Business backs 20% emissions cut target

July 29, 2009

Media Release

Business backs 20% emissions cut target

The New Zealand Business Council for Sustainable Development has advised the Government to set a unilateral target to cut greenhouse gas emissions by 20% by 2020.

The business leadership group, which includes some of the country's largest enterprises, says the country should also consider a possible reduction of 30% or more - if international climate change treaty talks adopt proposals which put our trade-exposed industries on a fairer footing.

The Business Council - whose 64 member companies' annual sales of $59 billion equate to about 43% of gross domestic product - says the best outcome for both the planet and New Zealand from the Copenhagen talks later this year would be a very widely shared commitment to reduced global emissions sufficient to stabilise climate change gases at 450ppm by 2050.

"This is estimated to give us a 50% chance of holding global average temperature increases to 2°C," the Business Council says in a submission sent to Climate Change Issues Minister Nick Smith, Associate Minister for Climate Change Issues Tim Groser, Prime Minister John Key, Finance Minister Bill English and Energy Minister Gerry Brownlee.

The International Panel on Climate Change's (IPCC's) 2007 Report suggested that stabilising emissions at 450 ppm would require Kyoto Annex 1 countries to collectively agree to reduce emission by between 25% and 40% below 1990 levels by 2020, on the way to 80% to 95% reductions by 2050.

Non-annex 1 countries, which have yet to commit to emissions reductions, need to make substantial deviations from business-as-usual (BAU) baselines.

The Business Council recommends that, given all the matters that should be considered, New Zealand in Bonn should make a two tier proposal involving a unilateral 20% reduction in gross emissions by 2020, and a possible reduction of 30% or more by 2020, provided that:

• Competitors of our trade-exposed, emission-intensive industries also face a price on carbon;

• There is overwhelming participation by developed countries in taking responsibility for 25 - 40% reductions in emissions by 2020 from a 1990 base;

• Major developing economies, including China and India, agree to significant reductions in the growth of their emissions below BAU;

• The rules for forestry and soil carbon be amended to recognise:

· that equivalent replanting can occur for pre-1990 forests in locations other than the site of the felled forest;
· that the carbon in trees does not immediately return to the atmosphere on felling;
· the potential for soil to sequester carbon.

• The factors used to estimate equivalence of climate change gases are reviewed to recognise the differing breakdown rates for methane when compared with CO2 and other gases.

"These targets allow that New Zealand may have to meet part of its responsibility target by purchasing credits from other countries. That is the right answer if those countries have lower cost opportunities. It will also encourage developing countries to participate in a global cap and trade scheme that will lower the cost of adjustment for us all."
The Business Council says emission reduction targets worldwide are getting more ambitious not less.

"When National announced its 2050 target of a 50% reduction in emissions from 1990 levels, it was in the middle of the developed country pack. Since then the G8 has pledged to an 80% reduction by 2050, with some ambiguity around the base point. Some measure of how the debate is evolving is that Mexico, with a per capita income of less than one third of that of New Zealand, has adopted a 50% reduction target below 2002 levels by 2050."

The Business Council is also critical of recent economic modelling which it says has been "misinterpreted to produce some alarming numbers" based around the 40% reduction in emissions needed to achieve a cap on global average temperatures of 2°C.

"The $500 a tonne cost for emission reductions was the result of modelling something that New Zealand is not being asked to do.

"The figure assumes that all emissions reductions had to be undertaken within our shores. The reason a cap and trade system will be an essential component of the collection of policies and regulations which will be required to encourage emission reductions is that it allows emissions to be reduced at the global marginal cost of emission reductions.
"If New Zealand's marginal cost of emissions reductions is higher than the world price, then we will 'buy' rather than 'make' the emission reductions.

"McKinsey and others have identified numerous opportunities to reduce emissions at far less than NZ$500 a tonne."

The modelling also did not take into account the ability to use domestic greenhouse gas sinks, like forestry, to offset local emissions. The Crown's own numbers suggest our forestry growth will totally offset the growth in gross emissions since 1990.

"It was unclear what the modelling assumed regarding the rest of the world. Clearly, the costs of adjustment are greater if New Zealand acts unilaterally, but that is why the Business Council has always backed transitional assistance for emitters who have competitors that do not face a price on carbon."

The Business Council says the most dramatic change in the climate change negotiations has been "the arrival of a US President with an intention to lead, rather than delay action, on climate change".

It is likely the USA will arrive at Copenhagen with the outline of an agreement with China, and a proposal that the rest of the world will share out the reduction commitments required to satisfy the USA-China proposals.

The Waxman-Markey Bill passed by the US House of Representatives contains provisions for a carbon tax at the border for countries not considered to be doing enough on climate change. While the US ETS does not include agriculture within its cap, it does provide credits for agricultural initiatives that reduce emissions. It is most probable that these provisions will survive in any Bill jointly passed by the Senate.

"If that occurs, there is effectively a price on carbon in US agriculture that will be reflected in the world price for agricultural commodities.

"Once this happens, US producers are likely to lobby for a carbon tax on commodities from countries which are not taking sufficient action on climate change or whose producers don't face a price on carbon," the Business Council says.

The Business Council's full submission is at http://www.nzbcsd.org.nz/story.asp?StoryID=1010

ENDS

Note for Editors: The $500per tonne research reference relates to Infometrics research for the Greenhouse Policy Coalition, released July 6, 2009

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