy technology rather than helping to lead it.

New Zealand’s obligations under the Protocol

The Kyoto Protocol would require New Zealand to ensure that total greenhouse gas emissions for the first commitment period (the five years from 2008 to 2012) are no higher than five times New Zealand’s 1990 level of emissions, or that we have taken responsibility for any emissions over this level through the flexibility mechanisms and sinks provisions of the Protocol.

Taking responsibility means that, for excess emissions, New Zealand would be required to obtain equivalent credit from domestic forest sink activities or from emissions reductions made elsewhere in the world through the Protocol’s trading and project mechanisms.

Other obligations for New Zealand would be to:

- make demonstrable progress, by 2005, toward achieving its commitments under the Protocol

- put in place, by 31 December 2006, a national system for estimating greenhouse gas emissions, and carbon uptake by sinks

- establish a register to record and track changes to New Zealand’s assigned amount of emission units under the Protocol

- engage in international cooperation in relation to policies and measures, technology transfer, scientific and technical research, and education and training

- provide financial resources and funding to developing countries to assist them to implement their existing commitments, and

- comply with any future negotiated agreements to further reduce emissions¡Xthe nature, costs and benefits of complying with these future commitments is at present unknown.

New Zealand’s emissions management task

- Over the first commitment period, it is projected that New Zealand will emit between 415 and 440 million tonnes of carbon dioxide (or the carbon dioxide-equivalent of other gases, mainly methane and nitrous oxide).

- New Zealand’s initial assigned amount (translating into a corresponding holding of “emission units”) for the commitment period is 365 million tonnes of carbon dioxide equivalent. This is equal to five times the 73 million tonnes that New Zealand emitted in 1990, times 100%, which is New Zealand’s target under Annex B of the Protocol.

- New Zealand is projected to gain, during the commitment period, additional assigned amount (“removal units”) of 110 million tonnes of carbon dioxide-equivalent due to the growth of trees planted on land that has been converted (or reverted) to forest since 1990.

- Removal units can be counted against first commitment period emissions in New Zealand or sold internationally during that period, but doing so would establish a contingent liability for emission units if the post-1990 forests from which they were generated were subsequently harvested.

- Excluding removal units, New Zealand’s first commitment period emissions are estimated to exceed its assigned amount of emission units by 50 to 75 million tonnes of carbon dioxide-equivalent.

- Counting removal units, New Zealand’s commitment period emissions will be less than its total assigned amount of emission units by an estimated 35 to 60 million tonnes. While removal units from sinks are likely to provide a significant benefit to New Zealand, the amount of this benefit will depend on future new planting scenarios, whether forests are replanted, future harvesting scenarios and how much scrub has regenerated since 1990.

Effects of entry-into-force of the Protocol for New Zealand

Economic

- Ratification and entry-into-force of the Protocol would have economic effects on New Zealand. The effects would largely depend on the domestic policy measures chosen by New Zealand to meet its obligations under the Protocol. The effects would not be determined by ratification itself.

- General equilibrium modelling studies suggest that New Zealand’s gross national income would increase during the Protocol’s first commitment period if removal units (sink credits) from post-1990 forest plantings were sold overseas.

- The studies also suggest that application of emissions pricing measures would lead to a slight contraction of domestic economic activity, equivalent to a small reduction in the growth that would otherwise have occurred.

- Application of an emissions pricing measure could cause contractions in output from emissions-intensive sectors and expansion of output from non-emissions-intensive sectors, depending on policy decisions about the sectoral coverage and application of such a measure.

- There would also be economic effects on New Zealand if the Protocol entered into force without New Zealand having ratified it, as a result of the adjustment of global markets.

Environmental

Direct environmental effects of entry-into-force of the Protocol, in the form of avoided climate change, will be negligible during the first commitment period because of the inertia of the climate system. But the Kyoto Protocol’s first commitment period is the initial key step in a long-term process. Longer-term effects depend on future emissions beyond the first commitment period. Modelling studies indicate that:

- There would be a very small reduction in the expected temperature increase by 2100 if emission reductions applied only to the first commitment period and global emissions reverted to business-as-usual afterwards.

- Global temperature increase by 2100 and beyond could be limited, and climate change risks associated with higher rates of warming avoided, if emission limitations gradually become more stringent and incorporate developing countries in subsequent commitment periods. Global emissions will eventually need to decrease substantially below current levels to achieve stabilisation of greenhouse gas concentrations.

A wide range of ancillary (non-target) environmental benefits and damages could occur due to domestic climate change policies. These ancillary effects strongly depend on domestic policy choices, their specific implementation, and interaction with other environmental objectives. Hence they are not determined by entry-into-force of the Protocol itself.

Social and cultural

Like ancillary environmental effects, social and cultural effects are not determined by ratification or entry-into-force of the Protocol, but are an indirect outcome of domestic policies and measures. Because New Zealand can choose its own domestic policies, it is considered that:

- There will be no direct social or cultural effects resulting from ratification of the Protocol itself, but there could be indirect effects as a result of the economic and environmental effects of the Protocol and domestic policies for New Zealand.

- Ratification of the Protocol is consistent with the Treaty of Waitangi, but policy measures to assist in meeting Kyoto obligations will need to be individually assessed in terms of the Treaty.

- Ratification of the Protocol will have no effect on human rights.

Public Consultation

Process

- A two-month public consultation and submission period was held between 18 October and 21 December 2001 regarding ratification and the development of policy options for meeting Kyoto obligations.

- 9,000 information packs and 3,750 supplementary working papers were distributed.

- 79 meetings (including 15 Maori focus meetings and hui) were held, involving around 1,780 people.

- Two major economic studies by ABARE and PA Consulting were released to inform consultation.

Findings

- Around 550 submissions were received.

- The majority of submitters accepted that there was a need to respond to climate change, and in particular to reduce greenhouse gas emissions.

- A significant number of submitters expressed support for a delay in ratifying the Protocol.

- A minority of submitters opposed ratification altogether.

- A minority of submitters supported immediate ratification.

- Reasons for delaying or opposing ratification focused on the possible economic and competitiveness effects of policies under the Protocol, and whether the Protocol was the appropriate framework for achieving the desired outcomes.

- Some submitters supporting a delay in ratification included as reasons:

- waiting until more information had been gathered, particularly on likely implementation policies and/or economic and competitiveness effects of implementing the Protocol

- waiting until other Annex I trade partners or competitors had ratified the Protocol

- waiting until binding emissions limitations were agreed for major developing country emitters or trade competitors.

- Some submitters supporting ratification included as reasons:

- environmental benefits expected to result from policies under the Protocol

- economic benefits, particularly the importance of New Zealand maintaining a “clean, green” brand.

- There is a low level of real understanding within the wider community about what the Kyoto obligations entail; in particular, responses in written submissions suggested that a number of smaller stakeholders were not familiar with the issues and concepts on which consultation was based.

- With regard to the wider public, preliminary results from a public survey carried out by UMR from 19-20 January 2002 show:

- 47% of those surveyed favour the Government "signing up" to the Protocol

- 6% are opposed

- 42% "need to know more"


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