Wednesday, January 16, 2008

Climate change: a trans-Tasman bubble?

The Press reports that Australian climate scientists are pushing for New Zealand and Australia to jointly implement their Kyoto obligations as part of a trans-Tasman "bubble". Such bubbles are permitted under article 4 of the Protocol, and result in the participants having a joint target internationally; how they split it amongst themselves is their own concern (so for example the EU sets different targets for each of its member states, while pursuing an overall goal of an 8% reduction from 1990 emissions).

The advantage to New Zealand in such an arrangement is obvious: Australia has a generous Kyoto target (an 8% increase on 1990 emissions), and they are currently meeting it. By contrast, New Zealand is failing to meet its target of reducing emissions to 1990 levels, and is currently looking at having to purchase credits on the international market to cover the shortfall. By my quick back-of-the-envelope calculation, Australia's savings would neatly cover our shortfall, so we'd pretty much get instant compliance as far as the international community was concerned.

What's not clear is what the advantage would be to Australia. Yes, it would demonstrate commitment etc, but the credits Australia would be using to cover our excess emissions are worth money, and such a deal could effectively cost them up to NZ$1 billion. So there'd be a lot of dickering over price, and how much we had to pay them to cover us.

Questions of interest aside, there are other advantages, primarily in the form of a joint emissions trading system, and possibly other joint action as well. This will improve the operation of the ETS (such markets work better the more participants there are), and help ensure the price of carbon is "right" (rather than being distorted by many sellers and few buyers, for example). OTOH, implementation might be delayed due to Australia's previous foot-dragging, which would be a disaster for New Zealand.

Overall, I think this is an option worth seriously pursuing. But I expect the Aussies will be a lot less keen on it than we are.