Wednesday, December 21, 2005

Kyoto: Buying our way out of trouble?

By now, everyone should know that rather than meeting our emissions reduction target under the Kyoto Protocol, New Zealand will exceed it - by 36.2 MTCO2-equivalent, according to the projected balance of units. So what can we do about it?

One option is to buy our way out of trouble - not by purchasing credits outright, but by using the Clean Development Mechanism. The Clean Development Mechanism (CDM) allows parties to the Kyoto Protocol to gain credit for reducing emissions in developing nations. The logic is impeccable: a ton of CO2 is a ton of CO2, and it doesn't matter whether it comes from New Zealand or Nauru, provided it is not emitted or balanced with a sink. And given that many developing nations use older, dirtier technology, equipment upgrades to reduce emissions there are often going to be cheaper than equivalent reductions in richer nations. We will therefore be able to get a greater reduction at lower economic cost. Or at least, that's the theory; in practice, the CDM hasn't been used much due to problems with certifying projects and uncertainties about the price of carbon. But now that seems to be changing:

A World Bank fund signed deals to buy pollution credits from two Chinese chemical companies for $930 million under a plan that lets richer countries meet commitments to cut greenhouse gas emissions by paying for reductions in poorer economies.


The two Chinese companies, Jiangsu Meilan Chemical Co Ltd and Changshu 3F Zhonghao New Chemicals Material Co Ltd, agreed to cut their greenhouse gas emissions by 19 million tons a year for an unspecified period, the bank said.

The World Bank will get credits at least until 2012, but are being cagey about the exact length of the contract. But that means they're getting their carbon for only US$9.80 a ton, and proportionately lower the longer the contract lasts. Conceivably, they could be getting it for only half that, if the contract goes for ten years.

The opportunity here ought to be obvious. US$10 per ton is at the lower end of estimated carbon prices, and with it looking increasingly likely that New Zealand will have to take responsibility for its emissions through the acquisition of credits, we ought to be looking seriously at it - though with more of a development and environmental focus. I am not suggesting for an instant that we should give up on efforts to actually reduce emissions (I think there is quite a lot we can do on that front) - but carbon trading is likely to be part of our solution. And if we're acquiring credits, I'd rather this was done in a way which helped people in need, rather than simply lining people's pockets...


Not saure if I would say impeccable - I am concerned that this is easy to cheat. for example lets say I have a factory and a monopoly in a country and I agree to reduce emissions.

I could start a very similar factory next door under another name (or maybe a friend does this) since the market hasn't changed size the other company expands to fill the gap. Or if production must remain the same (hard to do!) I could produce a company next door that does the same cheper (because of the lower compliance costs) or I could divert the production of GHG elsewhere. Anyway it would be a massive pain to do everything it takes to prevent cheating surely?

Posted by Genius : 12/21/2005 06:08:00 AM

We should also receive credits for net immigration - because people moving to NZ are no longer making CO2 in their country of origin.

(As I've pointed out elsewhere, increasing our population can, with proper urban planning, reduce our energy usage per capita by enabling viable public transport).

Posted by Rich : 12/21/2005 11:44:00 AM

Or we could simply implement Green Party environmental policy, particurlarly energy and transport:

Posted by Anonymous : 12/21/2005 11:57:00 AM

Yes, Genius, that's why we have monitoring.

Posted by Idiot/Savant : 12/21/2005 12:00:00 PM

I am not just concerned that it wont be monitored but also that it wont be able to be consistantly monitored or effectively monitored. It would seem to be pretty complex.

tax systems shouldnt becomplex or require massive amounts of monitoring otherwise you just create a fraud/tax evasion industry.

Posted by Genius : 12/21/2005 06:15:00 PM