26 October 2007

Responsible climate change policy is challenging

Christchurch Sustainability Forum, Friday 26 October 2007

I am extremely proud to be part of a Government that is showing leadership in addressing many of the difficult issues confronting New Zealand.

As my colleagues have said, we can expect climate change to bring more droughts, storms, floods and winds.

There are also market implications from climate change. In our export markets, consumers and regulators are already asking hard questions about the sustainability of our produce. Unless we can say our exports are from the first truly sustainable country in the world we will increasingly be shut out of our export markets.

But climate change is not only a risk, it is also an opportunity. Consumers are increasingly turning towards environmentally responsible production and prepared to pay premiums for it. This is a wave available to New Zealand to ride. But first, we have to measure up.

Responsible climate change policy is challenging – we have fronted up to this challenge. An economy-wide Emissions Trading Scheme, combined with complementary measures, will assist New Zealand’s transition to a carbon-constrained future.

The Emissions Trading Scheme will allow flexibility in the way land is used, while ensuring decision-makers consider the true costs, including the cost to the environment, of their actions.

Emissions trading will allow foresters to obtain the value of the carbon capture their trees provide to the rest of us. Emissions trading will encourage more tree planting on vulnerable hill country to protect our soils, waterways and communities from floods and erosion.

The Government has proposed that the forestry sector enter the Emissions Trading Scheme on 1 January 2008. From next year, owners of forests planted after 1989 will be eligible for 100 per cent of the carbon credits and liabilities generated under the Emissions Trading Scheme. This is a world first.

Depending on the price of carbon, this is likely to be worth at least several hundred million dollars to the forestry sector.
Of course, the benefits don’t accrue without liabilities. From 1 January 2008 owners of exotic forests planted before 1990 will be liable for emissions that arise if they choose not to replant their forests after harvest.

This is important because deforestation is the second largest source of greenhouse gas emissions globally, and reducing deforestation is one of the lowest cost options for reducing emissions. It is also important to address deforestation immediately as forestry is the one area where individuals can bring forward their emissions to beat any future measure.

To help the New Zealand forestry industry make the transition, the Government proposes allocating to the sector 21 million tonnes of carbon between 2008 and 2012, with a further 34 million tonnes for future periods, at no cost. This total of 55 million tonnes is equivalent to the historic rate of deforestation over the current exotic forest estate.

This free allocation will be distributed to all forests owners, on the basis of forest area, who will then be able to trade among themselves, or with other sectors of the economy, if they have don’t want to deforest. The first reporting period for forestry will conclude at the end of 2009, the same time as transport, allowing the two sectors to trade emission units between themselves.

Small scale foresters, such as farm foresters or those who own less than fifty hectares, will be eligible for exemption under the scheme and therefore face no liabilities, but will not receive any free allocation.

In total, the assistance package offered to forestry, at a carbon price of fifteen dollars a tonne, is worth around $825 million.

Back in 2003 the Government agreed with the agriculture sector that the Government would meet the cost of non-carbon dioxide emissions from the sector until 2012. In return, the sector increased its research efforts on cost-effective abatement technologies. The Government is sticking by that agreement.

The agriculture sector will come into the Emissions Trading Scheme on 1 January 2013. It is proposed that agriculture will start measuring and reporting its emissions before then ─ in 2011. And the Government expects agriculture will start reducing emissions before the trading scheme applies to the sector.

Five years is a long time to prepare but there is a lot we have to do. The sector can, and must, rollout existing technology, such as nutrient management plans, nitrification inhibitors and improved energy efficiency.

When agriculture enters the ETS, it will receive a package of free emission units to cover 90 per cent of the sector’s 2005 level of emissions. This is almost 34 million tonnes worth of emission units at no cost. Basing the free units on historic emission levels will ensure that the sector is not encouraged to increase its baseline emissions before it enters the scheme. Over time this level of free allocation will be phased out.

No final decision has yet been made about the best place to put the obligation for agricultural emissions. Options include the farm level, processor/company level, and sector body level. At the moment, the Government’s preference is for a processor/company level point of obligation. But we will work with the sector closely to develop a practical and cost-effective system that rewards good environmental performance.

