Macquarie Journal of International and Comparative Environmental Law
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Macquarie Journal of International and Comparative Environmental Law |
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KLAUS BOSSELMANN[*]
On 18 November 2002, the New Zealand Parliament passed the Climate Change Response Act 2002 (NZ). The new legislation enables ratification of the Kyoto Protocol.[1]
For the New Zealand Government, not to ratify the Protocol was never an option:[2]
Failure to ratify the Protocol could reduce New Zealand’s ability to influence and contribute to international efforts to reduce climate change;
• hinder New Zealand’s development of its capacity to manage greenhouse gas emissions and prepare for more stringent targets that are likely as part of future international action on climate change;
• damage New Zealand’s international reputation as an environmentally responsible country and contributor to international initiatives; and
• prevent New Zealand from being able to take advantage of its position as a likely net seller of emission units on the international market.
Some of this reasoning reflects genuine concern and acceptance of shared responsibility. However, nothing has driven New Zealand’s motives more than the prospect of selling emission units on the international market. Economic objectives have clearly dictated the scope and design of New Zealand’s national climate change policy.
When, in October 2002, the Government announced its new climate change policy, called ‘Preferred Policy Package’ (PPP), it became clear just how much it was driven by concerns for international competitiveness. A cabinet paper proposing the confirmation of the PPP stated the ‘competitive positioning of the New Zealand economy’[3] as the main reason for the new policy.
This paper examines New Zealand’s approach towards meeting its international climate change obligations. The ‘long term competitive positioning of the New Zealand economy’ is the overall goal replacing, in part, the equity-based goal of reducing greenhouse gases. Of particular concern is the comprehensive approach that New Zealand has advocated probably more than any other country. Under the comprehensive approach:[4]
[G]lobal warming potentials are calculated for each greenhouse gas to permit emissions of different gases to be compared according to a single metric. States may take measures to limit their net contribution to the greenhouse effect, either by controlling their aggregate emissions or by enhancing their sinks.
Eventually, the comprehensive approach let to the net approach allowing for emissions removal by sinks.[5] Clearly, New Zealand’s climate change policy is motivated by economic advantages in the emerging carbon market.
The country’s response to climate obligations under the first commitment period has evolved in five stages of policy development beginning in 1997. They will be discussed here to determine how efficient the implementation of the Kyoto Protocol has been so far. The article concludes with an assessment of New Zealand’s compliance from an international perspective.
To meet its Kyoto target, New Zealand is blessed with some unique geographic, demographic and economic advantages.
The geographic advantage is that New Zealand is a small land mass surrounded by ocean. Climate models relevant to New Zealand project an average temperature increase of 0.3 to 1.3˚C in 2030 and an average increase of about 2˚C by 2080. The projected warming over New Zealand is generally less than the global average warming, as the vast expanse of the surrounding ocean warms more slowly than the land surface and acts to moderate local temperature changes.[6]
In demographic terms, the population of 4 million people in a country the size of the United Kingdom makes for a mere 0.2% of anthropogenic global emissions. On that basis, New Zealand’s output is tiny compared to the contributions of the United States (20%), Russia (14%), China (10%) or Japan (5%). Such ‘country-by-country’ comparison overlooks, of course, an important equity issue. Some people consume more greenhouse gases than others do. In terms of per-capita emissions, New Zealanders are among the world’s main culprits. While US-Americans would still top the list (with the Chinese near the bottom of the list), New Zealanders would rank tenth of the OECD-countries in terms of carbon dioxide emissions and rank first in terms of methane emissions. Thanks to sheep and cattle, New Zealand’s per capita emissions are overall nine times the world average.[7] Arguably, individual responsibility is a key component of climate change equity, but not accounted for in the first commitment period.
New Zealand’s economic advantage is obvious when compared to the rest of the world. Even without considering overall quality of life, individual wealth and economic prosperity ranks among the wealthiest OECD-countries. However, there are some additional economic advantages provided by nature. Apart from being a prime tourist destination thanks to its natural beauty and ‘clean, green’ image, the additional advantages are mainly in the energy and forestry sectors.
New Zealand has abundant renewable energy resources. Hydropower production is well utilised making up for more than half of the country’s electricity supply. New Zealand’s location in the belt of mid-latitude westerlies results in constant air movement and wind across the country at all times of the year. Thus the country is ideally placed for wind generators that could meet 50% of New Zealand’s electricity demand.[8] Solar radiation rates are also extremely high with less seasonal variation than in most Northern Hemisphere mid-latitude locations. Solar energy is radically under-utilised as only one per cent of all New Zealand homes have been provided with photovoltaic systems. Back in 1992, when New Zealand signed the Framework Climate Change Convention (FCCC), the Ministry of Commerce calculated that all of the country’s electricity demands could easily be met by this one source.[9]
Forestry has always represented a major sector of the economy with afforestation being a source of ever increasing prosperity. Afforestation is occurring at a rate of 70 000 hectares per year. The associated economic benefits have accelerated since it has been ‘discovered’ that forests could also count as sinks.
Planting trees is by far the cheapest option to mitigate greenhouse gases for a number of reasons. One is the turning-point of the early 1980s when deforestation was finally stopped in favour of restoring the vegetative cover. Another was the need for more sustainable forestry management to ensure ongoing profits. A third reason is compliance cost; the net approach (of sinks) halves compliance cost. A Working Group to assess the FCCC found that reducing carbon emissions to a point consistent with the FCCC would necessitate a tax on carbon of around NZ$200 per tonne. However, if a net approach was also invoked in the overall scheme of reductions, the cost falls radically to an estimated NZ$100 per tonne.[10]
Of all those God-given advantages, it was forestry that sparked New Zealand’s interest in a binding Protocol. New Zealand spearheaded the successful international crusade for the net approach.
For a long time, New Zealanders saw themselves as living in ‘Godzone’, untouched by environmental degradation in the world’s more populated and industrialized regions. The stance of most New Zealanders’ blissful ignorance endured even the ratification of the FCCC in 1993. Around that time, the development of New Zealand’s climate change response ‘tended to move between the sublime and the ridiculous’.[11] For example, the leading newspaper reported that the long-range climate forecasters in New Zealand were ‘optimistic’ about the effects of climate change. Among the reasons given were that warmer temperatures could lower winter electricity demands, whilst melting snow would increase hydro-lake inflows and thus improving electricity productivity. Another reason was tourism: while the affluent, but less mountainous countries in Europe would lose their snow, New Zealand’s Southern Alps would become the big drawcard.[12]
It was only through the process of COP negotiations that the New Zealand public started to take an interest in climate change issues. The ‘Berlin Mandate’ of 1995 was a wake up call as it aimed for binding law to set ‘quantified limitation and reduction objectives within specified time-frames’.[13] Kyoto thus began to shape up.
From the New Zealand Government’s point of view, the most important aspect of the Kyoto negotiations was to secure the net approach. In the build-up to the Kyoto Conference there was no international consensus on this issue and certainly no signs of accepting sinks as means to reduce greenhouse gases. Consequently, the (National Party) Government of the time saw a need to ‘press strongly for the inclusion of sinks’[14] considering it ‘vital’ and ‘most important’.[15] There was a perception that without sinks there could be ‘a major loss to the New Zealand economy’.[16] New Zealand’s persistent lobbying for sinks caused significant disturbances at an international level and in Kyoto. The Guardian International noted ‘angry exchanges about sinks … the inclusions of such schemes … was regarded by some participants as an attempt to create a loophole for evasion’.[17]
After Kyoto, the Government concluded with satisfaction that ‘had New Zealand not been there [Kyoto] sinks might well have dropped off the table … New Zealand played a lead role in the sinks negotiations’.[18]
Unlike other countries, New Zealand took an important first step towards compliance by negotiating a special deal. The sink option together with the modest target of returning to 1990 emission levels lowered the threshold significantly. Not surprisingly, it didn’t take long for the New Zealand Government to develop its domestic compliance policy.
In 1999, the Government released the Domestic Policy Options Statement (DPOS). The purpose of the DPOS was to find a modest response to meeting the commitments under the Kyoto Protocol while opening new market opportunities. Avoiding reductions was justified with the observation that[19] ‘compared to … other developed countries, the cost of substantially reducing [CO2] emissions in New Zealand’s energy and industrial process sector is high at the margin’.
To keep compliance costs at a minimum, the DPOS stressed the need for a net approach and for international emissions trading. This focus was taken in reflection of New Zealand’s successful lobbying in the Kyoto negotiations and in anticipation of an international trading regime to be introduced in 2008. The following section looks at the guiding principles underpinning the DPOS.
