Kyoto Protocol and obligations
There is a large consensus that it is the capacity of the economic sector to mitigate carbon emissions. The concept of ‘market mitigation potential’ is getting more and more involved in the ways to tackle climate change. This notion is not new as it appeared in 1972 in the Recommendation of the OECD Council on Guiding Principles Concerning International Economic Aspects of Environmental Policies[1]. But more than two decades have been necessary to create a market based-approach. This part focuses on the mechanism of emission trading which seems the most efficient so far.
New Zealand has to reduce its greenhouse emission in accordance with two international treaties: The United Nations Framework for the Convention on Climate Change (UNFCC) in 1992 at the Summit of Rio de Janeiro, and the Kyoto Protocol ratified on 19 December 2002. According to article 3 of the Kyoto Protocol, New Zealand is engaged to “ensure that its aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases do not exceed their assigned amounts with a view to reducing its overall emissions of such gases by at least 5 per cent below 1990 levels in the commitment period 2008 to 2012”[2]. As we have seen, its commitments are not fulfilled. So to do it, article 17 of the Kyoto Protocol and the Marrakech accords (2002) describe a new instrument – International Trading Scheme – capable at significantly curbing carbon emissions. The scheme is based on the functioning of the market economy. First of all, under the Kyoto Protocol, the permit emissions are distributed at each state gratuitously in accordance with the level of their emission in 1990. 18 billion tons of CO2 have spread each year[3]. Following this, countries reallocate these “rights to pollute” to industries that are endorsed by the Protocol. States and industries are allowed to use the totality of their allowances, which is not good advice since the purpose is to reverse climate change. They can sell emission permits that they do not use on a company which pollutes more. The exchange of ‘carbon credits’ takes place on a global ‘carbon market’ called ‘emissions trading scheme’. Each carbon credit corresponds to one tonne of CO2[4].
The European Union’s Emissions Trading Scheme corresponds to the largest market of the greenhouse trading programme. It allows us to have an experience of what we have to keep or improve for the international carbon market. New Zealand is one of the most advanced countries concerning ETS. In this mechanism, they saw the opportunity to be a World Leader and to prove their will at mitigating their carbon emissions.
New Zealand’s Emission Trading Scheme
We have to keep in mind these figures: New Zealand is the second largest greenhouse gas emitter with 0.85 whereas OECD overall is 0.52 (measured by GHG relative to GDP). However, businesses are still reluctant to act on climate change as they see a cost and not an opportunity. They were very dissenting to price carbon or trade it. This feeling is mainly due to a government which does not have a main road map to tackle climate change and who enact new Bills at each new election. For instance, the first framework was in December 2005, the second framework was approved by Parliament in September 2008 (Labour’s ETS), the third framework was approved this September (National’s ETS) and we can suppose that there would be fourth framework either Labour or National likely within five years. The question raises how New Zealand could be credible to put in place an ETS when there is no consensus with the principal political parties. How can they convince farmers that it is in the national interest to include them into it, insofar as in short term there would be a new ETS?
This scheme was formalised in September 2007 under Emissions Trading and Renewable Preference Bill. Several ‘tradable instruments’ are available: New Zealand Units (NZUs) which are the domestic unit exchangeable in the market. Then, there is the possibility to acquire Kyoto units via international or domestic market in order to satisfy their obligation. Moreover, participants can sell their unit in the international or other domestic markets. That means that a strong link is necessary between New Zealand and overseas to avoid the increase of carbon prices in the NZ ETS[5]. For the moment, there are few companies under the ETS. However, for the next five years, all sectors and gazes should be included in this scheme in order to satisfy Kyoto’s commitments: January 2008 – forestry, January 2010 – stationary energy, including gas and geothermal energy and industrial process emissions – January 2011 – Transport – and finally January 2013 – Agricultural emissions, synthetic gases, and waste[6]. According to Economic Modelling of New Zealand Climate Change policy (2009), NZ ETS does not affect the growth rate even if carbon price is variable. However, ETS will be the most efficient way for New Zealand solely under two conditions: development of new technologies capable of reducing carbon emission and a decision of a fair carbon price[7]. At this point, New Zealand’s government considered ETS as the lowest-cost method at curbing greenhouse gases. However, many people think that it is not the solution insofar as the units are distributed freely and do not encourage firms to reduce their emission if actions to reduce emissions are more costly than the value of the permit. Moreover, the government does not make strong decisions to impose ways of forcing companies to reduce their carbon emissions. At this step, it seems like a new tax for them without any real environmental conscience. However, it is a tremendous challenge as for the moment it seems the international community is not ready to create an international market and so many questions are left unresolved.
