NEW ZEALAND AND CLIMATE CHANGE

UNCLAS WELLINGTON 001009

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/ANP - DRICCI AND OES/EGC -SYOFFE
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ABENAISSA

E.O. 12958: N/A
TAGS: SENV ENRG NZ
SUBJECT: NEW ZEALAND AND CLIMATE CHANGE

REF: A. WELLINGTON 603

B. WELLINGTON 991


1. (SBU) Faced with unfavorable greenhouse gas emission
projections and criticisms over its current climate change
policies, the Labour Government is poised to alter its
course. In the future, it will de-emphasize price-based
measures and place greater emphasis on purchasing Kyoto
compliant credits and exploring other approaches to reduce
emissions. But while the Government and most of the public
tenaciously cling to support of Kyoto, the country's ability
to meet its obligations under the agreement will be difficult
if not impossible. To date, there is no plan to bring
agriculture -- the major source of NZ's emissions -- into an
abatement scheme. In the face of declining world lumber
prices and industry mistrust of government, forest sinks are
not a viable option. The GNZ expects to announce a revised
climate change policy by April 2006, but has already signaled
one change by announcing the cancellation of the transport
carbon tax -- its hallmark price-based mechanism. End
summary.

Missing Kyoto Protocol Target
--------------

2. (SBU) Only weeks before the pre-election campaign period,
then Convener of the Ministerial Group on Climate Change,
Minister Pete Hodgson announced on June 16 that for the first
time New Zealand's estimate of its greenhouse gas (GHG)
emissions would exceed targets set under the Kyoto protocol.
The announcement followed Environment Ministry projections
that New Zealand would fall short of its Kyoto protocol
target by an estimated 36 million tons (Mt) of carbon dioxide
equivalent. In 2002, Hodgson had campaigned for
ratification of the treaty, saying that not signing it would
be setting fire "to a very big check." At that time,
estimates gave New Zealand an overall surplus position, due
in large part to a sizable forestry carbon sink credit of
100Mt. But with revised projections, New Zealand likely
faces an invoice of hundreds of millions of dollars.

Reviewing Climate Change Policy
--------------

3. (U) In July 2005 the Government initiated a review of its
climate change policies. Authored by bureaucrats in the
Ministry for the Environment with input from the ministries
of Agriculture and Forestry, Economic Development, Treasury
and Transport, the final report of November 2 concluded that
the GNZ should consider an alternative climate change goal
that better manages the risks, opportunities and impacts
associated with New Zealand's net emissions position. New
Zealand's current strategic goal -- established in 2002 -- is
to "enable New Zealand to make significant greenhouse gas
reductions on business as usual and be set towards a
permanent downward path for total gross emissions by 2012."
The review found that New Zealand was not on track to meet
this goal. (NB: the report is available on-line, at
www.climatechange.govt.nz)


4. (U) The review noted three approaches for meeting New
Zealand's protocol obligations to 2012: (1) reducing
emissions through domestic action, (2) establishing
additional forest sinks, and (3) buying credits through the
Kyoto Flexibility mechanisms. It de-emphasized the first
option saying that the level of domestic reductions is likely
to be small relative to New Zealand's net emissions position.
It also dismissed the second, noting offsetting New
Zealand's Kyoto liability by subsidizing large-scale new
forest planting would be unrealistic "because relatively
little carbon would be sequestered" before 2012. Concluding
that the cost of domestic abatement measures to the economy
would be high compared to purchasing units on the
international market, the report recommended buying credits
to meet New Zealand's Kyoto obligations and suggested
formulating buying strategies.


5. (U) Departing from the Kyoto paradigm, the report also
suggested that a "quantitative goal may not be helpful in
guiding policy choice in the next 5 - 7 years," and
recognized that the economic cost "to New Zealand of
excluding agriculture is high if New Zealand wishes to meet
all its obligations through domestic abatement." The GNZ
expects to announce a revised climate change policy by April
2006, but has already signaled one change by announcing the
cancellation of the transport carbon tax -- its hallmark
price-based mechanism (Ref B).

Politics of Climate Change
--------------

6. (SBU) The report aside, the Labour-government lacks
sufficient votes to pass the carbon tax legislation anyway.
As part of Coalition agreements to support the Government
after the September 2005 elections, United Future and New
Zealand First secured a Government commitment for a
cost-benefit analysis prior to introducing the bill. The
National and ACT parties also opposed the carbon tax, and
National in particular made Labour's missteps on Kyoto an
issue during the election. The only strong support for the
carbon tax came from the Green Party, whose leader Jeanette
Fitzsimons has now criticized the Government for "giving up
on its goal to reduce New Zealand's carbon emissions," for
capitulating to the anti-Kyoto lobby, and abandoning a carbon
tax plan 10 years in the making.


7. (SBU) The announcement that the Government would drop the
tax was not a surprise to those in Parliamentary circles.
Prior to the September elections, rumors circulated in
Parliament that Labour would abandon its proposal because its
calculations no longer supported the efficacy of the tax.
The exemptions to the carbon tax applied to the agricultural
sector and to "at-risk emitters" on case-by-case basis create
unequal incentives to reduce emissions and are perceived by
interests on both sides of the debate -- including
environmentalist groups and the forestry sector -- as
politically-biased.