The DPOS identified five principles to guide a national climate change policy, including-
• consistency with a least cost policy objective ;
• international credibility;
• equity;
• practicality and durability; and
• flexibility.
The thrust towards emission reductions at least cost is identified as the Government’s primary policy objective.[20] ‘No regrets’ measures should be taken first, and thereafter low-cost abatement opportunities should be exploited before more costly options.[21]
The DPOS concluded that a market-based approach would be necessary to ensure that policy incentives reach through all sectors of the economy, as opposed to being limited to affecting large emitters.[22] In doing so it built on the conclusion reached by the Working Group on CO2 Policy, who in 1996 suggested that ‘an economic instrument … provides the least cost means of reducing emissions’.[23] Economic instruments are defined in the Statement as ‘policy instruments that aim to change behaviour through explicitly changing prices of a product or activity’.[24] Those considered to be relevant to the New Zealand climate change policy are a domestic emissions trading system and, to a lesser extent, carbon taxes.
The second principle identified as relevant to selecting an appropriate climate change policy is international credibility. The maintenance of credibility is seen to be important so that New Zealand can continue to meaningfully participate in climate change negotiations, in particular, to promote the primary objective of achieving emissions reduction at least cost.[25] This would be done by pushing to expand the obligations of other Parties, particularly those of developing countries and the current ‘villains’, the United States and Australia. Since New Zealand is placing a great deal of emphasis on international emissions trading (which was agreed upon in principle in the Kyoto Protocol), it also wants to get involved in the formulation of that regime.
The third policy objective identified was equity, that is, the perceived fairness of the policy. A major factor in considering the equity of a climate change policy is the distribution of responsibilities across different emitting sectors. Another is whether emitters should face costs based on absolute emissions, or on changes in their emissions since a base year (usually 1990). While incumbents favour the latter option, arguing they should not be penalised for their long-term investments, a since-1990 approach has the potential to discourage new-entrants who would provide competition and may be more efficient. Additional questions are whether a particular policy has an inequitable impact on a particular income group, or region. These issues of equity need to be considered in assessing the proposed policies.
Practicality and durability are identified as a further principle. Practicality requires the assessment of how feasible it is to implement a policy, both technically and institutionally.[26] Durability looks at whether the policy will be consistent over time. Thus the policy measures prior to the commitment period should be consonant with the measures to be taken within that period. Also, the policy adopted should be politically acceptable to minimise the perceived danger of a newly elected political party radically changing it. The principle of durability also does not condone the breaking of policy commitments for the purpose of making short-term gains.
Finally, the principle of flexibility was to be a criterion for the best policy to adopt to meet international climate change obligations. As New Zealand intends to participate extensively in the international trading regime, it will need to be responsive to indications and variations of the international permit price. This may include altering the intensity of the measures that are initially taken. However, the DPOS emphasised that the desirability of policy consistency and durability should not be overshadowed by the aspiration for flexibility.
The DPOS was released at a time when the ruling National Party faced a certain defeat in the 1999 elections. The DPOS was not contentious between the two parties. Consequently, the incoming Labour Government did not change the direction of the DPOS, it simply built on the DPOS.
The Labour Government set out a two-phase consultation process in 2001 on New Zealand’s response to the Kyoto Protocol. With the release of the Preferred Policy Package (PPP)[27] in April 2002, the Government began its second phase of consultation. This phase ended in October 2002 with the confirmation of the PPP. Essentially, it determines all policies that New Zealand will put in place to meet its international commitments to reduce greenhouse gas emissions.
Among the key features of the PPP is the notion of a ‘mix of policies’. The mix of policies is described as a combination of instruments that ‘differ in nature and timing depending on whether they are to be implemented prior to, or as part of, the first commitment period of the Kyoto Protocol’.[28] Further, ‘the policy instruments are applied in different combinations to the different groups within the economy’.[29]
The PPP outlines a wide range of policy instruments; however, the mix is not so much one of direct (that is regulatory) or indirect (that is non-regulatory) measures. Rather, the mix is within the latter category with the non-regulatory market-based approach clearly dominating.
The PPP deliberately built upon existing policies as initiated under the previous Government. In Part 1, the PPP referred to these policies as ‘Foundation Policies – What we’re doing anyway’.[30]
Among the foundation policies were the adoption of the Energy Efficiency and Conservation Act 2000 (NZ) (EEC Act); the development of a National Energy Efficiency and Conservation Strategy 2001 (NEECS); the proposed introduction of ‘projects’;[31] negotiated greenhouse agreements (NGAs);[32] an emissions charge;[33] revenue recycling;[34] the exemption of agriculture from emissions charge in return for research investment; and the retention of sink credits and associated liabilities by the Government. Other new aspects were the ‘Growth and Innovation Framework’ as a way of identifying business opportunities arising from the ratification of the Kyoto Protocol, the development of a New Zealand Transport Strategy (NZTS); the development of a New Zealand Waste Strategy; a commitment to climate change research; and the implementation of a public awareness programme. All these policies are addressed in the PPP, albeit to varying degrees.[35]
A defining factor of the PPP’s mix of policies was to identify ‘different groups within the economy’[36] to which the policies should apply to varying degrees and at different times.
Four groups were identified, they include the competitiveness-at-risk group; the general energy users group; the on-farm agriculture group; and the ‘others’ group. They are defined as follows[37]:
1 The Competitiveness-At-Risk Group
This group comprises sectors of the economy and particular industries that would find adjustment difficult if they were expected to face a cost on emissions in the first commitment period. For these firms, it may be a choice of closing, changing location to a country with no controls on emissions (carbon leakage), or reducing staff or production in the short-term to compensate for the increased costs.
2 The General Energy Users Group
This group reflects businesses, organisations, institutions and households for which energy (electricity, gas, coal or transport fuels) is a cost, but may not be a major cost in their operations. As a group, it represents about one quarter of New Zealand’s greenhouse gas emissions but about two-thirds of its CO2 emissions. Most New Zealanders are in this group. For the purposes of this policy discussion they are deemed to be ‘not-at-risk’.
3 On-Farm Agriculture
Agriculture is a major contributor to the New Zealand economy and also contributes 55 percent of New Zealand’s greenhouse gas profile through the emissions of methane and nitrous oxide. While agriculture meets the criteria for being in the Competitiveness-at- risk group, there are other factors that make it different, including:
• farmers currently have no clear way of reducing methane and nitrous oxide other than through reducing stock numbers;
• measuring and monitoring methane and nitrous oxide greenhouse gas emissions from on-farm agriculture is technically very difficult.
4 ‘Others’ Group
These are sectors where factors such as a lack of cost-effective abatement options (synthetic gases sector) and/or emission measurement difficulties (the waste sector) affect their ability to cope with a cost on emissions in the short term.
In terms of the importance the various groups of emitters have for the contribution to New Zealand’s overall greenhouse gas emissions, some ‘re-grouping’ could be considered. In addition to energy users (second group) and farmers (third group), there are ‘car users’ that could be identified. The three sectors of agriculture, energy and transport make up for virtually all greenhouse gas emissions. The way they are subjected to policy measures determines how successful the domestic climate change policy will be.
Greenhouse gases emitted by the agricultural sector are predominantly nitrous oxide from the soil processes of denitrification and nitrification and methane generated during the breakdown of food by micro-organisms in livestock (enteric methane). A study by the Ministry of Agriculture and Forestry[38] identified some practices and technologies suitable for reducing emissions from agriculture. Among the findings of the study are:
Basically, there are two options to reduce greenhouse gas emissions. One is to change farming practices, the other is to cut animal numbers. Either option or a combination of the two methods could guide a climate change policy. Although much of the research has yet to be done, it would be possible for Government to define the contours of a long-term agricultural policy. Part of such definition would be to clarify the responsibilities of on-farm agriculture[39] and to outline a system of greenhouse taxes to guide structural changes.[40]
The resistance of the Federated Farmers of New Zealand (FFNZ) against any attempt to define an agricultural climate change policy has been considerable and successful.[41] Opposed to the ratification of the Kyoto Protocol, the FFNZ has argued for a national interest analysis for the implementation of the PPP. However, the national interest analysis ‘cannot take into account the impact of the Government’s preferred policy options unless the Government makes known how it intends to honour … [its] … commitments under the Kyoto Protocol’.[42] This argument assumes that the PPP provides no clear indication as to what responsibilities the agricultural sector may face.
Such criticism is, in part, justified. The PPP gives no guidance other than stating that ‘[t]he Government proposes to exempt the on-farm agriculture sector from a price on non-CO2 emissions during the first commitment period, at least’.[43] The only commitment would be to voluntarily support research efforts into climate change mitigation efforts and a prospect of a research levy in the event that too little funding is made to support such research.
