Kyoto Protocol

By 2012 all countries that have signed the Protocol must change the level of their greenhouse gas (primarily carbon dioxide and methane) emissions by an agreed percentage from 1990 levels. Countries can 'trade' in greenhouse gas allowances so that those that reduce emissions below their target can sell to those who have not reached their target. It is likely that the cost of goods that emit greenhouse gases will rise and this could have a significant impact on their global competitiveness against similar goods from countries that have not signed the Protocol. The New Zealand government has put in place measures to relieve this cost burden on export industries if they will develop best-practice measures to reduce greenhouse gases. Countries that have signed up to the Protocol must reduce emissions of greenhouse gases (primarily carbon dioxide and methane) by an agreed percentage from 1990 levels by 2012. For example the European Union has to reduce emissions by 8%, New Zealand must emit no more than it did in 1990.

The difference in allowances is meant to reflect the different situations of the countries - for example New Zealand's strong share of hydro generation in 1990 will make it more difficult to reduce CO2 emissions compared with a country that has the ability to switch from coal-fired to gas-fired generation, such as the UK.

If a country emits more than its target, it can purchase greenhouse gas allowance from countries that have managed to reduce emissions below the target.

One of the most significant consequences of the Kyoto Protocol is that it will start to increase the cost of goods that emit greenhouse gases. Most countries that have signed up to the Protocol have either introduced a greenhouse gas tax - e.g. the proposed Carbon charge - or implemented a scheme of greenhouse gas allowance trading. In some cases the cost of goods will rise because they consume electricity which is generated by fossil fuels (e.g. coal or gas) and which could itself significantly increase in cost.

Quite apart from impacting on consumers, one of the most significant concerns with this aspect of the Kyoto Protocol is that it will make industries that emit a lot of greenhouse gases less competitive compared with their counterparts in countries that have not signed-up to the Kyoto Protocol. When the Protocol was agreed in 1997, it was accepted that only "developed" countries would sign-up, and "developing" countries (including the likes of China) would be encouraged to join at a later stage. This was meant to reflect the fact that the majority of greenhouse emissions to date have been from the developed world.

However, some developed countries have decided not to ratify, principally the USA and Australia. Clearly, industries in a country which has ratified the Protocol will be at a disadvantage to US or Australian industries that do not suffer such costs.  New Zealand signed the Kyoto Protocol in December 2002.

Many people believe that countries such as Europe and New Zealand shouldn't commit to shouldering the burden of reducing greenhouse gases unless other countries, especially the likes of the USA and fast-growing economies such as China, do so as well. It is a difficult decision for governments to make. If global warming is a serious problem that will affect the well-being of citizens around the world, then "responsible" countries bearing such pain will make it more likely that others will be encouraged to join the effort to the benefit of everyone - otherwise we may all "cook" waiting for everyone to agree to act. If it isn't a problem, then such well-meaning action will hurt economies needlessly.

The actual UN Protocol is available on line.

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