New Zealand: Clean and Green, but not Pristine
-------------- -

8. (U) How did GNZ miscalculate the country's emissions? In
1990, the Kyoto baseline year, New Zealand was emerging from
a period of low growth, associated with significant economic
reforms and restructuring. Since then, New Zealand's growth
has been higher than many developed countries, and higher
than expected when New Zealand ratified the Kyoto Protocol.
Through 2003, total gross emissions were 22.5% above the 1990
base level, representing an annual average growth rate of
1.6% per year.


9. (U) New Zealand's emissions differ markedly from those of
other developed countries, and influence the range of
available mitigation options. Methane emissions from enteric
fermentation (sheep and cattle) and nitrous oxide emissions
from agricultural soils, account for almost half (49%) of New
Zealand's total gross emissions. For most developed
countries, carbon dioxide accounts for over 75% of gross
emissions. In New Zealand, carbon dioxide accounts for just
46%. Cost-effective, significant mitigation options in the
agriculture sector are currently limited and are likely to
remain so over the next decade. Given that New Zealand is a
price-taker on the international commodities market,
mitigation policies and measures that increase costs to
agricultural producers raise competitiveness and
profitability issues -- and will face resistance from the
sector, which accounts for 54% of NZ's exports by value.


10. (U) New Zealand's liability under the Kyoto Protocol is
vulnerable to change in land use. When the government
ratified Kyoto, it "nationalized" commercially salable carbon
credits from forest sinks. The forest industry believes
those credits should instead be devolved to those who risk
their capital to plant trees and asserts the government has
taken away any incentive to plant. Changes in how forest
sinks are assessed under Kyoto -- disallowing the inclusion
of trees that were planted on land previously covered by
scrub -- reduced New Zealand's forestry carbon sink credits
and added to GNZ's miscalculations. However, commercial
forest planting has decreased from an annual peak of nearly
100,000 hectares in 1994 to only 10,000 hectares last year.
With a glut of timber worldwide, high land and transportation
costs, and a high exchange rate, a large increase in tree
planting would be unlikely anyway (Ref A).

Public Perceptions lead to more Government Woes
-------------- --

11. (SBU) The opposition has made hay from the Government's
miscalculations on Kyoto, and during the elections National
Party leader Don Brash said if elected he would pull NZ out
of the agreement. National in particular stresses NZ's
contribution to emissions is just 0.5% of that of all
developed countries. Many in industry and agriculture share
the opposition's contempt for Kyoto. Yet the agreement
continues to receive strong backing by the media and much of
the public, who applauded what they saw as NZ's principled
leadership in the recent Kyoto talks in Canada. In contrast,
the media and many New Zealanders present the United States
and Australia as climate change pariah states that selfishly
promote short-term national economic interests over a
long-term sustainable climate.

Government-to-Government Cooperation
--------------

12. (U) In contrast to the media rhetoric, the USG and GNZ
cooperate extensively in matters related to global climate
change. In July 2005, U.S. Senior Climate Negotiator and
Special Representative Dr. Harlan Watson led a U.S.
delegation to New Zealand for the third visit under the
U.S./New Zealand Bilateral Climate Change Partnership.
Initiated in 2002, the purpose of the partnership is to
enhance and accelerate collaboration and practical
cooperation on climate change issues. To date, 35
cooperative projects have been launched focusing on nine
priority areas: climate change science and monitoring;
technology development; emission unit registries; GHG
accounting in forestry and agriculture; engaging with
business; developing country assistance; climate change
research in Antarctica; public education initiatives; and
development of joint product and process standards.


13. (U) New Zealand has also established a bilateral
agreement with Australia. Key areas of cooperation with
Australia include agricultural emissions abatement, energy
efficiency, engagement with business and local government,
and working with Pacific Island countries to address regional
challenges posed by climate change.

David Parker: Minister Responsible for Climate Change Issues
-------------- --------------

14. (U) Groomed in the Labour Party's parliamentary stable
for three years, David Parker rose to prominence in the
cabinet reshuffle of October 2005. Parker, a backbencher
since his election as MP in 2002, was assigned three
demanding portfolios: attorney-general, minister of energy
and minister of transport. He also is minister responsible
for climate change issues.


15. (SBU) Energy issues appear to be utmost on Parker's mind,
as reflected in media reports on the cabinet appointments.
"We're probably in a 50-year transition from oil-based
technologies to other technologies," he said. Explaining why
he became active in Labour in the 1990s, Parker has said he
was incensed by the then-National government's decision to
force local authorities to sell community-owned electricity
assets.


16. (U) Parker was born in 1960. Among the few attorneys in
Labour's parliamentary top tier, he was the managing partner
of the South Island's largest law firm, Anderson Lloyd. He
also helped establish several successful companies, ranging
from agricultural biotechnology to an investment management
fund. His earlier ventures included forestry partnerships
and cafes. He is married with three children and lives in
Dunedin.
Burnett