From: Reuters
Published September 20, 2007 07:03 AM

NZ to bring in carbon trading, but still lags Kyoto

WELLINGTON (Reuters) - New Zealand said on Thursday it would bring in carbon trading over the next six years as part of efforts to reduce greenhouse gas emissions, though admitted even these measures will not meet its Kyoto Protocol target.

A mandatory cap-and-trade emissions scheme and incentives for tree planting to reduce emissions, blamed for global warming, will progressively be introduced from next year, if the government can get the measures through a parliament that rejected a carbon tax two years ago.

"An emissions trading scheme will create an incentive for businesses and households to make decisions that are good for the environment, and will discourage actions that cause greenhouse gas emissions," Finance Minister Michael Cullen and Climate Change Minister David Parker said in a joint statement.

The cap-and-trade scheme will restrict or cap groups or companies in the amount of a greenhouse gas they can emit. Those using less than their limit can sell excess credits.

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The first stage of the scheme will start next year with a free allocation of carbon credits to foresters, with the aim of increasing commercial forest area by 250,000 hectares (618,000 acres) by 2020.

Liquid fossil fuels would be brought into the trading scheme in 2009, electricity generators and industry the year after, and the country's economically key agricultural sector in 2013.

New Zealand is a signatory to the Kyoto Protocol, which requires it to reduce greenhouse gas emissions to 1990 levels by 2012. About half the country's emissions come from livestock.

Parker said latest estimates showed that by 2012 the country would produce 45.5 million tones more carbon than allowed under Kyoto, which at June 30 would cost the country NZ$704 million ($518 million), based on multiplying the excess emissions by end-June carbon market prices.

"My estimate is that what we have now announced we will pull this back to around 25 million tones or less, which compares favorably with progress in other countries," Parker said.

Most countries are lagging their Kyoto targets.

HIGHER COSTS

New Zealand's energy and consumer prices would rise because of the limits, although the impact on the economy was expected to be a contraction of only 0.1 percent over five years.

Under the proposed trading scheme, a set number of tradable credits would be issued, some free and others sold through a government auction. The credits could be traded on a specialized market or directly between parties.

New Zealand Exchange, the country's stock exchange operator, and a group of local companies in May proposed a carbon trading market be set up next year.

The Labor-led minority coalition government will still need support of smaller parties to pass the necessary laws for the scheme. A government plan to impose a carbon tax was scrapped in 2005 after it failed to find enough political support.

Parker said the aim was to produce 90 percent of New Zealand's electricity generation from renewable sources by 2025 from the current 70 percent level, and to halve transport emissions by 2040, through the widespread use of electric cars.

In February, the government said it would require 3.4 percent of all petrol and diesel sales to be biofuel, most likely ethanol and biodiesel, by 2012.

($1=NZ$1.36)

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