In essence, farmers are exempt from participating in the implementation of Kyoto obligations. This also means that fifty percent of New Zealand’s greenhouse gas emissions would not be accounted for. Reductions would have to be made in the area of carbon dioxide emissions.
A first step towards energy efficiency was taken with the adoption of the EEC Act. Its purpose is ‘to promote, in New Zealand, energy efficiency, energy conservation, and the use of renewable sources of energy’.[44] Section 6 of the Act lists several ‘sustainability principles’ requiring energy providers to take into account the social and economic wellbeing of communities and future generations as well as the maintenance and enhancement of the environment. Section 10 requires the Minister of Energy to prepare a NEECS (mentioned above); sections 21 and 22 establish the Energy Efficiency and Conservation Authority (EECA) to ‘encourage, promote, and support energy efficiency, energy conservation, and the use of renewable sources of energy’. The EEC Act meets the general commitments of Article 2 of the Kyoto Protocol.[45] However, it does little to meet the Kyoto targets and timetable. It takes a promotional, rather than regulatory approach leaving any specific measures to further policies and/or regulations.
The NEECS was released in 2001. It sets out six goals including the:
The overall target of the NEECS is to achieve a 20% improvement in energy-efficiency and a substantial increase in New Zealand’s renewable energy supply by 2012. To implement its goals and targets, the NEECS identifies five ‘sector programmes’ for central and local government, energy suppliers, industry, buildings, appliances and transport. These programmes include detailed descriptions of energy saving measures; energy efficiency measures; ‘minimum energy performance standards’ for appliances; and best practice performance standards in the building industry. However, none of these programmes and measures are regulatory. They cannot be implemented other than by providing incentives, education initiatives or promotional activities. So far, no financial arrangements have been made.
The PPP pointed out that
(t)he Ministry for the Environment and the Energy Efficiency and Conservation Authority (EECA) estimate that, if all programmes were adequately funded, NEECS could contribute an emissions reduction totalling 20 million tonnes in the commitment period 2008 to 2012.
However, such optimism is based on the assumption that there will be adequate funding and sufficient volunteers.
For a climate change strategy to meet the Kyoto target a policy based on mere expectations is not good enough. Essentially, the current energy policy is a no-regret measure rather than a reliable means to reduce greenhouse gases.
In December 2002, the Government released the NZTS.[46] The NZTS has been developed over a period of three years and forms part of the PPP.[47] Chapter 9 of the NZTS states that the
(t)ransport policy will reflect New Zealand’s commitment to energy efficiency, and to the Kyoto Protocol and the Framework Convention on Climate Change, and will recognise the role transport plays in meeting this commitment.
The overall purpose of the NZTS is described as follows:
By 2010 New Zealand will have an affordable, integrated, safe, responsive, and sustainable transport system. To ensure that transport is underpinned by the principles of sustainability and integration, transport policy will need to focus on improving the transport system in ways that enhance economic, social and environmental well-being, and that promote resilience and flexibility. It will also need to take account of the needs of future generations, and be guided by medium- and long-term costs and benefits.
The NZTS aims for a general shift to a ‘multi-track’ transport system – emphasizing equality between roads, railways, bicycle tracks and footpaths – as opposed to the present road-culture. Currently, private car transport counts for about 40% of New Zealand’s carbon dioxide emissions.
The NZTS is complemented by the Land Transport Management Bill 2002 (NZ) introduced into Parliament on 3 December 2002. The Bill is portrayed as
the biggest change since the late 1980s. For the first time, an integrated, long-term approach will be able to be taken to land transport funding and management, with more emphasis on social and environmental needs.[48]
The Bill changes the direction of public funding, but not the direction of the transport sector itself. To this end, it is merely promotional rather than prescriptive.
Although the long-term implications of the NZTS and the Land Transport Management Bill 2002 (NZ) may be considerable, both fall short on setting emission reduction targets. There are, at present, no carbon taxes for petrol, nor are there plans for stricter car emission standards or pollution control devices (such as catalytic converters). New Zealand’s permitted car emission levels are probably the highest of all OECD-countries.
In conclusion, the three sectors of agriculture, energy and transport are barely targeted by domestic climate change measures. For the agricultural sector, there is a commitment to more research; for the energy sector, there is a commitment to energy efficiency; and for the transport sector, there is a general concern for its environmental impacts.
While the PPP’s general inclusion of these sectors[49] could be interpreted as a commitment to meeting New Zealand’s Kyoto obligations, no signals of enforcement and monitoring have been set. This is of concern as mere strategies or promotional legislation cannot ensure that the country’s Kyoto obligations are met. As long as there are no targets and timetables in relation to the first commitment period of the Kyoto Protocol, the ‘foundation policies’, described so far, will not lead to significant reductions of greenhouse gas emissions.[50]
Part 2 of the PPP specifies measures for the commitment period 2008-2012. Central to these so-called ‘new policies’ are ‘four issues around policy implementation’.[51] The first issue is to factor in the ‘foundation policies’; the second issue is to identify the four different groups.[52] The third issue is the timing and nature of a price on emissions; and the fourth issue is the use of carbon sinks.
Under the ‘new policies’ measures of emissions reductions can be introduced, however, they will not come into force before the beginning of the first commitment period (2008-2012). Moreover, any such measures will be an indirect nature (economic instruments). The international experience suggests that indirect measures such as subsidies, voluntary agreements or promoting environmental awareness take a long time to have measurable impacts and are difficult to monitor.[53] Their reduction impacts are not likely to materialise within the first commitment period.
With respect to the four groups in the economy, the PPP aims for designing policy packages that meet the specific needs of each group and provide specific incentives to change behaviour. Competitiveness-at-risk-groups will be fully or partially exempt from emission charges or invited to enter NGAs. Similarly, the on-farm agricultural sector will be exempt from the emission charges, and invited to invest into research on reduction measures.
Only the general energy users group will be subject to a price on emissions. Specifically, this group will face an emissions charge approximating the international price of carbon, capped at NZ$25 per tonne of CO2 equivalent. However, the Government will retain the option of introducing emissions trading if the international market is ‘functional’ and if the world price of carbon is reliably below NZ$25 per tonne of CO2 equivalent. In practice, the issue of a reliable price will depend on the availability of future trading and other financial derivatives.[54] Further specifications and implementation measures have not yet provided. However, the PPP makes it clear that business and individuals have many options for reducing their emission levels in an efficient and cost-effective way. Business, for example, could pass on costs to the consumer.
The concerns for the new policies are basically the same as for the (current) foundation policies. They are too weak in their approach and too difficult to monitor. Economic instruments and indirect measures must be guided by enforceable principles to be successful.[55]
The PPP is, however, committed to the promotion and monitoring of forest sinks. In an attempt to maximise their value for the New Zealand economy, the Government will retain ‘sink credits and their associated (capped) liabilities, at least in the first commitment period’.[56] This will be further discussed below.
Although not expressly stated in the PPP, the stage of incremental legislative changes (which amounted to a profound alteration of the regulatory framework) should be identified. In essence, this stage marked the replacement of the Resource Management Act 1991 (NZ) (RM Act) by legislative measures to allow for more flexibility and market conformity.
At the beginning of 2002, a Cabinet paper contemplated a comprehensive approach where the mix of policy measures would be included in legislation. The preferred option, however, was a staged approach with some enacting legislation first (stage I) and subsequent legislation for the actual enforcement of the policy (stage II).[57] Consequently, the Government adopted a two-stage approach to implementing climate change policy that meets its Kyoto obligations.[58]
As mentioned, the Climate Change Response Act 2002 (NZ) was passed by Parliament on 18 November 2002. It contained minimum legal measures (not already provided for in existing New Zealand law) to allow New Zealand to ratify the Protocol.[59] The ‘staged approach’ still kept the option that the rejected ‘comprehensive approach’ offered, namely, the full use of the RM Act; however, this option vanished fairly quickly.
Despite strong support by environmental lawyers and climate change experts for using the RM Act, the Government was determined to exempt the climate change policy from the ambit of the RM Act. It cited ‘three problems’[60] with applying the RM Act:
1 The current lack of clarity regarding the role of the RM Act in addressing greenhouse gas emissions, which has led to the Environment Court hearing questions on whether regional councils should control greenhouse gas emissions, and by which means. These cases are resource, time and financially expensive for all parties.
2 The current potential for regionally inconsistent treatment of emitters, where one regional council places more stringent controls on emissions than a neighbouring region. In many cases, interested stakeholders are contesting these controls at the Environment Court (for example, the recent Environmental Defence Society v Auckland Regional Council and Contact Energy case). However, even Environment court decisions do not create consistency across regions, as only High Court decisions would provide precedent that would bind the Environment Court. Consequently, there are likely to be more expensive and time consuming court cases.
