New Zealand's carbon market cast into limbo

Reuters, Wednesday November 26 2008
By Adrian Bathgate

WELLINGTON, Nov 26 (Reuters) - New Zealand's fledgling carbon market has been thrown into limbo only weeks before its planned start date, after the incoming government met an election pledge to review emissions trading, industry officials said.
The scheme was to be the first carbon cap-and-trade scheme outside of Europe and had been designed to help the country meet its obligations under the Kyoto climate-change protocol.
The decision to review it has unnerved market participants, afraid the new conservative government could delay or substantially weaken plans to roll out carbon-trading over the next few years, hurting the country's green image.
"What the government has said has created a lot of uncertainty," said Mark Franklin, head of carbon exchange TZ1, the would-be operator of the country's first carbon market. TZ1 is owned by New Zealand stock exchange operator NZX.
"From a global perspective, we had a pretty good scheme here and there was a fair bit of interest from overseas," he added.
The new government has frozen implementation of emissions-trading since its election on Nov. 8.
Incoming Prime Minister John Key and Climate Change Minister Nick Smith have said the government will adopt a carbon trading scheme in some form, but Key has suggested a revised version might not start trading until 2010.
That is the same year neighbouring Australia is due to launch its own scheme, meaning New Zealand could lose any first-mover advantage if it delayed its own until then.
Forestry was the first industry ready to participate under the now frozen scheme, with sectors ranging from transport to agriculture scheduled to be phased in over the next five years.
The planting of forests to generate carbon credits worth tens of millions of dollars has been cast into doubt, said New Zealand Forest Owners Association president Peter Berg.
"Some people are particularly concerned because a number of them have invested money on the basis of the existing scheme," Berg said.
"VERY RELUCTANT"
New Zealand has lost any chance of having a liquid carbon-trading market for a year said Wayne King, director of consulting firm Carbon Market Solutions.
"Most of our clients are very, very reluctant to do anything until we see some sort of clarity," King said.
"There were quite a number of corporates and companies that were about to engage and now they can't," he said.
"Emissions liabilities were in the order of over NZ$100 million ($55 million) for some," he added.
King felt the scheme would be softened and that there could be exemptions, at least initially, for some of the bigger emitters, such as steel makers and power firms.
Key has also said the government might consider amending the emissions scheme to include a carbon tax, something opposed by the National Party when it was in opposition.
"The opportunity for New Zealand business is to use the review period to ensure that they are well prepared for carbon pricing, whether through a tax or trading scheme," said Sean Lucy, head of nabCapital's Carbon Solutions Group in Australia.
The National Party, which leads the centre-right government, said before the election it would keep emissions-trading but revise it to lessen the burden on businesses. But it faces pressure from one of its minor support parties to make substantial changes.
The ACT Party, founded by the country's best-known free-market politician, had originally campaigned to scrap the scheme but compromised and accepted a review.
The government has suggested the review night also examine the science behind climate change, a move that has outraged environmental groups, who say New Zealand's reputation will be damaged if the concept of global warming is questioned.
Data released by the U.N. Climate Change Secretariat last week showed New Zealand had the sixth highest growth in emissions out of 40 industrialised countries between 1990 and 2006. New Zealand greenhouse gas emissions grew 25.7 percent in the period.
Under the Kyoto Protocol, New Zealand's emissions are meant to show no increase from 1990 levels between 2008 and 2012, the pact's first commitment period.
Climate Change Minister Smith declined a Reuters request for an interview.
"I'm quite confident the select committee review will come up with what we always wanted, which is more balance in this whole debate," Key told the New Zealand Herald newspaper last week. ($1 = NZ$1.84) (Additional reporting by David Fogarty; Editing by Mark Bendeich and David Fogarty)