Concerns About Business Impact of Kyoto Estimates

Friday 17 June 2005

Concerns About Business Impact of Revised Kyoto Estimates

It is vitally important for the Government to manage future liabilities under the Kyoto Protocol without paralysing the economy, according to PricewaterhouseCoopers. Yesterday the Government announced that forecast emissions had surged and estimates of forest sinks had reduced, meaning New Zealand is set to miss its Kyoto target by a significant margin.

Julia Hoare, head of the PricewaterhouseCoopers Climate Change Services team, said it was important the approach taken to meeting our Kyoto Protocol obligations did not deter new business investors, or encourage existing businesses to leave New Zealand. She said there were a number of ways this could be achieved.

“The Government could look at further enhancements to the depreciation rules for emission-friendly assets, or extending the projects’ mechanism which provides financial rewards for introducing and developing low-emissions technology,” she said.

Julia Hoare said she hoped the temptation to scale back the negotiated greenhouse agreement process would not prove too great. “There’s been a push to speed up and simplify the process. We’d be disappointed if the revised estimates saw the $240 million earmarked for NGAs being clawed back.”

She said there was also a need for greater investment to stimulate the forestry sector. “The $18 million grant allocation to forest owners over five years to encourage bio-energy and other emissions friendly technology may be seen as insufficient when compared to the huge deficit we’re facing if we don’t plant more trees.”

Julia Hoare said the Government’s latest estimates confirm predictions that the initial calculations were wildly optimistic. “The figures have been revised upwards for two reasons,” she said. “The first is that emissions have increased because of the strong performance of the economy. The second reason is that the forest sink estimates have been reduced – this is partly because of changing land use away from planting forests, and partly because the science underpinning the initial projections was wrong.”

The most likely scenario put forward in the Government’s latest estimates see New Zealand in a deficit position of 36.2 million tonnes of carbon dioxide. Using current carbon value and exchange rates, this would see New Zealand needing to purchase carbon credits at a cost of around $1.2 billion to offset the deficit.

Pessimistic estimates from the Government put New Zealand’s liability under the Kyoto Protocol at as much as $2 billion, whilst even a “best case” scenario will result in payments of at least $375 million.

Julia Hoare said the difficulty is that the emissions will be measured in 2012 – and without a crystal ball it was impossible to know the future price of carbon or the value of the New Zealand dollar. “But if we take the $1.2 billion estimate as the most likely, this works out to a cost of around $900 for each New Zealand household,” she said.

Any deficit would need to be funded from the country’s surplus, an increase in the carbon tax charge or a reallocation of Government expenditure, according to Ms Hoare. “The projected deficit is a significant liability and the Government needs to make sure the numbers are right.”

Julia Hoare said the Government recognised the importance of subjecting their forecasts to independent review to ensure a level of comfort with the robustness of its numbers. “That’s a good approach,” she said. “The more certainty that can be taken from the estimates, then the better handle we will all have on New Zealand’s future liability under the Kyoto Protocol.”

ENDS

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