The government has set an emissions reduction target of between 10% and 20% by 2020, conditional upon a credible global climate change agreement; effective rules on forestry and New Zealand having access to international carbon markets.
This article provides a brief analysis of the government’s approach and what it may mean for business.
Us and Oz
Rather than go for a target range as New Zealand has, Australia has gone for a stratified approach. It has committed itself to an unconditional 5% reduction from 2000 levels by 2020; to 15% if there is a global agreement where all major economies commit to substantially restrain emissions and advanced economies take on comparable reductions to that of Australia; and to 25% if the world agrees to an ambitious global deal to stabilise greenhouse gases at 450 parts per million CO2 by lower or mid century.
The New Zealand government says these targets are broadly commensurate with Australia's given our lower GDP and higher costs of abatement and given that the Australian reference point is 2000 while ours is 1990.
New Zealand’s 10% to 20% target is conditional upon:
- a global agreement that sets the world on a pathway to limit temperature rise to not more than 2°
- developed countries making comparable efforts to New Zealand
- advanced and major emitting developing countries taking action “fully commensurate with their respective capabilities”
- an effective set of rules for land use, land use change and forestry (LULUCF), and
- full recourse to a broad and efficient international carbon market.
Since 1990, Australia’s emissions have risen 30% and New Zealand’s 24% in gross terms. We can, however, claim a small net surplus due to countervailing credits from 566,000 ha of forests planted in the 1990s. When this timber is harvested in the 2020s, it will put immense pressure on our reduction targets at that time and on the government’s longer-term objective of achieving a 50% emissions reduction by 2050.
Costs of compliance
The government estimates the cost of a 10% reduction at $30 per person per week or $1400 per year. Note that this estimate is for the year 2020 by which time GDP per head is expected to have risen by $10,000 a year.
However, while there are costs associated with compliance, there are also costs associated with non-compliance. New Zealand’s ‘clean, green’ brand will be damaged if we are not seen to do our share. Also, failure to pull our weight may invite trade reprisals with the Obama Administration already indicating that it may impose tariffs on countries that don’t match its climate change efforts. For more information on the US position, please click here.
The principal mechanism for compliance will be the Emissions Trading Scheme (ETS). The ETS is now being reviewed by the Climate Change Special Committee which is expected to report back within weeks and is also subject to modification through the decision to harmonise regimes with Australia.
Where to now
The establishment of a medium term target provides more certainty for business and will help to restore New Zealand’s credibility on this issue after the policy reversals and changes flowing from the change of government.
However not until we have the final shape of the ETS will it be possible for businesses to develop the detail of their responses to the climate change challenge.