3 The future potential for emitters to face double controls on their emissions; through national climate change policies and through local RM Act controls. This will be the case for Stratford Power Station for example. It has conditions on its discharge to air permits that seek to mitigate greenhouse gas emissions, as well as those same emissions being addressed by the carbon charge and other climate change policy instruments (these are to be confirmed by Cabinet as part of the current suite of Cabinet papers on climate change).
In short, the Government took the view that applying the RM Act is too costly and prescriptive; in effect, contradicting its least-cost and laissez-faire philosophy.
In the late 1980s, the RM Act had been designed with a future climate change policy in mind.[61] Its purpose is to promote sustainable management; and its broad definition of ‘contaminant’ includes greenhouse gases. The RM Act would have allowed for comprehensive monitoring and enforcement of emissions targets for three reasons:
With its rejection of the RM Act as the key regulatory mechanism, the Government lost its most effective and appropriate tool. In addition to the basic concern of turning away from the values of democratic decision making embodied in the RM Act, the Government’s policy relies on implementation mechanisms that – in contrast to the RM Act – appear ill-equipped to take into account the range of consequences that flow from these implementation decisions.
Beginning in 2002, legislation was prepared to exempt greenhouse gases from the application of the RM Act and specifically remove reduction requirements. Late 2002, Cabinet approved a paper that reasoned:
An amendment to the RM Act is proposed that would remove requirements to consider the effects of certain discharge-to-air activities on climate change. This is in recognition that climate change is a global and national issue and that there is a need for clear and consistent treatment of activities between regions. Cost savings for councils and applicants are envisaged. [65]
The resulting Resource Management (Energy and Climate Change) Amendment Act 2004 (NZ) came into force on 2 March 2004. This act recognises central Government’s preference for national co-ordination of controls on greenhouse gas emissions. It gives direction on how to consider climate change and energy matters in RM Act planning and decision-making, but specifically excludes provisions for regional authorities to develop, monitor and enforce nationally consistent standards for greenhouse gas emissions.
In October 2004, the Resource Management Act Resource Management (National Environmental Standards Relating to Certain Air Pollutants, Dioxins, and Other Toxics) Regulations 2004 (2004/309) (NZ) (NES) came into force.[66] Sections 25, 26 and 27 relate to the discharge of greenhouse gases from landfills, and regulate the way in which greenhouse gases can be discharged from a landfill. Pursuant to section 27, no person may discharge gas from a landfill unless that gas is flared or used for electricity generation. The NES does not contain regulations pertaining to the emission of greenhouse gases from other sources. Given the lead up to the first commitment period, this omission can be fatal as there is now legislation in place for the control of greenhouse gas emissions from sources such as industry, transport, energy and possibly agriculture.
Finally, the Climate Change Response Amendment Bill 2005 (NZ) amends the Climate Change Response Act 2002 (NZ) to ensure continued compliance with New Zealand’s obligations under the Kyoto Protocol. The Bill deals with New Zealand’s Kyoto Protocol Registry, and creates a new mechanism (Emission Reductions Credits) as an incentive for landowners to create permanent forest sinks.
With these three legislative measures in place, any prospect for legal enforcement of greenhouse reductions is unrealistic. Achieving the Kyoto targets is becoming a matter of persuasion and good will.
The current climate change policy is limited to specific measures. They include a carbon tax, NGAs, projects to reduce emissions, sink credits, and policies to discharge of synthetic gases.
The Government first announced its intention to implement a carbon tax in 1994. At that time, the Government stated that the carbon tax would apply across the economy, but not to agricultural methane (CH4) and nitrous oxide (N2O) emissions, and that ‘it would approximate the international price of emissions, but be capped at $25 per tonne’.[67] The carbon tax is quite possibly the key specific climate change policy - it is certainly the most widely publicised.[68]
The two main reasons that the Government cited[69] for imposing the carbon tax are –
1 in order to tackle climate change, the environment needs to be taken into account in the economic choices that all New Zealanders make; and
2 it will enable New Zealand to move to full emissions trading once international markets begin to mature.
The carbon tax ‘is not just about caring for the environment. It also represents prudent economic management – anticipating change and making provision now to position the NZ economy to best advantage’.[70]
In May 2005, the Government announced that the carbon tax will start on 1 April 2007, and will be set at $15 per tonne of CO2 or equivalent. This rate will apply until 2012 unless the international price diverges substantially from this on a sustained basis. The impact on the typical NZ household will total about $4 per week for electricity, petrol and other fuels. At $4 per week, the average person will hardly notice an increased expense, let alone change their habit or choice of lifestyle in order to avoid it.
The Government announced the NGA policy in 2002, whereby large, energy-intensive businesses whose international competitiveness would be threatened by a carbon charge have the option of entering into a NGA with the Government. This is a binding agreement that commits the firm to moving towards world’s best practice in managing its greenhouse gas emissions. In return, the Government provides a full or partial exemption from the emissions charge.[71]
Recently, the Government conducted a review of the operation of the NGA policy.[72] Cabinet released the Minute of Decision on this review in April 2005.[73] The main conclusions of the review were that the time required to complete an NGA is significantly greater than foreseen and there is a significant risk that an NGA will not be completed by the time the carbon tax is introduced. The policy improvements aim to assist in achieving completion of the majority of NGAs by mid-2006.
There are two criticisms of the NGA: ‘Firstly, the quantitative criteria to establish NGA eligibility are relatively high, with the effect that even many energy intensive firms tend to qualify.’[74] The second criticism is that establishing world’s best practice in emissions management is complicated and subjective. Such practices also need to be regularly updated to keep up with technological advances. However, examples of world’s best practice for specific applications can be found, for example, the Best Available Control Technology in California.
At the time of writing, the Crown had concluded NGAs with two firms (the NZ Refining Company and Oceana Gold); moreover, applications to negotiate NGAs had been received from 14 other firms. They represent the core of NZ’s large industrial energy users facing international competition and consume approximately 55% of the electricity used by NZ industries.[75]
Next to NGAs, the Projects To Reduce Emissions programme is the main policy measure to encourage reductions of greenhouse gas emissions. For an initiative to qualify as a project it must achieve quantifiable reductions (a minimum of 10 000 tonnes of CO2 equivalent in the first commitment period) beyond what would otherwise occur. Projects must also be additional to ‘business-as-usual’, that is, the project owner must demonstrate that without the award of emission units the project would not otherwise proceed. To date, emission units have been awarded to three commissioned wind farms and to the development of ten other wind farms, two co-generation projects, six bio-energy projects, five landfill gas projects and twelve small hydro projects.[76]
Emissions trading, as set out in Article 17 of the Protocol, provides for Annex 1 Parties to acquire units from other Annex 1 Parties and use them towards meeting their emission targets. Eligible projects are awarded emissions units, or ‘carbon credits’, which are internationally tradable. A number of NZ firms have entered negotiations to forward sell emission units, awarded under the Projects to Reduce Emissions programme, to European buyers. At the end of 2004, the price on the international market was around $NZ15 a unit. As mentioned earlier, nothing has driven New Zealand’s motives more than the prospect of selling emission units on the international market.
Among the negative consequences that NGAs and Projects may have, is the creation of new confusions. By exempting greenhouse gases from the RM Act, the Government has introduced an artificial distinction between greenhouse gases and other pollutants covered by the RM Act. This may lead to practical implementation problems in the general form of companies, who have entered NGAs or Climate Change Projects, claiming that regional council decisions under the RM Act are inconsistent with agreements made with the national Government. Companies may also question the motivation of regional decisions, asserting that although on their face they address only non-greenhouse gas emissions, their ‘real’ motive is to limit greenhouse gases through limitations on other pollutants.
Sinks are any natural or anthropogenic system that absorb and store greenhouse gases (mainly CO2). The Government has identified growing forests as the primary source of carbon sinks in New Zealand. Carbon accumulated in some forest sinks during the first commitment period will be recognised and traded (‘sink credits’) in international or domestic emissions trading markets. Conversely, the Government has imposed ‘conditions on deforestation, and “debits” on harvesting trees that received credits’.[77] The annual planting rate of forest sinks decreased during the mid-1990s and has not returned to 1990 levels.[78] The Government expects that forests planted after 1990 will absorb up to 100 million tonnes of CO2 in the period 2008 to 2012.[79]
To be credited with ‘forest uptake’ of CO2, a country must have a correct forest inventory in place by 2007[80] and only direct anthropogenic CO2 uptake is to be counted.[81]
In recognition of the forest sector’s role in creating the sink credits, the Government and the sector negotiated the Forest Industry Framework Agreement (FIFA)[82] to recognise the ‘sector’s significant contribution to New Zealand’s climate change initiatives’. Through the FIFA, the forestry industry would seek to address issues surrounding the Government’s retention of carbon sink credits and their associated liabilities by ensuring there were market based incentives for continued planting.
