Skip to main content.

Decision 4: The New Zealand cap

While the decisions around a stabilisation goal, a global emission reducing strategy to achieve this goal, and rules by which activities are include, will have huge implications on NNW through their impact on the world price, the other major contributor to NNW will be the target that New Zealand signs up to. The factors that will influence this target will be the decision on the cap for developed countries as a group, and how New Zealand’s mitigation potential, given the activities deemed eligible under the rules, relates to other developed countries potential. The mitigation potentials of participating developed countries will be used to determine an appropriate sharing of responsibility of the aggregate cap – with the primary indicator of how much responsibility each country takes on being the relative costs of reducing emissions within their economy26.

The New Zealand economy is very emission intensive, with the second highest emissions/unit GDP in the OECD (a good proxy for ‘developed’ countries). If reducing emissions involves an absolute loss of production27, the impact on GDP of reducing emissions in New Zealand would be much more than other countries.

Figure 10: GHG emissions per unit of GDP (2004) (source: Skilling 2007)

See figure at its full size

It is however possible to substitute some forms of economic activity to others, which offsets to some degree the cost of reducing emissions. Furthermore, they may be technology that is readily available that can be adopted to reduce emission intensity per unit output. Unfortunately for New Zealand, relative to other developed countries the opportunities for substitutes and the availability of technology at reasonable costs are very limited, currently. This is primarily because of our unique emission profile.

Figure 11: GHG emissions – proportion of each type (source: Skilling 2007)

New Zealand’s emissions profile is quite different from the world average (and even more so when compared to other developed countries) - with about 50 percent of emissions coming from methane and nitrous oxide. As discussed, the opportunities to reduce these emissions are limited, and mostly very costly. New Zealand’s electricity generation is also unique – primarily from low emission (renewable) sources. This has two implications. First, the same extent of low cost emission reductions available to many developed countries from fuel switching (coal to gas) is not available here. Second, our electricity is much less emission intensive than other developed countries, so that conserving electricity or increasing the efficiency of the use of electricity gives smaller reductions in emissions in New Zealand than it does in countries with more emission intensive electricity. To illustrate how this unique profile increases the cost of reducing emissions, it is useful to refer back to abatement cost curves.

Figure 12: Indicative abatement costs28 - developed countries (solid line) and New Zealand (dashed)

See figure at its full size

The solid line represents an indicative average abatement cost for developed countries. Compare this profile with an estimate of the opportunities which New Zealand has (the dashed line and shaded boxes), which assumes that less than half of the efficiency gains can be realised through building insulation, water heating and CCS, and the quantity of emissions from methane are much greater, it is clear that for any given emission reduction quantity, the costs for New Zealand would be much higher. This cost profile will of course change, depending on the inclusion of various activities in the rules. For example, the inclusion of international aviation and shipping fuels will tend to increase our relative cost profile (given our tourism and trade industries) while the inclusion of total carbon accounting for soils may either increase or decrease relative costs. New Zealand should therefore be able to negotiate a lower target than other developed countries.

Given the importance of the rules on determining mitigation potential, it will however be important that, unlike with the Kyoto Protocol negotiations, New Zealand does not sign up to a domestic target before a decision has been reached on what activities are included within the framework.

26 Other factors will also be considered, including the level of investment being made in mitigation technology, and the amount of funding allocated to adaptation – in particular for developing countries. More work is required in this area, to determine exactly where New Zealand sits relative to other developed countries.

27 For example if companies close down, and both the capital and labour is shifted offshore

28 The real costs are unknown, however, the fact that emissions in countries such as the UK and Australia have stayed relatively stable since 1990, indicates that there were, and probably still are, more cost-effective abatement opportunities than in New Zealand.

[ |