Climate Change: The International Response
This is the third document in a series explaining international efforts to address climate change, New Zealand's response and the implications for agriculture and forestry
Two important international agreements reached in efforts to deal with the threat of global climate change are the United Nations Framework Convention on Climate Change (the Convention) negotiated by the world's nations in 1992, and the Kyoto Protocol, a further agreement negotiated in accordance with the Convention.
The Framework Convention on Climate Change
The objective of the FCCC is to stabilise greenhouse gas concentrations at a level that avoids dangerous human interference with the climate system. New Zealand is one of more than 160 countries that ratified the Convention. All the developed countries that ratified the Convention agreed to non-binding targets to return greenhouse gas emissions to 1990 levels.
The Convention, like some other recent international environmental agreements, embraces the "precautionary principle" which means that it promotes action despite scientific uncertainty as to the likely magnitude and impacts of climate change.
The Convention is designed so that it can be weakened or strengthened by countries in response to new scientific knowledge. The signatory countries, referred to as "parties to the convention", can modify their commitments by adopting "amendments" or "protocols" to the Convention. This is what occurred with the adoption of the Kyoto Protocol in 1997.
The Kyoto Protocol
Kyoto, Japan was the venue for the third Conference of the Parties to the FCCC in 1997 which resulted in an agreement called the Kyoto Protocol. The Kyoto Protocol is important because for the first time, developed countries agreed to legally binding commitments to reduce their greenhouse gas emissions. Under the Protocol, developed countries will reduce their collective emissions of greenhouse gas emissions to at least 5% below 1990 levels averaged over the period 2008-2012.
Individual country targets were set at different levels within this overall target, recognising countries differing capacities to reduce emissions. New Zealand's target is 0%, that is to stabilise emissions at 1990 levels on average during the commitment period. Other country targets ranged from an 8% decrease for the European Union to a 10% increase for Iceland. Australia negotiated an 8% increase.
As of March 1999, 84 countries including New Zealand and the United States have signed the Kyoto Protocol. The Protocol will become legally binding when at least 55 countries - representing 55% of developed countries C02 emissions - have signed and then ratified the Protocol. Seven countries - all small island or low-lying states - have now ratified the Protocol. New Zealand has yet to do so.
Key features of the Kyoto Protocol for Agriculture and Forestry
The Kyoto Protocol has a number of aspects of particular relevance to agriculture and forestry. These are explored below.
1. Methane and Nitrous Oxide included under the Protocol
The decision that the Protocol commitments would cover not only carbon dioxide, but also five other greenhouse gases including methane and nitrous oxide has significant implications for agriculture. Methane and nitrous oxide are important greenhouse gases in New Zealand, and agriculture is the major source of these two gases in this country. (See The Role of Agriculture and Forestry in Climate Change). The agricultural sector therefore has an important role to play in the strategy to meet New Zealand's Kyoto commitments.
2. Forests and other carbon sinks can count towards reduction targets
For the forestry sector in particular, a key outcome from Kyoto was the decision that carbon removals during the commitment period 2008-2012, by forests planted since 1 January 1990, can count towards meeting a country's target. This means carbon sinks can have an economic value. The way this is applied will vary between countries.
3 Emissions Trading Regimes can be established
The Kyoto Protocol enables countries to establish an emissions trading system should they wish to use the flexibility of such a mechanism in meeting their commitments.
Emissions trading is a mechanism that creates a market price for greenhouse gas emissions and allows greenhouse gas (GHG) units to be traded. An overall emissions target constrains the number of GHG units in the trading scheme and the total amount is then divided up between participants. The way that countries allocate these amounts will vary.
If one country (or sector, or producer) faces comparatively high costs to reduce greenhouse gas emissions it can decide that it is cheaper to buy GUG units from another country (or sector, or producer). Similarly, a country or individual producer that can reduce emissions at a low cost may decide to reduce emissions further than their allocated amount and be rewarded for doing so by selling GHG units on the open market.
Under the Protocol carbon removals by forests can create additional greenhouse gas units which can also be traded. An international emissions trading system is likely to be up and running by 2008, however there is still a lot of work to be done on design and implementation issues.
What does the Kyoto Protocol mean for New Zealand?
The Kyoto Protocol was an important step forward in the international effort to address the threat of global climate change.