In 2004, it became clear that the industry as a whole had difficulty in accepting FIFA, because of issues around deforestation and carbon credits.[83] As a result, in 2005 the Government developed the Forest Industry Development Agenda (FIDA), a new relationship between the forest and wood processing industry and the Government.[84] FIDA is a separate agreement from the proposed FIFA and does not concern carbon policy issues.
In developing the FIDA and shelving the FIFA, the Government surrendered to the forestry industry’s resistance to policies to address New Zealand’s Kyoto obligations. At the time of writing, no resolution of the controversial issues within the proposed FIFA had been reported.[85] The Government has made sure that economic, as opposed to environmental, policy has been accepted by industry; thus, the priority for resolution of environmental policy is clearly secondary. Once again, it seems that the economic aspects of what was to be an ‘environmental’ policy have taken precedence over environmental issues, that is, greenhouse gas emissions reduction. In this respect, it is difficult to predict a significant reduction in greenhouse gas emissions in the forestry sector – either through the use of sinks or changes to practices. This will definitely affect the long-term scenario (the second commitment period) once afforestation rates decrease.
There are currently no readily available, practical ways for farmers to significantly reduce emissions, apart from the undesirable one of reducing stock numbers.[86] For this reason the Government was clear from the beginning that agricultural emissions would not be taxed in the way that emission from fossil fuels and industrial processes would be.[87] The given explanation is that taxing cannot be expected for a sector that ‘has no practical options’ for cutting emissions.[88]
There is little persuasiveness in such statements considering that:
Despite this knowledge, the Government has never contemplated the imposition of a reduction regime on the country’s biggest export earner. A perusal of climate change literature reveals that there are several ‘initiatives’ and ‘research projects’ taking place in the agriculture sector to investigate plausible solutions to the growing emissions problem.
One such research project is the Memorandum of Understanding for the Partnership Agreement On Research Into Agricultural Greenhouse Gas Emissions signed by the Government and agriculture sector groups in February 2004.[89] This industry led research strategy aims to develop safe, cost-effective greenhouse gas abatement technologies that will reduce N2O and CH4 emissions from livestock by at least 20 percent by 2012. Another project is the Pastoral Greenhouse Gas Research Consortium.[90]
The Government comments
individually, none of these options provides a simple, universally applicable mitigation technology. However, taken collectively, and if widely adopted, they should at the very least defer any rise in New Zealand’s agricultural emissions over the next 10 years.[91]
Is a suspension of a rise in greenhouse gas emissions from the largest contributing sector good enough? In order to meet its Kyoto obligations, the Government should be mandating a decrease in emissions. Instead, it seems to have accepted that it will not be possible, technologically or otherwise, to reduce emissions from the agricultural sector.
Domestic transport contributes 42% of New Zealand’s total CO2 emissions, and accounts for 40% of the country’s total energy use.[92] In 2003, the Vehicle Emissions Policy initiatives were announced. In that same year, the Minister of Transport (MoT) signed the Land Transport Vehicle Exhaust Emissions Rule 2003 (33001), which requires vehicles entering NZ to be manufactured to an approved emission standard.
In 2004, the MoT released a discussion document proposing a vehicle exhaust emissions screening programme designed to target polluting vehicles. Despite this opportunity for the Government to control – and reduce – greenhouse gas emissions, in April 2005 the MoT announced the Government’s intention to abandon the proposed emission test due to technical difficulties and increased costs.[93] Despite this, ‘the Government remains determined to reduce the harmful health and environmental effects of vehicle exhaust emissions’.[94] The abolition of emissions screening programmes is hardly the action of a determined government.
New Zealand’s climate change policy relies almost entirely on economic instruments as the means of reaching emission reduction targets. Although economic instruments have been used in environmental policy in New Zealand before,[95] their use in climate change policy is new. This section takes a closer look at the nature of economic instruments and their potential perceived effectiveness. It will also identify problems that the adoption of an economic instrument may bring, drawing on international experience and academic writing on the potential clash between environmental justice and the market mechanisms economic instruments rely on.
Economic instruments as a means of achieving environmental ends have become increasingly popular since the 1970’s when the OECD began to promote them.[96] The increased enthusiasm for the use of such instruments has arisen largely in response to the perceived deficiencies of a traditional regulatory framework. Known as the ‘command and control’ approach, regulation in an environmental context can prohibit certain activities or products, limit them, or make them conditional on fulfilling prerequisites, for instance by requiring a permit or prior notification. It also imposes sanctions for non-compliance.[97] The major advantages of having a regulatory environmental policy approach is that it is democratic, in that public participation is provided for, procedures are transparent and authorities are accountable.[98]
While public participation is seen as advantageous on the one hand, it is simultaneously disadvantageous in the costs such participation entails. The facilitation of allowing the public to play a part in making policy decisions can be costly in terms of administration and resources.[99] The traditional command and control model has also been met with criticism for its neglect of individual costs of pollution control and prevention.[100] Another criticism is that it does not provide incentives for innovation that would make reductions beyond that required by government.[101] Essentially, arguments against reliance on regulatory mechanisms rest on their inefficiency in achieving environmental goals in the most cost-effective manner.
Economic instruments are offered as cheaper, more flexible alternatives to government regulation. That is, they are said to ‘allow society to achieve the same environmental outcome at a lower cost or achieve improved environmental outcomes at the same cost’.[102] Because they are governed by the polluter pays principle, they promise to create incentives for improved technology, since emitters will be financially better off if they emit less.[103] Theoretically, they are more flexible, promoting a wider range of responses, and provide a source of government revenue.[104] Accountability to the public is transferred from the right to participate in the formative stages to the consumer’s right to choose between products. One writer states that ‘[e]conomic instruments harnessing market-determined consumer preferences may be appealing for their ability to circumvent the problems posed by the declining efficacy of traditional liberal-democratic institutions’.[105]
The OECD has classified economic instruments in five different categories; charges, subsidies, deposit refund systems, market creation, and financial enforcement mechanisms.[106] Of these, the PPP identifies charges, in the form of a carbon charge, and market creation, in creating tradable emission permits, as appropriate to New Zealand’s climate change policy. By employing such instruments, environmental policy is not so much deregulated as re-regulated.[107] The market is influenced by government policies and the mechanisms embedded in regulatory and administrative frameworks.[108]
1 Effectiveness
A survey by the OECD, some years ago, reported that in approximately 90% of cases, actual data relating to whether economic instruments had the desired incentive impact was inconclusive or unavailable.[109] However, there are examples of the potential for such instruments to achieve environmental goals. Two such examples of this type of achievement are the United States SO2 allowance trading regime and New Zealand’s transferable quotas in commercial fishing.
The United States introduced SO2 allowance trading in its 1990 Clean Air Act amendments, and compliance with a sectoral cap was required from 1995. Until 2000, the programme involved only large coal-fired electric utilities (and some voluntary participants), but since then it has encompassed almost all utilities. Under the scheme, participants can ‘bank’ unused allowances to save for use at a later stage, when compliance becomes more difficult, or to sell when the market price for SO2 allowances is more favourable.[110] This creates an incentive for participants to reduce their emissions below their allowed amount. Non-compliance is easily discovered as emitters are required to submit monitored data, from a standardised monitoring system, four times a year. High monetary penalties exist for exceeding allowances,[111] and allowances for the next year are deducted accordingly. Participants can receive bonus allowances from a pool controlled by the Conservation and Renewable Energy Reserve for saving demand-side management energy or generating renewable energy.
Despite the short time it has been in operation, the US programme has been hailed a success, and was cited as such in the DPOS. A 1994 estimate put the cost of SO2 trading compliance at US$2.0 billion per year, compared with US$4.9 billion for a traditional regulatory approach.[112] However, there is no particular reason to believe that the tradable allowance feature has been relevant to the ability of the acid rain program to achieve its stated environmental goal of reducing US utility plant SO2 emissions by 50%.
