NCPA - National Center for Policy Analysis


May 15, 2008

Wellington is debating a cap-and-trade scheme to meet its Kyoto Protocol targets.  Because New Zealand is already a low carbon-dioxide emitter, the bulk of its emissions come from agricultural sources, such as sheep.  So the government is proposing to implement caps not only on carbon dioxide from industry but also on methane and nitrous oxide from farms.

As in smaller schemes in the United States and European Union, the government would cap the country's emissions at a level allowable under Kyoto, and then distribute tradable credits to businesses and farmers:

  • Low emitters could sell excess credits, while high emitters could buy credits to cover their "extra" emissions.
  • Under Kyoto, New Zealand committed to reduce its emissions to 1990 levels, in effect a 30 percent reduction from expected emissions in 2012.

Meeting those targets will be hard, says the Wall Street Journal:

  • New Zealand already uses a wide range of hydropower and renewable energy to cut carbon dioxide use.
  • For the agricultural gases, new kinds of fertilizers might help, but only to a point.
  • For the rest of the cuts, farmers will have to persuade cows and sheep to emit less -- or have fewer cows and sheep.

The cost, for farmers and industry alike, is likely to be prohibitive, says the Journal:

  • The government's plan would result in 22,000 job losses by 2012, or 1 percent of today's employment, according to the New Zealand Institute of Economic Research
  • That translates into NZ $4.6 billion (about U.S. $3.6 billion) annually in lost gross domestic product (GDP), or a NZ $3,000 (about U.S. $1,536) cut in each household's annual spending.

This analysis assumes that as greenhouse gas fees make Kiwi industry less competitive globally, businesses and jobs will move overseas.  The government disputes this conclusion, mainly because its own analyses assume New Zealanders will be willing to take lower wages, says the Journal.

Source: Editorial, "Kiwi Climatology," Wall Street Journal, May 13, 2008.

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