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New Zealand to Save $31 Billion by Using Paris Carbon Market

01 December 2016 | Trading

New Zealand is seeking to offset its global warming emissions by investing almost $5 billion in green projects overseas, saving six times that figure to meet its Paris climate commitments.

Climate Minister Paula Bennett sounded out countries willing to sell emission-reduction credits as she met them at the United Nations climate talks in Morocco this month, she said by phone, declining to be specific because the talks were private. The government may be able to buy credits for a price that’s 88 percent cheaper than reducing emissions at home through 2030, an environment ministry research report shows.

New Zealand’s challenge is to reduce emissions in its agriculture-led economy, where the prevalence of sheep and cattle farming means 43 percent of its greenhouse gas output is from methane. By using international markets, the country can spur clean-energy projects in emerging nations and have cash left for domestic efforts. Without trading, its target would’ve been weaker, according to a cabinet paper.

“If we can save money by purchasing credits from overseas, then we can be doing more of the expensive and complicated stuff in New Zealand that doesn’t reduce emissions as quickly,” Bennett said.

The country has a unique emissions dilemma among developed countries in that most of its electricity already comes from renewables, while its transport and agriculture industries provide limited scope for cuts. Agriculture made up abput half of its total greenhouse-gas output in 2014, compared with about 10 percent in the European Union.

Last year’s Paris deal to limit emissions after 2020 allows nations to cooperate on reducing heat trapping gases, or they can use a new international market. Negotiators earlier this month postponed talks on greenhouse-gas markets until May amid disagreement over how much influence the UN should have.

Slow Process

Nations including New Zealand, the U.S. and Germany a year ago signed a declaration intending to set up trading rules outside the UN to accelerate the process.

“I think it will all come down to country-to-country deals,” Bennett said. New Zealand expects to take one or two years to negotiate its agreements, she said.

In emissions trading, nations can trade each ton of climate-changing gas they release by buying credits generated from clean projects in other countries, ranging from solar farms to facilities that combust greenhouse gases at chemical factories.

New Zealand would try to buy reduction credits for about NZ$37.50 ($26.27) a metric ton of carbon dioxide equivalent, according to the ministry’s research. It needs about 170 million tons in the decade through 2030 to meet its target for an 11 percent cut on 1990 levels. Without trading, it’d need to pay about NZ$300 a ton.

Quality Criticized

The country was criticized in Morocco by the Climate Action Network, which represents environmental groups, for accepting low-quality credits in the past.

“If we’re going to have markets, which we are, these should have environmental integrity,” David Tong, coordinator for Climate Action Network in New Zealand, said by phone from Barcelona.

Transparency and integrity of the units are important, New Zealand’s Bennett said.

“If we get those two things right, then I do think we can show the advantages,” she said. “We are not trying to buy our way out. We do want to reduce our emissions in New Zealand.”

 

 

Source: Bloomberg