Rather, the function of allowance trading has been to substantially reduce the cost of compliance over what it would have been if the nominal emissions limit assigned to each utility unit, covered by the program, were required to be met at each such unit.[113]
New Zealand has had its own trading mechanism since 1986 in the Individual Transferable Quotas (ITQ) regime.[114] Commercial fishers were allocated ITQs in 1986, and they may be transferred to any party with some exceptions.[115] For instance, holders must be New Zealand residents or companies with less than twenty five per cent foreign ownership,[116] and there are minimum quota holding provisions to ensure feasibility of monitoring.[117] However, most trading is through leasing, rather than sale.[118] An ITQ represents a percentage of the total allowable commercial catch, so total measures of allowed fishing changes from year to year. The system is monitored largely on paper records, requiring a 10 per cent increase in staff over the previous system.[119] If anomalies are detected in the records, fisheries officers investigate. In addition they carry out random inspections of various premises and vessels. There are high penalties for non-compliance, including up to NZ$250 000 in monetary damages and forfeiture of quota, vessels and equipment.[120] This has allowed the maintenance of the system’s integrity.[121]
As a means to achieving environmental ends, economic instruments in the form of trading systems have the potential to be successful, as the two models above illustrate. However, both models have encountered difficulties which are representative of problems likely to arise under a climate change instrument that ought to be given due consideration. Adopting an economic instrument to achieve Kyoto obligations may entail some problems that are significantly glossed in the various stages of policy development. There are legitimate concerns about the equity of economic instruments and their ability to achieve policy ends justly. Concerns include the inability of markets to follow environmental objectives, the loss of the public’s right to participate in environmental decision-making, lack of accountability and threats to social justice.
The potential for such problems to eventuate under the imposition of an economic instrument is merely foreshadowed at this point. It is clear though that the Government’s rejection of the RM Act is a major mistake. Economic and regulatory mechanisms are not mutually exclusive, but complementary to another. Or, in the conclusion of an analysis of current trends in North America and Europe: ‘Use of market mechanisms as a means of environmental policy will only be supplemental and not replace more conventional environmental regulation techniques such as planning, impact assessment and pollution licensing.’[122] Modern environmental policies are characterised by regulatory frameworks to guide markets, not merely to follow them.
This concluding section looks at an oxymoron. Is it possible for a Party to meet the various requirements under the Kyoto Protocol and yet be in breach of the primary obligation?[123]
To be sure, the Protocol’s compliance regime is complex and still evolving. Any Party is facing the difficulty of staying compliant under the Protocol despite its complexity and the ambiguity of international rules guiding it. It is certainly fair to say that the risk of non-compliance with the Protocol is high compared to many other treaty areas.
In New Zealand, the development of climate change policies has been incremental and steady, but without focus on the country’s target. There are no mechanisms to enforce, monitor and control emission reductions. Such mechanisms were neither seen as necessary nor as cost-effective. Minimizing costs and maximizing profits seem to have guided the New Zealand approach all along.
The declared ‘primary’ objective of the climate change policy is ‘to meet New Zealand’s initial and future emission commitments at least cost’.[124] The least-cost approach is predicated upon the international acceptance of the net approach and an international tradeable emissions market where sinks can be traded. The basic assumption is that a least-cost approach ‘could present a positive trade opportunity rather than threatening a negative economic impact’.[125]
The net approach is expected to be a great income earner. The Official Steering Group on Climate Change calculated ‘a projected value in the international market of (NZ)$10-30 per tonne, this may be worth $1-3 billion’.[126] New Zealand’s policy-makers are quite outspoken concerning the fact that internationally they have been ‘very advantaged, and negotiating purely out of economic self-interest’.[127] While the least-cost policy is likely to achieve the economic goals associated with the Protocol’s trading regime, there are severe doubts as to whether it also meets the Protocol’s environmental target.
Nothing in the current policy suggests that there will be any reduction of greenhouse gas emissions. From 1990 to 1999 these emissions have increased by nearly 20%.[128] By 2003, the increase stood at 22.5% above the 1990 level;[129] and by the time of the first commitment period (2008-2012) the increase will be over 40%.[130]
On the other hand, taking into account the actual and planned increase of planted forest estate since 1990, the calculation would allow for carbon credits under the Protocol.[131] The net approach makes all the difference to an otherwise complete failure to perhaps meeting the reduction target. However, the ‘perhaps’ may soon become a ‘possibly not’. The latest official report states a ‘substantial turnaround from the predictions calculated in 2003 (surplus of 55Mt CO2 equivalent) and 2004 (surplus of 32.6Mt CO2e)’. The reason for this negative turnaround is ‘an increase in projected emissions in the energy and industrial processes sector and a decrease in the removals via forest sinks’. The report also cites ‘previously unknown risks’ concerning the assumed sink effect of forests.[132]
The uncertainties pertaining to the measurements and definitions of sinks are not going to go away. The Kyoto Protocol has never stopped the International Panel on Climate Change (IPCC) and individual Parties from questioning the methodology, science and morality of the net approach. As early as 1997, the IPCC pointed out that ‘the error margins for the determination of sources and sinks are quite large’.[133] Inventories for sinks would have to operate with an uncertainty of 60%.[134] Despite such uncertainties and strong criticism of most countries and NGO’s, New Zealand won its battle for the inclusion of sinks in the Protocol.[135] However, the fact that the Protocol allows sinks to be used for meeting reduction targets, does not make the FCCC’s recognition of sinks[136] entirely obsolete. Sinks are options, but they have to be seen in the context of the overall aim to reduce greenhouse gas emissions. The onus of proof for their effectiveness is therefore on those parties using them.
Currently, New Zealand has no proof that its afforestation programme of 70 000 hectares per year will absorb any carbon emission increases. The science is not good enough, and even if removal effects do occur they are associated with growing forests and will be terminated once the forest stands are mature. Experts have always argued that sinks could, at best, only be regarded as a short-term policy option.[137]
To base an entire climate policy on planting trees is irresponsible and arguably against the rationale and spirit of the Protocol. To achieve the allocated reduction target, Annex 1 Parties may implement and/or elaborate policies and programmes, such as energy efficiency measures,[138] protection of carbon sinks and reservoirs, afforestation and reforestation activities,[139] sustainable forms of agriculture,[140] the promotion of research and development of technology limiting emissions,[141] and programmes to reduce emissions in the transport sector.[142] This list is illustrative, rather than mandatory, for the fundamental obligation to meet the reduction target. It would be insufficient to merely have such policies in place; they need to be implemented and monitored to meet the target.
New Zealand’s climate change policy does include all of the policy areas mentioned in Article 2(1)(a), that is, energy efficiency, carbon sinks, agriculture, research and transport. However, as shown in this article, none of them has reached a degree of enforceability that would allow for the conclusion that New Zealand’s target will be met.
This puts all hopes on afforestation. One could argue that the incentive for increasing the forest assets is, in fact, strong. After all, afforestation is driven by economic self-interest, not environmental concerns. The downside is, however, its total reliance on the market. If the forest industry does not continue to be profitable or if the international trading system does not emerge as envisaged, then the sink option fails and the entire climate policy is at risk.
The Protocol’s emissions trading regime itself carries severe risks. Trading in assigned amount units will be hugely complex, and the transaction costs will be high. While companies produce emissions and plant forests, governments have to meet their targets and obligations. Potential conflicts of interest need to be factored in, and there is no guarantee that the market will respond as expected. Moreover, the economic success of one party depends on the varying needs of other parties; again, there are no certainties here.
In conclusion, the Government does not control the participants in New Zealand’s economy, rather, it depends on their good will. Without a clear regulatory framework, compliance becomes a matter of good luck.
Fundamentally, New Zealand’s approach to compliance raises an important moral issue. As an Annex 1 country, New Zealand has a special responsibility for combating climate change that a developing country does not have. New Zealand’s low cost, net approach not only questions this special responsibility, it perversely turns it to an economic advantage. Any advantage of using sinks for international trading should be resting with developing countries, not developed countries; the use of sinks should certainly not operate against developing countries. By limiting its own climate change obligations by providing sinks, New Zealand not only discharges positive reduction duties, it also competes (using its own competitive edge as a developed and resource rich country) with developing countries in the market of selling emission credits.
Taken to its full logic, the New Zealand compliance approach is to make dollars with its outrageously high per-capita production of greenhouse gases – both at the particular expense of developing countries.[143] Whether New Zealand’s response to its climate change obligations amounts to non-compliance is, at this stage, a matter of judgement.[144] Spirit and morality of the Protocol would certainly suggest so.
For the international climate regime, the New Zealand experience offers a few important lessons. The first, and most obvious, is the need for tightening compliance procedures for Annex 1 countries. On closer inspection, the Protocol’s flexibilities may well appear as loopholes. This finding suggests a second lesson; namely, that the present rules need careful reviewing before new ones are set for the second commitment period.[145]
One key challenge of such review – the third lesson – is to adopt the principle of equal per capita shares to the atmosphere as the only fair basis for carbon trading.[146] There would, of course, have to be a transition period as adopting the per capita principle overnight would bankrupt Western economies and that would do nobody any good. But adopting the principle now would set clear rules for that transition. The success of the entire international climate regime may depend on it.
