Pete Hodgson on Climate change: the New Zealand response

[Address to Southern Environmental Trust / Rotary Christchurch South global warming seminar, Aurora Centre, Burnside High School, Christchurch]

Thank you for the opportunity to speak this evening.

It is a great pity that Dr Pachauri, the chairman of the Intergovernmental Panel on Climate Change, is unable to be here as scheduled. We have missed the opportunity to hear from someone with vast expertise on climate change, the effects it is likely to have on the developing and developed world, and the options we have to address the problem. I am sure we can still make this evening worthwhile, however. I do not have Dr Pachauri's scientific expertise, but I can tell you about climate change as it affects New Zealand's interests, and about the government's response.

There are compelling reasons for New Zealand to support international action on climate change.

This country owes its prosperity – indeed its status as a developed nation – to a stable, equable climate that is ideal for pastoral farming. We have bought our place in the developed world with grass, which we have converted with exemplary efficiency into meat, wool and milk.

Our way with pasture is no longer quite enough to keep us in the manner to which we are accustomed, which is why this government is bent on transforming the economy to one in which knowledge and technology are more significant sources of value.

But for the rest of our lives, and far beyond, primary production will remain a basic driver of our economic welfare. The New Zealand knowledge economy will reflect our strength in primary production and the technologies associated with it. That means climate change is, profoundly, an issue of economic security for this country.

If global warming is allowed to continue unchecked, the long-term impacts on this country are likely to be severe indeed.

There may be some initial benefits for agriculture from a warmer climate, with possible increases in the growth rate and range of some crops.

But floods and droughts are expected to become more frequent and more extreme. Biosecurity is likely to come under increasing pressure, especially from subtropical pests and diseases.

Sea level rises would create problems with saltwater intrusion into groundwater, as well as threatening infrastructure. Further problems with water supply and infrastructure would arise from higher rainfall in the west of the country and drier conditions in the east.

New human health risks would arrive from pests and diseases, such as dengue fever, that presently thrive in warmer countries. And native species would be threatened by climatic changes in what remains of their habitats. We already know that climate problems can be very, very expensive. As farmers you will be well aware of the costs of floods and droughts. Flooding costs this country an estimated $125 million a year, not counting the millions spent on flood protection measures and insurance. The El Nino floods in 1997 cost agriculture an estimated $1 billion.

The costs of inaction on climate change are essentially inestimable, but there is good reason to expect they would be huge. And because global warming is a cumulative process, the costs only magnify with time. Doing nothing is not the low-cost option.

If we accept that the question is not whether to do something about climate change, but what to do about it, then we are confronted with the Kyoto Protocol.

Climate change is a global problem, which means concerted international action is the only remedy. And the Protocol is simply the only concerted international action on offer.

It has its limitations. It will not be, at first, a truly global agreement. It will cut western world greenhouse gas emissions in total by a mere 5 percent on 1990 levels, at best, if all parties meet their modest targets in the first commitment period.

But the Protocol does establish a functional international mechanism for reducing greenhouse gas emissions. That mechanism is the fruit of many years of negotiation and refinement. It embraces market solutions to an extent that the business community would generally be expected to welcome. It offers significant flexibility to member nations in their choice of how to manage their emissions. And it is readily capable of expansion to include developing nations in the second and subsequent commitment periods.

In short the Protocol is not just the only game in town. It is a positive, workable solution.

This government began working towards ratification of the Kyoto Protocol about two years ago, developing policies that will enable us to minimise the costs and maximise the opportunities. But this work is the culmination of a much longer engagement between New Zealand and the rest of the international community over climate change.

New Zealand's initial contribution to negotiation of the Protocol was made under the National-led government in 1997, led by Simon Upton. The Protocol was signed by New Zealand, under the same government, in 1998.

A lot of important groundwork for the current policy approach was done during this time, including the negotiation of voluntary emission reduction agreements with industry and attempts to involve sector groups in the development of policy options and research opportunities. Ratification of the Protocol and implementation of the appropriate policies is the logical next step in this long engagement with an extraordinarily large and complex environmental problem.

The government has been challenged, fairly, to explain the effect that ratification would have on the New Zealand economy. The crude answer is that, in the first commitment period, the best estimate is that ratification will bring us a slight net economic benefit.

The numbers are relatively simple: over the five-year first commitment period New Zealand is projected to receive carbon sink credits for its post-1990 “Kyoto forests” of 110 million tonnes of carbon dioxide equivalent. On the debit side we are expected to exceed our Kyoto emissions target, on business-as-usual, by 50 to 75 million tonnes of CO2 equivalent. The balance is positive by 35 to 60 million tonnes, so we will be a net seller of credits into the international carbon market.

The fact that New Zealand will make money from under the Protocol makes ratification an easier decision for this country than for many others. But it is still a decision that requires us to weigh a great many factors, many with no dollar amounts attached and many with costs or benefits that cannot be specified with any certainty.

There is nothing particularly special or unusual about Kyoto in that respect. If public policy could be decided by cost-benefit analysis we would need only accountants to keep civilisation going. In fact all significant decisions concerning the future of our economy and society are political, in that they require vision, judgement and leadership rather than a mechanical weighing of dollars and cents.

