Post-Kyoto Negotiations – Going Backwards?
May 28th, 2008
Ian Templeton @ Parliament
Reports are circulating in Wellington the UN negotiations on an international agreement to replace Kyoto 1 are not running smoothly, and may even be going backwards. NZ’s Climate Change Ambassador Adrian Macey held a briefing for stakeholders, and indicated the last round of negotiations in Bangkok did not go well. It now looks unlikely the negotiations will meet the timetable set in Bali last year. Given the climate change issue can only be solved by international action (NZ with less than 0.2% of global emissions is only a bit player), slow progress in the UN negotiations reinforces the argument NZ should proceed cautiously with the implementation of the emissions trading scheme.
Some NZ authorities contend once the international process for combating climate change is known, only then should a domestic regime, which fits with the international programme be implemented. In the fiscal strategy report in this year’s Budget, Treasury says in making fiscal projections, consideration has been given to the impact of climate change policies, including obligations from any future international climate change mitigation agreements and the impact of the ETS.
NZ’s liability in the first commitment period of Kyoto to 2012 is currently based on 21.7m units, and the Govt has adopted the ETS as one tool to manage the Kyoto liability. Treasury says this domestic policy response does not change the nature of its international obligations. “The Kyoto liability is still the responsibility of the Govt: however the liability would be expected to decrease as a result of the introduction of an ETS. In addition the ETS could generate a net surplus of units which could be used by the Govt to meet its Kyoto liability and any obligations arising from future international climate change agreements.”
Fiscal projections beyond 2012/13 do not incorporate an estimate of any net emissions liability which may eventuate from NZ’s obligations under future international climate change agreements. This is due to uncertainty around the size and timing of any future liability. The ETS is intended to exist beyond the first period of the Kyoto Protocol, and since there is no estimate of a future post-Kyoto obligation, Treasury says if revenue from the scheme was explicitly modelled, a substantial build-up of surplus credits would result.
Given this consideration, fiscal projections include an ETS revenue track which exactly offsets the fiscal impact of the modelled expense track. Effectively this assumes net proceeds from the ETS, after meeting any future emission liability, are recycled back to the public through unspecified tax reductions.
Earlier last week the Govt conceded advice from officials indicated the sale of emission permits would yield between $6bn and $22bn in revenue, depending on the price of carbon. There could also be a windfall profit for the Govt of up to $150m a year arising from the higher power prices from Meridian Energy, Mighty River Power and Genesis, which do not have to buy emission permits for their renewable generation.
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