[*] Associate Professor of Law, Director, New Zealand Centre for Environmental Law, Faculty of Law, University of Auckland, k.bosselmann@auckland.ac.nz Valuable contributions from Greg Foote, US Federal Environmental Protection Agency, Washington DC, and Paula Bradshaw, Auckland City Council, are gratefully acknowledged.
[1] The Kyoto Protocol entered into force on 16 February 2005.
[2] Climate Change Response Bill; Explanatory Note (October 2002); www.climatechange.
govt.nz.
[3] Cabinet Policy Committee, Climate Change: Confirmation of Preferred Policy Package, October 2002, 1; www.climatechange.govt.nz (10 September 2005).
[4] D Bodansky, ‘The United Nations Climate Change Convention: A Commentary’ (1993) 18 Yale Journal of International Law 451, 518. New Zealand endorsed this approach for two reasons, ie, high methane emissions (which a gas-by-gas approach would draw attention to) and its policy of afforestation (allowing for sinks to mitigate carbon emissions).
[5] Kyoto Protocol, article 3(3).
[6] K Bosselmann, J Fuller and J Salinger, Climate Change in New Zealand: Scientific and Legal Assessments (2002) vol 1, 22.
[7] A Gillespie, Burning Issues: The Failure of the New Zealand Response to Climatic Change (1997) 48-51.
[8] Ibid 112.
[9] Ministry of Commerce, An Energy Baseline Forecast to 2020 (1992).
[10] Climate Change and Carbon Dioxide Policy: A Durable Response (working group on Carbon Dioxide Policy, Ministry for the Environment, 1996).
[11] A Gillespie, ‘Burning Follies: The Creation and Failure of the New Zealand Response to Climate Change’ (1997) 1 New Zealand Journal of Environmental Law 43, 46.
[12] Ibid.
[13] S Oberthür and H Ott, ‘UN Convention on Climate Change, the First Conference of the Parties’ (1995) 25 Environmental Policy and Law 144-156.
[14] Ministry for the Environment, Draft Supplementary Note to Minister Re: AGBM 8 (31 October 1997) 1.
[15] Associate Minister of Foreign Affairs and Trade, Late Paper to CIE (Climate Change Negotiations, 1997) 3.
[16] Ministry for the Environment, Kyoto Outcome: A Summary (17 December 1997) 2.
[17] P Brown, ‘Kyoto Fails Test on Climate Change’, Guardian International, 14 December 1997.
[18] Ministry for the Environment, above n 16, 2. See also A Gillespie, ‘Defending the Irresponsible: A Reply to Chapman and Gray’ (1998) 2 New Zealand Journal of Environmental Law 233, 234.
[19] Ministry for the Environment, Climate Change Domestic Policy Options Statement (January 1999, 9). Reducing emissions domestically is estimated to cost approximately $6 billion, between 1998-2020; ibid 35.
[20] Ibid 38.
[21] Ibid 39.
[22] Ibid 41.
[23] Policy, Climate Change and CO2 Policy (Working Group on CO2, 1996) 9.
[24] DPOS, above n 19, 83 - Glossary.
[25] DPOS, above n 19, 83 – Glossary.
[26] DPOS, above n 19, 48.
[27] Department of the Prime Minister and Cabinet, Climate Change. The Government’s Preferred Policy Package. A Discussion Document (April 2002).
[28] Ibid 3.
[29] Ibid.
[30] Ibid 8.
[31] A project is described as ‘a specific activity aimed at delivering defined reductions in greenhouse gas emissions, in return for an incentive from the Government. The incentive involves the provision of funds or allocation of emissions units, which are of value to the firm directly if it has an obligation under emissions trading, or the units can be sold.’; ibid 15.
[32] An NGA is a contract between the Government and a firm qualifying as a ‘competitiveness at-risk’ firm. It entails voluntary steps towards international best practice operations in return for an exemption from a carbon charge.
[33] Proposed for the first commitment period and applicable to the general users group. It would be capped at $25 per tonne of CO2 equivalent.
[34] This allows Government putting all profit from sink credits back into climate change related activities.
[35] Some areas of policy development are very much in their infancy stages such as the waste strategy, a defined research programme and the public awareness programme.
[36] PPP, above n 27, 3.
[37] PPP, above n 27, 6.
[38] Ministry of Agriculture and Forestry, Potential Management Practices and Technologies to Reduce Nitrous Oxide, Methane and Carbon Dioxide Emissions from New Zealand Agriculture (2001).
[39] For example, by employing the polluter-pays principle.
[40] An ecological tax system would tax emissions, but also subsidies low-emitting practices. The long-term effect would be a shift from livestock-intensive forms of farming to a low-impact, organic agriculture.
[41] See eg, the Federal Farmers Website www.fedfarm.org.nz.
[42] Federated Farmers of New Zealand, Submission to Foreign Affairs, Trade and Defence Select Committee on the National Interest Analysis Kyoto Protocol to the UN Framework Convention on Climate Change (8 March 2002).
[43] PPP, above n 27, 17.
[44] EEC Act, section 5.
[45] That is, the promotion of sustainable development by implementing energy efficiency policies and sponsoring research and development of renewable energy forms.
[46] www.beehive.govt.nz/nzts.
[47] PPP, above n 27, 19.
[48] Ministry for Transport, Policies – 3. Overview – Land Transport Management Bill; www.beehive.govt.nz/nzts/facts-ltmb.cfm.
[49] PPP, above n 27, 6 and 9 respectively.
[50] The PPP assumes that the ‘foundation policies’ will result in a reduction of one third of emission reductions required for new Zealand to meet its Kyoto obligations; this optimism has no basis in the facts.
[51] PPP, above n 27, 12.
[52] Both these issues have been discussed above.
[53] See, for example, E Rehbinder, ‘States Between Economic Deregulation and Environmental Responsibility’ in K Bosselmann and B Richardson, Environmental Justice and Market Mechanisms (1999) 93; M Bothe, ‘Economic Instruments for Environmental Protection: Introduction to the European Experience’ in K Bosselmann and B Richardson, Environmental Justice and Market Mechanisms (1999) 232; C Redgwell, ‘Privatization and Environmental Regulation: A United Kingdom Perspective’ in K Bosselmann and B Richardson, Environmental Justice and Market Mechanisms (1999) 257. See also B Richardson, ‘Trends in North America and Europe’ in K Bosselmann and D Grinlinton, Environmental Law for a Sustainable Society (2002) vol 2, 47.
[54] PPP, above n 27, 17.
[55] See above n 53.
[56] PPP, above n 27, 14.
[57] Climate Change: Next steps for ratification of the Kyoto Protocol (Cabinet paper POL (01) 227, 3 September 2001) 5. www.climatechange.govt.nz/resources/cabinet/pol-01-227.pdf (10 September 2005).
[58] The Government took this two-stage approach to ‘allow New Zealand to show environmental leadership by ratifying the Protocol in time for the World Conference on Sustainable Development (Rio + 10), while allowing time for full consultation on policy measures to manage New Zealand’s greenhouse gas emissions’: Legislation to Ratify the Kyoto Protocol, (Climate Change Working Paper, The Department of Prime Minister and Cabinet, October 2001) 4. www.climatechange.govt.nz/resources/reports/legislation-oct01.pdf (10 September 2005).
[59] New Zealand Climate Change Programme Kyoto Protocol – Ensuring Our Future: Climate Change Consultation Paper, October 2001, 19. www.climatechange.govt.nz/resources/ consultation/round/kyoto-protocol-future/ (10 September 2005).
[60] Ibid. See also Cabinet Policy Committee, Climate Change IV: The Role of the Resource Management Act, October 2002. www.climatechange.govt.nz/resources/cabinet/pol-02-146.pdf (10 September 2005).
[61] K Bosselmann et al, above n 6, 83-98; see also U Klein, ‘Integrated Resource Management in New Zealand – A Juridical Analysis of Policy, Plan and Rule Making under the RMA’ (2001) 5 New Zealand Journal of Environmental Law 1-54; D Grinlinton, ‘Contemporary Environmental Law in New Zealand’ in K Bosselmann and D Grinlinton (eds), above n 53, 19-46.
[62] RM Act s 5.
[63] The definition of ‘sustainable management’ incorporates the important ‘Brundtland’ – elements intragenerational equity and intergenerational equity, but also (parts of) the ethic of strong sustainability; see K Bosselmann, ‘A Legal Framework for Sustainable Development’ in K Bosselmann and D Grinlinton (eds), above n 53, 145, 157.
[64] National Policy Statements (NPS) are important regulatory tools to guide local authorities in their planning and consent procedures. A NPS reflecting New Zealand’s climate obligations could be easily installed; see K Bosselmann et al, above n 6, 102-108.