The difficulty of including agriculture in this market
Agriculture is the first sector of the emission sector and should be incorporated into it in 2013. If it is the case, they will not pay the total price of carbon price but only half in order to not loose competitiveness against countries with cheaper production costs. Consequently, NZ ETS has no interest if agriculture is treated differently compared to other industries. They could not respond to Kyoto’s obligation with this sort of differential treatment. Numerous debates over the years fail to explain and make a decision on how it is possible to integrate agriculture in a market mainly conceived for industrial emissions.
The main problem is the impossibility to measure the carbon emissions at the farm level[8]. For instance, how could we measure animal emissions? Some people argue that we have to measure greenhouse gases taking in account the number of animals per farm and multiplicity by the emission of one animal. However, this solution is too approximate as each animal has a particular emission due to their genetics, age, location or feed[9]. Furthermore, methane which is responsible for 62% of total agricultural emissions (and thus 31% of all greenhouse gas emissions) in 2003 is pretty difficult to measure as it is from animal remnants[10]. Obviously, some instruments exist but their mechanisms are too complex and expensive to use them constantly. The accuracy of their emission is central as the market is solely credible as one tonne of CO2 from soil is equal to one tonne of CO2 from methane in livestock (‘the ability to substitute one commodity for another of equal value’[11]).
Furthermore, the government has not yet thought about how to allocate emission units to farmers. There are approximately 41 000 farms around the country – the allocation of emissions units to each of them would generate huge administrative expenses in terms of both cost and time.
The issues raised about the New Zealand’s Emissions Trading Scheme reveal the inadequacy of certain policy reports commissioned by the government (Emission Trading Scheme Review, 2009), which do not point out the main problems and in turn propose no solution. Many people (Labour party, green party, Greenpeace…) are sceptical to the will of the government to include agriculture in the NZ ETS as they move the date back to 2013 instead of 2008. But also, this announcement might presuppose only an obligation to do something and all the new measures would be certainly repealed after the summit of Copenhagen. The government should think of alternative ways at curbing greenhouse gases.
[1] Michael Faure and Marjan Peeters. Climate change and European emission trading: lessons for theory and practice (Cheltenham, UK ; Northampton, MA.: Edward Elgar, 2008), 130.
[2] United Nations, “Kyoto Protocol to the United Nations Framework Convention on Climate Change,” United Nations, http://unfccc.int/resource/docs/convkp/kpeng.pdf (accessed October 1st, 2009).
[3] Christian de Perthuis, Et pour quelques degrés de plus… Nos choix économiques face au risque climatique (Paris : Pearson, 2009), 156
[4] Ibid., 159.
[5] Price, Karen, Lisa, Danielle, and Laura, Cooper, “New Zealand climate change laws,” In Climate change law: comparative, contractual & regulatory considerations: proceedings of the 2008 Conference of the National Environmental Law Association at Fremantle edited by Wayne Gumley et al. (Rozelle, N.S.W.: Thomson Reuters, 2009), 92.
[6] The ministry of Agriculture and Forestry, “Agriculture in the New Zealand Emissions Trading Scheme,” The ministry of Agriculture and Forestry, http://www.maf.govt.nz/climatechange/agriculture/factsheet.htm (accessed Octobre 1st, 2009).
[7] New Zealand Institute of Economic Research, “ Economic modelling of New Zealand climate change policy,” NZIER, http://www.climatechange.govt.nz/documents/economic-modelling-of-new-zealand-climate-change-policy/economic-modelling-of-new-zealand-climate-change-policy.pdf (accessed October 1st, 2009).
[8] MAF Policy (N.Z.). Sustainable land management and climate change : options for a plan of action : a public discussion document for those with an interest in New Zealand’s forestry and agriculture sectors (Wellington N.Z.: MAF Policy, 2006), 50.
[9] New Zealand Institute of Economic Research, “Emissions Trading Scheme for New Zealand,
” NZIER, http://www.nzier.org.nz/Site/Publications/reports/2007_Reports.aspx (Octobre 1st, 2009).
[10] Harry Clark, “Methane emissions from New Zealand ruminants,” In Confronting climate change: critical issues for New Zealand edited by R.B Chapman, Jonathan Boston, and Margot Schwass (Wellington, N.Z.: Victoria University Press, 2006), 164.
[11] Sadler, Hugh, and Helen King. “Agriculture and Emission Trading: The impossible dream?” Autralian Institute. https://www.tai.org.au/file.php?file=dp102.pdf (accessed Octobre 1st, 2009).