The claim has been made that agriculture is being ‘let off the hook’. I hate to let the facts get in the way of a good shock horror story, but this is simply not true. First, the sector is having its gifted allocation set at 90 percent of 2005 levels when it enters the Scheme. This means that in 5 years time the sector will have to meet the cost of any growth in its emissions. The clock is already ticking, and if the sector is smart it will look at buying emission units, or off-setting emissions, sooner rather than later.

So while the Government has chosen to give our most important industries a little longer to develop and roll out technologies to help manage emissions, this is not a get out of jail free card. Rather it is a brief pause before the sector begins to face the same costs as the wider economy.

The Emissions Trading Scheme is the cornerstone of New Zealand’s efforts to reduce our carbon emissions. But, on its own, it won’t do enough to reduce agricultural emissions significantly over the longer term, nor will it address how the land management sectors adapt to climate change or take advantage of the business opportunities.

The Government is committed to working through these issues in partnership with the industry. I am pleased to be able to tell you that the Government will invest $175 million over the next five years on a plan of action on land management and climate change.

This is the largest package of sustainable land management measures ever developed by a New Zealand government.

It will assist land-based sectors to adapt to the challenges of a changing climate, take advantage of the business opportunities that may arise, reduce emissions and enhance forestry establishment.

Adapting to climate change is going to be a particular challenge for Canterbury. Canterbury is one of the driest parts of New Zealand and so the critical importance of this region’s water will be no surprise to anyone here today.

Canterbury has 70 percent of the country’s irrigated land and generates 24 percent of the nation’s hydroelectric power. Groundwater is supplied untreated to 360,000 people in Christchurch.

I’m aware of concerns about increasing irrigation. Irrigation is critical to many land uses in Canterbury. It can lead to significant increases in production, which benefits both the region and the nation.

I’m also aware of concerns about the impact on water quality from this intensification, although I find that some of the more extreme comments regrettable. To be sure, Canterbury is seeing a boom in dairying, with about 400,000 cows, making up over 10 percent of the national herd.

But let’s put this into perspective – dairying takes up less than 5 per cent of Canterbury's productive land. Most dairy farmers are an innovative lot who care about the environment. Nitrification inhibitors were introduced four years ago to reduce nitrogen losses − they are already used by more than a quarter of Canterbury dairy farmers.

The debate should not be about whether or not we need growth in the dairy sector, it should be about how we achieve growth in a way that meets the needs of all New Zealanders.

Dairying will continue to be an important part of the New Zealand economy. Continued growth in the dairy industry is important to our future economic prosperity − but growth at any cost is not acceptable.

It may be that in parts of Canterbury there are limits to dairy production. Our land resources are naturally limited – and there are already capacity constraints on the environment in some areas, notably Taupo and Rotorua, where there are constraints on the ability of water to assimilate discharges of nutrients.

There is a wider set of economic and environmental costs that individuals, at least currently, do not have to consider in their decisions because they are costs that are met by the whole community and the environment. If these costs, or some portion of them, were to become a cost to the business itself, the development decision may well be a different one.

I encourage the regional council to work with the sector to identify those areas and to develop appropriate and fair boundaries. And I encourage the sector to develop and implement ways to farm within those boundaries.

The Government is keen to contribute to better water management. This is being delivered in the first instance through the Sustainable Water Programme of Action. The challenges in water management have taken generations to develop and, even with best practice, will some take time to resolve.

Since announcing the broad policy direction in March 2003, there has been hard work with all sectors of the community building an understanding of the topic and exploring possible solutions.

Important components of the programme are well advanced. Proposals for two national environmental standards − one on water measuring devices and another on setting ecological flows and water levels − will be considered by
Cabinet shortly.

New Zealanders expect our primary industries to play their part. Our markets expect us to play our part. We have to get started with a vision of a sustainable and carbon neutral New Zealand.

The integrated approach outlined in the Emissions Trading Scheme, the Plan of Action for Sustainable Land Management and Climate Change, and the host of other related polices shows how and where we begin.

ENDS

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