Upton Announces Climate Change Position

New Zealand will be advocating a uniform greenhouse gas reduction target of up to 5% below 1990 levels, the Minister for the Environment, Hon Simon Upton, said today.

This reduction will take place within a five year budget period beginning no sooner than 2005 and is conditional upon the following requirements:

• inclusion of at least the three main greenhouse gases (CO2, methane and nitrous oxide);
• provision for international emissions trading;
• the appropriate inclusion of carbon 'sinks';
• flexibility in the choice of policies and measures to achieve reduction targets; and
• provision for developing countries to accept emission reduction commitments in the future.

Mr Upton said, "whether or not these conditions are accepted will greatly affect the costs faced by all parties. The non inclusion of any of these items would affect the ambitiousness of any target we could sign up to at Kyoto".

"The policy announced today is consistent with the line New Zealand has been promoting for some months. The target, I believe, places New Zealand amongst those countries seeking to promote an outcome from Kyoto that is both realistic and achievable.

"Given the ongoing growth of emissions in most developed countries since 1990, achieving a 5% reduction target would represent very significant progress by the Annex I countries," concluded Mr Upton.

ENDS

QUESTIONS AND ANSWERS ON CLIMATE CHANGE POLICY

1.What are the elements of a 'least cost approach'?

A least cost approach includes:

• including the broadest possible range of opportunities to reduce emissions across the full range of greenhouse gases;
• flexibility over where emission reductions occur through mechanisms such as international emission trading; and
• (within limits) flexibility over when emission reductions occur, including recognition of early action

2.Is New Zealand's advocacy of 'least cost mechanisms' an easy way out?

No. A least cost approach simply means that New Zealand opposes a costly approach to lowering emissions when the same environmental outcome could be achieved at lower cost. Least cost is not no cost: New Zealand would still face adjustment costs like every other developed country.

3.Are least cost measures less environmentally ambitious?

No. Least cost measures simply ensure that the desired environmental outcome is achieved at the lowest total cost to society, or in this case, across all developed countries. The more costly it is to reduce emissions, the less ambitious any agreed target is likely to be.

4.Will the inclusion of sinks mean that New Zealand has to do nothing about emissions?

No. Including sinks in the manner proposed by New Zealand would not protect emitters from facing up to the costs of adjusting to lower levels of emissions. New Zealand has pledged that it will place any 'credits' from forest sinks onto the world market meaning that New Zealand sink credits will be available to all developed country emitters. On the other hand, New Zealand emitters would have access to the least costly abatement opportunities wherever they occur within developed countries. Trading effectively creates a 'world price' for emissions that all players would have to face.

5.Will greenhouse gas reductions occur evenly across all countries under a tradable scheme?

No. Emissions will be reduced wherever it is cheapest to make those reductions. However, trading will equalise the 'marginal cost of abatement' across the developed countries by creating a world price for carbon in much the same way as there is a world price for oil. This means that the cost of reducing a tonne of emissions in one developed country will be the same as it is in any other developed country. Equalising the marginal cost of abatement in developed countries ensures that the lowest cost emission reduction opportunities are taken up first and, by doing so, total costs are also lowered.

6.Is there anywhere else in the world where an emissions trading system is operating successfully?

Yes. Systems for trading emission permits in Sulphur Dioxide and other local air pollutants are operating in the United States right now.

7.Is New Zealand alone in advocating that forest sinks and emissions trading must be elements of an agreement at Kyoto?

No. The United States, Canada, Norway, Australia and some individual countries within the EU support the inclusion of forest sinks and emission trading in an agreement at Kyoto. Other developed countries are receptive to the principle of emissions trading and are also willing to consider the appropriate role for forest sinks.

8.Does opposition to mandatory policies and measures mean that New Zealand is opposed to legally binding targets?

No. This is a common cause of confusion. Mandatory policies and measures and legally binding targets refer to quite different things. New Zealand supports legally binding targets but is opposed to legally binding policies and measures which must be used to meet those targets. New Zealand believes that what works in one country may not work in another and that countries should have flexibility to implement whatever domestic actions they deem necessary to meet those targets.

9.What would be the economic impact of New Zealand's target?

The Government has commissioned modelling work to ascertain the economic impact of a variety of possible targets. Modelling demonstrates that:

10.it is more costly to reduce CO2 emissions from fossil fuels in New Zealand that in most other countries because we are already heavily reliant on renewable electricity generation;

11.the cost of cutting emissions falls sharply if, (i), the basket of gases includes all gases, (ii), emissions trading is introduced, and (iii), forest sinks are included;

12.to meet a 5% reduction target solely by cutting CO2 emissions domestically (ie without including other greenhouse gases, trading, or sinks) would lead to a cumulative loss in GDP of 0.7% over the next two decades, (in other words, GDP grows at a slightly slower rate);

13.allowing emissions trading reduces the cost of adjustment by 60% (ie reducing cumulative GDP loss from 0.7% to 0.4% over the next two decades); allowing for sinks reduces the cost by a further 30%; the suite of measures New Zealand proposes would, therefore, lower the costs of adjustment by up to 80%.

14.although the reduction in the rate of overall economic growth is small, the impact of any reduction target on particular sectors of the economy - notably the fossil fuel based energy sector - is much higher (but again, will be greatly reduced by adopting the conditions outlined above)

New Zealand believes cost reductions of the order of 70-80% can't be ignored by parties to the Convention. If all those conditions are adopted it will significantly assist the likelihood of a successful conclusion, not just to the Kyoto conference, but future negotiations at which larger reductions will be required.

15.The EU is proposing a 15% reduction target by 2010. Why is New Zealand not proposing to match it?

For a start, New Zealand is not part of a 'bubble' within which the burden can be shared. If we applied the European modelling, we'd approximate the position of Ireland which has been permitted a 15% increase in gross emissions. New Zealand does not consider that this approach is sustainable. Trading within Annex 1 is the best way to even up the 'unders and overs': minus 5% is a realistic target given the different starting positions of the various parties. Although the EU position appears much more ambitious, if the target is formulated on the same basis as the US, for example, it equates to about a 6-10% reduction.

16.Is New Zealand threatening to withdraw its support for reductions if developing countries do not also shoulder commitments at Kyoto?

No. In signing the Climate Change Convention New Zealand accepted that developed countries should take the first steps. New Zealand is prepared to do that as long as other Annex 1 countries accept their commitments. However, no further progress is likely beyond these first steps unless there is progressive evolution of commitments to developing countries.

17.Is New Zealand supporting legally binding commitments because it believes that human induced climate change has already commenced?

No. While there is significant scientific opinion in favour of the suggestion that human induced climate change has commenced, it is the dramatic increase in CO2 emissions forecast for the future, that is the basis for action now. New Zealand's policy is based on managing the risk of climate change, rather than waiting for definitive evidence, by which time it may be too late to avert significant climate change.