Climate change is a normal global process that occurs naturally, for example, when sea level and air temperature vary. This otherwise normal process is gradually being affected by the increase in greenhouse gases ch(“GHG”) being stored and released into the earth’s atmosphere as a result of human activity. Within New Zealand (“NZ”) and internationally, climate change has been affected by considerable increases of omissions of GHG resulting from fossil fuels burning, deforestation, livestock farming and other human activities. International concern led to the formulation of the Kyoto Protocol (“KP”) that New Zealand ratified in 2002. Many have criticised the NZ government for choosing to ratify the KP. This criticism has increased in view of recent statistics revealed in the government’s annual report on climate change policy implementation 2004/2005 (“the annual report”). What is the Kyoto Protocol? The KP legally came into force on 16 February 2005. It sets binding targets for signatory countries to the KP (“Parties”) by setting absolute national emission caps on GHG emissions as well as providing means for Parties to meet their commitments. Specifically, Parties are to ensure that their GHG emissions do not exceed an assigned amount, being 5 times 1990 GHG levels, during 2008 to 2012 (“the first commitment period”). The KP also sets a combined target for Parties to reduce overall emissions of GHG by at least 5% below 1990 levels in the first commitment period. Parties are to have made demonstrable progress towards achieving their commitments under the KP by 2005. How does it affect us? Under the KP, New Zealand is obligated to meet its commitments in the first commitment period or the government must take responsibility for the excess. This means obtaining additional emission units through the use of any of the KP mechanisms and/or emission units resulting from qualifying land use, land use change and forestry activities. The government may choose what proportion of its obligations will be met through domestic emission reductions and the proportion for which it will obtain emission units. Government policy The central elements of NZ government policy on implementation of the KP as confirmed in October 2002 include: • the introduction of the carbon tax as from 2007; • retention of ownership of emission units resulting from qualifying land use, land use change and forestry activities and assumption of (capped) liabilities arising from deforestation; • negotiated Green House agreements for firms and industries considered at risk; • projects to reduce emissions; and • measures such as research into reducing agricultural emissions, initiatives in the forestry, local government and business sectors. Recent government statistics reveal that for the first commitment period, New Zealand may have a net deficit of 36 million tonnes of CO2 equivalent. The government would need to offset this deficit by purchasing emission units from the international market. It is estimated that this could cost the November 2005 – January 2006 Page 3 of 4 © 2005 government between $375 million to $2 billion. The main reasons for the deficit is an increase in emissions from the energy and industrial processes sectors, and a decrease in removals of GHG through land use, land use change and forestry activities. Carbon tax The proposed carbon tax will be applied to production and importation of products known to result in GHG emissions, and also to human induced emissions of the same. Specifically excluded from the carbon tax, for at least the first commitment period, are agricultural emissions and products made from bio-mass including wood. The carbon tax is intended to be a transitional measure for exposing the New Zealand economy to the price of carbon. For the average household, the proposed tax will be reflected in an increase in the cost of energy and some products. In view of the recent statistics, there is to be a revision of objectives and the government’s policy approach which may result in changes to the government policy. It appears there is considerable opposition to the carbon tax and the recently established labour-led coalition government may not have the required support to bring it into effect. Significant uncertainty remains as to whether NZ will be in a position to meet its obligations under the KP in the first commitment period.