New Zealand's emissions target will bccome legally binding when New Zealand has ratified the Protocol and it enters into force.
While New Zealand's commitment to return emissions to 1990 levels by 2008-2012 may not seem ambitious at first, carbon dioxide (C02) emissions during the period 2008-2012 are projected to be 39% percent above 1990 levels. This is only partially offset by projected reductions in emissions of non-CO2 gases. Overall New Zealand's emissions of greenhouse gases for this period, when converted into C02 equivalent figures, are estimated to be some 34 million tonnes above New Zealand's target level.
How New Zealand is Responding to the Kyoto Protocol
In early 1999 the Government released a consultation document, "Climate Change Domestic Policy Options Statement". The document outlines how the Government intends to approach the Protocol commitments.
A Least Cost Approach
The Government wants New Zealand to meet its emission reduction targets in a way that imposes the least cost on the economy.
For this reason, the Government intends putting in place a domestic emissions trading system, interfacing with an international system. Other market mechanisms are also envisaged. See next page.
Consistent with New Zealand's "open economy" and the fact that forestry is a private sector activity, the Government intends to allow sink "credits" to be freely traded on the international emissions trading market, so that they can earn the best possible price.
This means that other sectors emitting greenhouse gases cannot rely on the forest sector to single-handedly meet New Zealand's emission targets and therefore avoid taking steps themselves. Everyone will need to do their share either by buying emission "units" at the market price, or reducing emissions through other means.
Proposed Policy Options
Three options for an economic measure that will provide "price signals" from now until 2008 are currently being considered. These are:
- Forward trading in emissions - such trading is likely to function like a futures market;
- A pilot emissions trading programme (for large energy sector emitters) together with a
low level carbon tax for other C02 emitters, before implementing a
comprehensive domestic emissions trading programme. See also the discussion of Project
Level Trading below.
- A low level carbon tax (for the energy sector) before implementing a comprehensive domestic emissions trading programme.
Regardless of which option is chosen, other measures will also be required. These will be used either to increase the effectiveness of the market, or to ensure all greenhouse gas emitters, not just those included in the measures described above, are part of efforts to meet New Zealand's emission targets.
What are the implications of these proposals for agriculture and forestry?
Emissions trading an opportunity for forest growers
A domestic emissions trading regime would ideally cover all emission sources and sinks. The wider the coverage, the greater the potential for minimising the economic cost of reaching the emissions target.
The possible inclusion of the forestry sector in an emissions trading system offers a number of potential benefits to forest growers. The trading of carbon credits offers a significant economic return to forest owners. This may result in changing forest management practices, with greater emphasis on methods to enhance carbon removals and storage. A number of technical issues need to be resolved in considering this possibility.
What about Agriculture?
At this stage including agricultural sources in an emissions trading system would be difficult. The reason for this is that sources of agricultural emissions tend to be small and dispersed (for example, cows in a paddock) compared with a large industrial source. It is therefore, much more difficult to accurately measure emissions and the costs of administering and enforcing a trading regime could be excessive. In the longer term, however, it may become feasible to include some agricultural sources.
Measures that could be applied to Agriculture
The Government has stated that alternative methods and measures are also needed to ensure a similar incentive exists to reduce emissions in all sectors. The form these alternative methods may take now needs to be developed. These will include market based instruments and non market measures.
Non market measures include support for:
- Education and information
- Voluntary initiatives, such as codes of practice
- Research and development, for example joint ventures with industry.
Project level trading
One option the Government is considering is "Project Level Trading." Project level trading is where an investor can receive credit for emissions reductions that are derived from a project they undertake that is external to their regular business. Examples include:
- An industrial plant may invest in a project in a large piggery capturing methane for use
as a biofuel. The reduction in emissions would be credited to the investor while the
farmer would get some agreed benefit (probably financial)
- A power company investing in an irrigation efficiency project with a group of farmers leading to substantial reductions in overall energy usage.
Allocation Issues
During the commitment period 2008-2012 emissions from agriculture are projected to be 16 million tonnes of C02 equivalent below 1990 levels. An important issue for the sector is whether farmers get any "credit" for these emission reductions
There are still major issues to explore including how to take into account the significant uncertainties in the emission data for methane and nitrous oxide.
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