Home The Kyoto Protocol

In response to the threat of Global Warming ‘the greenhouse effect’ a United Nations treaty limits developed countries GHG (greenhouse gas) emissions to 5.2% below 1990 levels for each year from 2008 to 2012.

  • Developed countries (so called annex B countries) that have ratified with the exception of the USA, now face limits on their GHG emissions.
  • Punitive penalties on non compliance and not reaching targets.
  • USA is likely to become involved after 2012
  • New Zealand agreed to restrict its emissions to 1990 levels, some 309mt tonnes of CO2 equivalent emissions (its cap) for the 5 year period called the first commitment period (2008-2012).
    • The 309m units are issued as Assigned Amount Units or AAU’s by the United Nations.
    • Currently emissions are projected to be over 400mt for the same period hence there will be a short fall of perhaps 100mt.
    • Credits are issued for so called Kyoto forests (planted on farmland post 31/12/1989)
    • Forest credits are expected to make up between 50-70mt of the shortfall leaving approximately 30mt to be sourced from the overseas market[1].
    • Renewable energy is exempt
    • Developing countries (China, India, Africa, South America, Asia – non Annex B countries) currently don’t have emissions caps.
      • These countries are intended to be the recipients of investment in new technologies and projects under the ‘clean development mechanism’ (CDM) of the Kyoto Protocol.
      • To date over a BILLION TONNES of GHG emissions have or will be avoided by these projects (so called clean development mechanism or CDM projects)
      • After verification these projects are issued Certified Emissions Reductions (CER) by the UN.

The CER units are saleable on the international market and can be used by developed countries (Annex B) to meet their emissions caps (subject to some limits)

[1] Please note treasury projections have varied wildly since 2002 when a surplus of 50mt was estimated, to a deficit of 20mt in mid 2008 and as at May 2009 a surplus of 9mt is expected due to the reduction in emissions due to the economic slow down.

How the Kyoto Protocol is Implemented

The United Nations is the over all administrator, regulator and issuer of ‘credits’.The Kyoto Protocol

Non annex B countries (left side) have no emissions caps with the ability to host projects to provide credits to Annex B countries.

Annex B countries (who have emissions caps), of which New Zealand and Australia are part.

Each country or group like the EU is permitted to create its own internal implementation of the protocol to meet their targets with the least internal disruption.

New Zealand has chosen an emission trading system, using cap and trade. Cap and trade is where a regulator sets an emissions cap and those with excess credits sell them to those with more emissions than their cap. Ultimately this is expected to lead to the least cost implementation of the emissions reductions targets.

  • The Climate Change Response Act 2008 and the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009 is the legislation that defines the ETS.
  • The regulator is under the Ministry of Economic Development with MAF dealing with forestry and agriculture.
  • Around 200 ‘points of obligation’ are expected, that is organisations required to provide an emissions return (think of a GST return) plus whatever foresters opt in.
  • In 2015 agriculture at a processor level and then optionally 10,000 Fonterra and other farmers will become points of obligation as well.
  • From July 1st 2010, the following sectors will required to account for their emissions and surrender NZU credits to cover half their emissions
    • transport
    • power companies so called stationary energy
    • fossil fuel suppliers (the oil companies)
    • industrial users
    • Prices in the ETS are capped as emitters can pay the Government $25 per unit instead of surrendering units.

Penalties for getting emissions returns wrong are like GST too, and plainly falsifying them can invite jail.  The Commerce Commission is also establishing guidelines for claims relating to carbon emissions.

Consumers pay the emissions charge as part of the cost of their goods.