[65] Cabinet Policy Committee, above n 60.
[66] Section 43 of the RM Act allows the government (Ministry for the Environment) to promulgate national environmental standards.
[67] Hon Pete Hodgson Speech Announcing Carbon Tax Details, 4 May 2005, Document ID 22886 www.beehive.govt.nz/ViewDocument.aspx?DocumentID=22886 (10 September 2005).
[68] www.climatechange.govt.nz (at 10 September 2005).
[69] Ibid.
[70] Ibid.
[71] Hon Pete Hodgson Why Climate Change Matters (Address at Dairy Expo 2004, TSB Stadium, New Plymouth, 19 February 2004, Document ID 18968 www.beehive.govt.nz/ ViewDocument.aspx?DocumentID=18968 (10 September 2005).
[72] Office of the Convenor, Ministerial Group on Climate Change, Review of Operation of Negotiated Greenhouse Agreement Policy, April 2003 www.climatechange.govt.nz/ resources/cabinet/cab-05-164.html (10 September 2005).
[73] See CAB Min (05) 14/10, Review of Operation of Negotiated Greenhouse Agreement Policy www.climatechange.govt.nz/resources/cabinet/cab-min-05-14-10.pdf (10 September 2005).
[74] PricewaterhouseCoopers Ltd, Carbon Tax is Just the Tip of the Iceberg www.pwcglobal.com/Extweb/ncinthenews.nsf/docid/A617088AE6E5900CCA256FFF000CC6FA (10 September 2005).
[75] Office of the Convenor, Ministerial Group on Climate Change, Annual Report of Climate Change Implementation – July 2005 www.climatechange.govt.nz/resources/reports/annual-report-policy-implementation.html (10 September 2005).
[76] Ibid.
[77] www.maf.govt.nz/mafnet/rural-nz/sustainable-resource-use/climate.
[78] www.cliamtechange.govt.nz/policies/sinkpolicy.
[79] Ibid.
[80] The Protocol, article 5.
[81] www.unfccc.int.
[82] Hon Pete Hodgson, Forest Industry and Government on Track to Conclude Climate Change Agreement, 5 December 2003, Document ID 18557 www.beehive.govt.nz/ ViewDocument.aspx?DocumentID=22631 (10 September 2005).
[83] Hon Jim Anderton, $18M Investment in Forest Industry Development Agenda, 5 April 2005, Document ID 22631 www.beehive.govt.nz/ViewDocument.aspx?DocumentID=18860 (10 September 2005).
[84] Ibid.
[85] Ibid.
[86] Hon Pete Hodgson, Agreement Signed on Agricultural Greenhouse Gas Research, 5 February 2004, Document ID 18860 www.beehive.govt.nz/ViewDocument.aspx?DocumentID=18860 (10 September 2005).
[87] Ibid.
[88] Ibid.
[89] Ibid.
[90] MAF, A Pastoral Greenhouse Gas Research Strategy (2003) www.maf.govt.nz/mafnet/rural-nz/sustainable-resource-use/climate/pastoral-greenhouse-gas-strategy/ (10 September 2005). Partners in this Consortium are the dairy, sheep, beef cattle and deer sectors and fertiliser manufacturers.
[91] Ibid.
[92] See www.beehive.govt.nz/nzts/facts.cfm (10 September 2005).
[93] Hon Judith Tizard Associate Minister of Transport Media Statement, Dealing With the Harmful Effects of Vehicle Emissions, 27 April 2005 www.beehive.govt.nz/ ViewDocument.aspx?.
[94] Ibid.
[95] See Ozone Layer Protection Act 1990. See also Fisheries Acts 1983 and 1996.
[96] Bosselmann and Richardson, above n 53, 7.
[97] Rehbinder, above n 53, 93.
[98] Bosselmann and Richardson, above n 53, 2.
[99] B Richardson, ‘Changing Regulatory Spaces: Privatization of New Zealand Environmental Law?’ in Bosselmann and Richardson, above n 53, 209, 211.
[100] Rehbinder, above n 53, 93.
[101] Bosselmann and Richardson, above n 53, 3.
[102] Bosselmann and Richardson, above n 53, 7.
[103] Bosselmann and Richardson, above n 53, 8.
[104] Bosselmann and Richardson, above n 53, 8.
[105] Richardson, in Bosselmann and Richardson, above n 53, 211.
[106] Bosselmann and Richardson, above n 53, 7.
[107] Bosselmann and Richardson, above n 53, 8. See also Rehbinder, above n 53, 97.
[108] Bosselmann and Richardson, above n 53, 8.
[109] OECD, Managing the Environment; the Role of Economic Instruments, Paris 1994, 182-183, cited in W S Gumley, ‘Should the Environment Be for Sale? The Role of Economic Instruments in Resource Management’ (Conference Papers, Towards 2000 Conference Papers, unpublished, 1999) 9 (copy with the author).
[110] OECD, Lessons From Existing Trading Systems for International Greenhouse Gas Emission Trading (1997) 10.
[111] Ibid, 13/14. Penalties are cited as being US$2 500 per excess tonne of SO2, compared to the market price of around US$100 in 1996.
[112] Ibid, 7.
[113] Personal comments by Greg Foote, ‘Federal Environmental Protection Agency’, Washington DC, August 2003.
[114] Fisheries Act 1983.
[115] Fisheries Act 1983, s 28Q.
[116] Fisheries Act 1996, s 56.
[117] Fisheries Act 1983, s 28S.
[118] OECD, above n 107, 23.
[119] OECD, above n 107, 20.
[120] Fisheries Act 1996, Part XIII.
[121] OECD, above n 107, 22.
[122] Richardson, above n 53, 66.
[123] The Kyoto Protocol, article 3(1).
[124] DPOS, above n 19, 37.
[125] A Chisholm and A Moran, ‘A Perspective on the Potential Economic Impacts of Climate Change Policy in New Zealand’ (unpublished paper presented to Impacts of Climate Change Policy on New Zealand Incorporated, New Zealand National Committee of the World Energy Council, Wellington, 15 June 1994) (copy with the author).
[126] Quoted in R Parr, ‘Equity and the New Zealand’s Government’s Climate Change Domestic Policy Options Statement’ (2000) 4 New Zealand Journal of Environmental Law 49, 77.
[127] Ibid.
[128] Parliamentary Commissioner for the Environment, Creating Our Future: Sustainable Development in New Zealand (2002) 75.
[129] Office of the Convenor, Ministerial Group on Climate Change, Annual Report of Climate Change Policy Implementation (July 2004).
[130] Parliamentary Commissioner for the Environment, above n 128, 75.
[131] Bosselmann et al, above n 6, 46.
[132] Office of the Convenor, Ministerial Group on Climate Change, Annual Report of Climate Change Policy Implementation – July 2005, www.climatechange.govt.nz/resources/ reports/index.html (10 September 2005).
[133] Quoted in Gillespie, above n 18, 233, 237.
[134] IPPC Guidelines for National Greenhouse Gas Inventories (1996) Table A1-1.
[135] Thanks to the support of Australia, United States, Canada, Norway, Iceland and the Russian Federation.
[136] See Articles 4(1) and 4(2).
[137] Bosselmann et al, above n 6, 48. The issue of planting trees as a long-term obligation for future generations is another problem, but there are many more; see K Bosselmann, ‘Power, Plants and Power Plants: New Zealand’s Implementation of the Climate Change Convention’ (1995) 12 Environmental Planning and Law Journal 423-439.
[138] The Protocol, article 2(1)(a)(i).
[139] The Protocol, article 2(1)(a)(ii).
[140] The Protocol, article 2(1)(a)(iii).
[141] The Protocol, article 2(1)(a)(iv).
[142] The Protocol, article 2(1)(a)(vii).
[143] For a detailed discussion of the equity issues involved here see Parr, above n 126, 57-75.
[144] The possibility of breaching international law before the actual missing of the target has occurred is explored in K Bosselmann, ‘Power, Plants and Power Plants’, above n 137. For a general discussion of the criteria establishing a breach see I Brownlie, ‘The Relation of Municipal and International Law’ in I Brownlie (ed), Principles of Public International Law (5th ed, 1998).
[145] It must not be forgotten that the Kyoto target of –5.2% is hopelessly inadequate to protect the climate. Even if it is achieved without cheating it will make no noticeable difference in the first commitment period. Its value is more in the area of psychology and data collection leaving the challenge of making real gains for the second commitment period.
[146] This proposal has been worked through for carbon dioxide and has been known for around 10 years. Its implications for individual countries and the Kyoto regime can be studied under the Contractions and Convergence Scheme of the Global Commons Institute: www .gci.org.uk.
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