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Opinion: Climate change opportunities for NZ in post-Stern world

By Melanie Carroll

Friday 3rd November 2006

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John Smith could have been talking about climate change when he said in the movie Goodbye Pork Pie "There's only one thing certain in life, Blondini, and that's doubt".

Doubt about the scientific models determining events decades ahead, doubt about the effects on the environment, doubt about how to slow greenhouse gas emissions, doubt about who should bear the costs.

But this week's report by former World Bank chief economist Sir Nicholas Stern on potentially devastating effects on the world economy -- a mind-boggling $10 trillion recession -- looks like it will galvanise governments already waking up to voter concern, to pick up the glacial pace of fighting climate change.

Prime Minister Helen Clark wants sustainability to be "central to New Zealand's unique national identity" and believes it will loom large in 21st century social democracy.

At the same time, the Government is following a softly softly approach to doing anything as it tries to keep business on side and to avoid hurting consumers.

New Zealand has already appeared at the sharp end of the debate following the Stern report. Its kiwifruit and olive oil exports to the United Kingdom have been used as an example of how markets ignore the causes of global warming -- carbon dioxide and methane emissions -- by allowing long-distance trade of goods that can be produced locally.

New Zealand's government and producers protest such goods are generally shipped not flown and, despite travelling half the globe, and are still produced so efficiently that they are less environmentally costly than those made in Britain.

But they may be fighting an uphill battle, as it has been suggested that "food miles" is a blunt tool being used by those seeking to protect their own markets.

While climate change will be far kinder to New Zealand than many countries, it has the potential to cripple parts of such an agriculturally dependent economy.

New Zealand's overall temperature is expected to rise about 0.5degC, compared with the 0.6degC global rise in temperature over the last century.

There will be more severe droughts in the east and more rain -- and landslides -- in the west. Pests will flourish in the warmer temperatures, which will also allow the spread of currently unknown tropical illnesses such as dengue fever.

Rain should increase at the South Island hydro lakes, improving certainty of electricity supply, but will concentrate in some areas as intense rainstorms.

The drought of 1997-98 was bigger economically for New Zealand than the Asian business crisis, costing the country $1 billion. Conflicts over water in areas such as Canterbury, which has already allocated an unsustainable amount, will be intense.

On the other side of the insurer's coin, a few days' torrential rain caused $300m worth of damage in February 2004, and many regional authorities will be completely unable to cope with heavy weather.

But it's not just agriculture that will suffer. Tourists will face rising costs to get to New Zealand if air transport emissions -- currently excluded from the Kyoto Protocol -- are to reduce.

A 20% cut in global economic consumption in the long run -- as the Stern report forecasts if no action is taken -- would also reduce the numbers of people travelling for leisure.

But some observers say climate change could present unforeseen opportunities.

Arthur Lim, an analyst for Macquarie Equities, believes New Zealand could benefit from rising commodity prices . This was already being seen in the sky rocketing price for wheat as a result of drought.

" If production drops 20%, the critical point is how much the price point shifts," Lim noted.

Notably, the Stern report had little effect on world sharemarkets where indexes in Australia, New Zealand and the United States have all hit records this week or last.

"We've seen so many warnings in the last decade and until there's global agreement and a will to implement it, the market takes the view that life continues," Lim said.

Equities markets had a "short-term horizon," Bernard Doyle, a strategist with Goldman Sachs JB Were, agreed.

Many of the impacts were still unquantified.

"The climate change report highlights things that will happen in the next decade."

The world's first target period (or dress rehearsal) for reducing greenhouse gases under the Kyoto Protocol comes to an end in 2012, and 190 governments will discuss the next step at a meeting in Nairobi, Kenya, this month.

Globally, Kyoto obliges 35 rich nations to cut emissions by at least 5.2% below 1990 levels by 2012, even if they have to buy carbon credits to reach their targets. Targets vary, with Britain at 12.5% below its 1990 level, while NZ only has to match its 1990 level.

New Zealand looks like being short of its target by 41.2 million tonnes of carbon -- not as good a position as the initial estimate that it would have a carbon credit surplus.

The lower estimate is expected to be brought about as higher energy prices limit fuel use, resulting in lower carbon emissions.

The Government has denied National's claims the carbon deficit had blown out to the equivalent of more than $1 billion due to officials estimating greater rates of deforestation.

The Government is still looking at a narrow carbon tax for electricity generators and large industry, but dumped plans for a wider tax due to lack of political support.

It wants to restrict the age of second-hand imported vehicles to cut vehicle emissions, which will hit many New Zealanders' back pockets given the country's reliance on bringing in cheap cars.

Without changes, transport emissions would grow by 45% by 2030, Climate Change Minister David Parker says.

Other ideas being considered include a plan to have 100% renewable or carbon-neutral energy use over a long time frame, or setting targets for reforestation and the take-up of bio-fuel.

Nearly 1.5 million hectares of marginal pastoral land could be turned into forest qualifying for carbon credits, Landcare Research has estimated, if international prices reached just $NZ20/tonne. At a conservative value of $12/tonne, one million hectares of land could earn $60 million.

Investor Group for Climate Change, representing 16 "mainstream" investors with about $200 billion in funds under management, recognises climate change is already having an impact on investment returns.

The financial sector in Australia and New Zealand would be very quick to respond once governments decided on a carbon trading scheme, Australian-based deputy chair Amanda McCluskey said.

"You'll find the finance sector is [working] quite hard to engage on how should a carbon trading scheme work, what do you want the carbon trading scheme to look like, but they will deal with it once they're given it."

As a Kyoto signatory, New Zealand could easily link into international carbon trading schemes, she said.

"There's a whole raft of opportunities that being signatory to the Kyoto (Protocol) offers New Zealand companies that leaves them in a better position than even some Australian companies because we haven't ratified."

New Zealand had a competitive advantage with its high level of renewable energy, but would have to cut back on transport emissions -- currently not included in carbon trading schemes -- to meet its targets.

Environmental lobbyist the Sustainability Council says the Government should hand out greenhouse gas permits to every citizen instead of giving them straight to business, forcing them to buy carbon credits and encouraging them to reduce emissions.

Such a "popular decarbonisation" approach could be politically acceptable and achieve some real change.

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