Let me give you a few quick examples of dimensions of the decision on Kyoto that do not fit easily into a straight cost-benefit analysis. I have mentioned the inestimable value of New Zealand’s stable, equable, wet, mid-latitude climate for our primary production-based economy. But consider what New Zealand’s clean environmental reputation is worth to this nation in sophisticated consumer markets such as Europe. Can you put a dollar value on that? What would be the cost to that reputation if New Zealand walked away from Kyoto after supporting it for the best part of a decade?

Think about the pressure that the Protocol applies in favour of clean, efficient and renewable energy supplies. What is the effect on New Zealand’s international competitiveness if we shelter our economy from that pressure? What is the cost of clinging to old energy technologies while other developed nations reach for the energy technologies of the future?

Note that these are not moral or ideological considerations. They are about our competitiveness, our economic welfare.

Late last year we consulted widely on the policy options for managing New Zealand's greenhouse gas emissions. Many people agreed that climate change is a problem we must tackle. They also told us that New Zealand we should proceed with care, avoiding measures that might damage our economy and international competitiveness. We took those concerns into account. They are, after all, the same concerns that drive our thinking about climate change, as I've been saying.

In April this year we released a preferred policy package for further consultation. At the same time we introduced legislation to Parliament that would establish the legal framework for ratifying the Protocol. The Climate Change Response Bill provides for the establishment of an inventory of New Zealand's greenhouse gas emissions, and for a national registry enabling us to trade emission credits on the international market.

The government is close to being able to announce a final greenhouse policy package. And Parliament is likely to pass the Climate Change Response Bill in November, enabling ratification of the Protocol by the end of the year.

As of the end of September, almost 90 countries have already ratified. They include 22 developed countries whose emission targets are legally binding, as New Zealand's will be. The entire European Union has ratified, along with countries such as Norway, Switzerland and Japan. Poland, Canada and Russia are expected ratify shortly. Once Russia ratifies, the Protocol will come into force — probably early next year. When New Zealand ratifies it will not be leading the world, or many of our major trading partners. We will be keeping pace.

In developing domestic policy to meet our obligations, however, we will be ahead of most.

The foundation policies in our response to climate change are mostly in place already. We began last spring with New Zealand’s first ever National Energy Efficiency and Conservation Strategy. Since then, we have added the waste strategy and the transport framework. Work on the transport strategy is well advanced.

Important new additions to the foundations are our plans for a partnership with local government to reduce emissions, and for what we are calling projects. Projects are specific activities aimed at delivering defined reductions in greenhouse gas emissions in return for an incentive.

These policies will ramp up quite quickly from now until 2008, which is when the Protocol’s first commitment period begins. They will be funded by Government, or predominantly so. They begin the process of improving the nation’s energy efficiency, fuel switching, renewable energy investment and public awareness. Between them they are projected to reduce New Zealand’s excess emissions over our Kyoto target by about a third, over the next decade.

The effectiveness of these measures means that the government's preferred policy is that no price will be put on greenhouse gas emissions before 2007. After that there would be a price, introduced by way of a carbon charge on fossil fuels. It would increase the cost of those fuels, making alternatives more competitive. The revenue would be recycled back into the economy, partly through incentives for emission-reducing projects and partly, probably, through the tax system.

0Because we need to maintain the competitiveness of New Zealand business, we do not propose to apply the price on carbon emissions flatly throughout the economy.

There is a fairly small number of energy-intensive firms or sectors that export and are therefore vulnerable. They compete with nations that will not have Kyoto targets in the near future. These firms would be fully shielded from any emissions charge, as long as they negotiate with the government a greenhouse agreement putting them on track for world’s best practice in emissions intensity.

Agriculture also gets special treatment in our preferred policy package.

Methane and nitrous oxide from agriculture form more than half of New Zealand’s greenhouse gas emissions, a unique profile amongst developed nations. Yet there are currently no readily available, practical ways for farmers to significantly reduce those emissions, besides the undesirable one of reducing stock numbers. So agriculture would be exempted from any emissions charge.

Every sector of the economy must take responsibility for its emissions in some way, however, and for agriculture the Government’s preference is to pursue a solution through research. We expect the sector to fund most of this research, not least because any productivity increases from methane reductions are likely to benefit farmers directly. Because methane emitted by livestock is waste, reducing methane emissions is likely to be accompanied by gains in animal productivity. There are also likely to be significant business opportunities in selling New Zealand solutions to the world. Developed nations, and developing ones when they take on emissions targets, will need solutions to agricultural emissions.

The Government retains the option of a research levy on agriculture, if the sector does not make the necessary investment in research. As a ballpark indication I have said that 20 cents per sheep per year would raise more than we think we need. But my expectation is that a levy will be unnecessary.

Kyoto policy will change as the years go by, probably forever. In that sense it will be no different from any other aspect of Government policy. We have scheduled reviews for 2005, 2007 and 2010. These reviews will update policy as our knowledge advances, and address policy for the second Kyoto commitment period beginning in 2013.

That means consultation on policy will continue, this year and far into the future. The problem of global warming with be with us for the rest of our lives, for the lives of our children, and their children, and more. Our response to it will have to be constantly adjusted as our understanding grows and as new technologies emerge.

So will climate change lead to a meltdown for Canterbury, as the invitation for this seminar asks? It need not. Some change in our climate is inevitable. It has already begun. But there is real hope that we can take effective measures, both internationally and domestically, to minimise the damage and make the most of the opportunities presented by a future in which fossil fuels give way to cleaner, renewable alternatives. New Zealanders have a great history of innovation. There is no reason why we should not add to it in responding to climate change, as long as we look to the future.

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