New Zealand Supports International Petroleum Exchange's Efforts

  • Simon Upton

New Zealand's Environment Minister Simon Upton today welcomed a proposal by the International Petroleum Exchange to establish a traded market for CO2 emissions, in response to a challenge to London financial markets from British Deputy Prime Minister John Prescott.

But Mr Upton said that emissions trading would only deliver its full potential if it was based on company-to-company trading without artificial, government-imposed constraints.

"The future of emissions trading hangs on whether European Union countries are prepared to adopt a flexible, intelligent approach to the use of the mechanism.

"John Prescott's challenge to the markets to develop a system was an important signal reflected the depth of thinking in the United Kingdom Government about how climate change should be tackled".

"But elsewhere in Europe tradeable emissions permits are treated with varying degrees of suspicion amounting, in some cases, to outright hostility. Disturbingly, the EU has already called for a limit on the extent to which countries can rely on international permit trading to meet their Kyoto commitments.

"If such a ceiling comes to pass, it will simply raise the price of emission permits on the international market for no extra environmental benefit".

New Zealand has advocated an unfettered trading system within the Annex 1 group of countries on the basis that energy users are best placed to identify and to price emission abatement opportunities wherever they may occur.

"Trading must be unconstrained and the traders should be commercial operators. What we need is a world price for carbon."

Mr Upton noted that New Zealand's strong advocacy for trading flows from the fact that New Zealand faces relatively high costs to reduce emissions. Much of its electricity is derived from hydro and geothermal sources. No coal is burnt. It has fewer cheap options to pursue than most countries.

"By calling for domestic action instead of trading the EU seems to ignore the fact that countries would still have to meet set reduction targets and that permits, like all other solutions, cost real money. By generating a world price for permits within whatever cap is negotiated, a trading regime means that all countries face the same costs for every ton of CO2 emitted. No other approach can deliver such an equitable sharing of the burden of reducing emissions.

Mr Upton noted that developed countries outside the European Union didn't have the political institutions available to them to construct a "bubble" like Europe. Trading was the only way of generating a similar approach to burden sharing.

"My fear is that if the European Union seeks to limit the use of emissions trading, a number of key countries like the US may find themselves unable to ratify the protocol. For that reason, the European Union's attitude to emissions trading has now become central to the fate of the Framework Convention on Climate Change".