Rainey Collins Lawyers

Kyoto Protocol – Frequently Asked Questions

By Peter Johnston, Monday, 2 May, 2005, Environment, Resource Management

What is the Kyoto Protocol?

The Kyoto protocol was signed by 84 countries in the Japanese city of Kyoto in 1997.  More countries have since signed the agreement.

The protocol is an agreement between countries to try and reduce the total amount of greenhouse gas emissions to 5% below the level they were in 1990.  Different signatory countries have different targets.  New Zealand’s target is to reduce its greenhouse gas emissions to the level they were in 1990.

New Zealand then ratified the Kyoto protocol on 19 December 2002.  Only those countries that ratify the protocol are bound by it.

The New Zealand government now has to identify ways of reducing these greenhouse gases.

What is Carbon Tax?

Carbon tax is the tax that those greenhouse producers will have to pay for the release of carbon dioxide.  The purpose of the carbon tax is to penalise greenhouse producers so that they reduce their emissions and, as a result, reduce the amount of carbon tax that they pay.

For example, electricity is generated in New Zealand by a number of means including coal-fired power stations. Coal produces carbon dioxide.  Users of electricity will have to pay tax on the consumption of this electricity.  The government has announced that carbon tax will raise energy prices but not by much.  For example, .01 cent will be added to every unit of electricity, .04 cents for every litre of petrol, .46 cents for a 9kg bottle of LPG and .68 cents for a 20kg bag of coal.

The carbon tax will commence in April 2007.

What are Carbon Credits?

Just as the Kyoto protocol sets out ways to penalise those who produce greenhouse gases, it also seeks to reward people who put in place means of reducing the emission of carbon dioxide.

The rewards come in the form of carbon credits.

For example, the establishment of a wind farm will reward the landowner with carbon credits.  The landowner can then use the carbon credits to off-set the carbon taxes they are liable for.  The landowner can also sell the carbon credits to someone else who needs them because that person or business has not otherwise been able at that point to meet its greenhouse gas emission reduction targets.

Another example of a carbon credit is a sink credit.

What are sink credits?

The Kyoto protocol recognises that the planting of trees reduces the carbon dioxide in the atmosphere.  Plantations that are established from 1990 are called “Kyoto forests”.  These plantations are also known as carbon sinks.  Owners of Kyoto forests qualify for sink credits.  Sink credits are like carbon credits and can be used by the owners of the Kyoto forests to off-set their carbon tax or sold to others.

The government has established a Forestry Sink Initiative to encourage landowners to plant forests.  In order to qualify for sink credits, landowners will need to meet a number of requirements:

1. The main requirement is that timber can be removed from the land after 25 years but only if the forest canopy continues to cover the land.
2. If yearly harvesting or clear felling occurs then a penalty needs to be paid.
3. Mature indigenous forests and normal plantation forests (plantations that were established before 1990 and/or are for commercial harvesting) do not qualify for the Forest Sink Initiative.

The Crown will hold all sink credits until 2012 when they will be transferred to landowners.

What Does All This Mean?

The Kyoto Protocol has created a new regime that rewards reducers of greenhouse emissions.

Carbon taxes penalise greenhouse gas producers.

Carbon taxes will commence in April 2007.

Landowners can plant forests on their land and then qualify for carbon sink credits.

The rewards are in the form of tradeable carbon credits (including sink credits).

The Crown will transfer carbon sink credits to landowners in 2012.

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