Tuesday, April 23, 2024

NZ is being left behind in carbon scramble 

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Country moving too slowly in nailing down offshore carbon credit options, experts say.
Professor David Frame says NZ should not stick religiously to appeasing the IPCC, and consider bilateral options to access international carbon credit opportunities.
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Billions of dollars’ worth of carbon credits will require payment by New Zealand in a few short years, with more needing to be done to minimise the liability while still meeting the country’s Paris Accord obligations.

A Treasury report released earlier this year confirmed the Climate Change Commission’s stance that NZ is not able to plant its way out of its carbon emission targets, and will be required to purchase carbon credits offshore. 

Those credits could include direct investment in offshore reduction activities, investing in international carbon funds, or purchasing Emissions Trading Scheme equivalents from other countries’ established schemes.

But the bill could be significant, with the report estimating it could range from a low of $4.2 billion to a high of $23.7bn, depending largely on carbon valuations. The Treasury report priced scenarios from a low of $41 a carbon unit to $227/unit. 

These credits will have to be bought between 2024 and 2030, the first obligation deadline year.

Nigel Brunel, head of Jarden’s commodities trading division, said NZ is moving too slowly in trying to tie down its offshore carbon credit options and risks being a late and underpriced arrival to the party.

“The reality is we can’t meet our obligations domestically, that has been known. The rationale for spending money offshore is more about aiding developing nations to meet their targets, and under Article 6 of the Paris Accord that is allowed.”

He said there has been a narrative that such markets have not yet developed, and options are limited. 

But in fact some countries, including Switzerland and Japan, are already well down the path in forming relationships with developing countries likely to be seeking developed countries’ carbon investment dollars.

Brunel also cautioned that the investment offshore cannot be some sort of colonial takeover that seeks out only the low-hanging fruit in credit options. 

“The investment has to be in countries that have already dealt with that and are really starting to decarbonise, and need help with this.”

He was relatively relaxed about the amount NZ may have to spend, with the upper amount set at $227 a unit when carbon prices at present are about $60. 

He was more concerned about NZ’s lack of engagement with potential partner countries, a concern shared by climate scientist Professor David Frame of Canterbury University.

“I think we are well back in the pack, unless there are things going on in secret we don’t know about,” Brunel said.

He said it is risky from a price perspective.

“We should be working to get into conversations now about how we could hedge the price risk as an insurance for the future.”

Frame said NZ appears to be hung up on committing to multilateral climate agreements set by the likes of the United Nations’ Intergovernmental Panel on Climate Change (IPCC). 

He said there is a  desire to get a “gold stamp” from it and the UN Framework Convention on Climate Change, neither which has any legislative muscle over countries.

“They are run by Europeans who never have a favourable view of the likes of NZ, Canada or Australia. A more bilateral approach with specific countries may prove more effective,” Frame said.

But he also pointed to major problems in country-to-country carbon credits. 

Norway and Germany invested more than US$170 billion ($273bn) in Brazilian rainforests as a carbon credit scheme, only to have Brazil’s president sanction deforestation.

“So, there is always the risk that Mother Nature is left holding the tab, even if one country has met its climate accounting responsibilities.”

Frame believes NZ’s approach to setting carbon levels exhibits a grasp that extends beyond its grip, and the country may yet see a major carbon policy rewrite – and sooner than later.

“We would be better to focus on what we can do, pegging ourselves against countries of a similar weight, looking at being the most carbon efficient globally in food production, electricity etcetera.”

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