BARRY BRILL: Will taxpayers be liable for Ardern’s vanity project?

Following my article HERE regarding ex-PM Ardern’s $30 billion donation, the NZ Herald has a story by Thomas Coughlan under the heading of: “Inside Treasury’s fight to keep $23b climate cost off the books”.

Both accounts refer to the Labour Cabinet’s extraordinary 2021 NDC (Nationally-determined Contribution) which promised not only to reduce New Zealand’s emissions by 47 Mt during 2021-2030 but also to buy 143 Mt of foreign carbon credits at the same time.

That absurd extra pledge – which Coughlan prices at $23 billion (but will probably be 50% higher) – does not yet appear in The Treasury’s fiscal strategy model (FSM).

Coughlan quite correctly describes this potential liability as “a fairly staggering sum”.

The Herald report details the failed efforts of the Green Party’s James Shaw to have the estimated cost of the 2021 NDC foreign credits appear on the national balance sheet.

These efforts were successfully resisted by The Treasury on the grounds that the Labour pledge failed to meet three “key steps” under the GAAP (Generally Accepted Accounting Practice) to justify booking a future liability

These key steps are illuminating:

1.    Obligation to pay somebody

The Treasury points out that NDCs are not legally enforceable. The entire theme of the Paris Agreement is that it is based on voluntary donations. Were it otherwise, the Agreement would be classified as a “treaty” and that would require a two-thirds ratification by the US Senate – which would never happen.

A further problem is that a book entry cannot be made without naming a payee. The 2021 Cabinet worked on the assumption that a respectable international market in carbon credits would rapidly evolve. But (as in so many things) they had this wrong. The Commerce Commission has officially advised that no such market is likely to emerge before the mid-thirties.

2.    Change in policy settings “improbable”

The Treasury no doubt hopes and expects that Nichola Willis, the new Associate Minister for Climate Change, will be repudiating the Ardern mega-donation and reintroducing some sanity into the process. For this reason, they cannot satisfy themselves that unchanged policy settings are “probable”.

On the other hand, James Shaw told the Herald that he had taken advice from the Ministry of Foreign Affairs & Trade (MFAT) and believes the ‘liability’ should be booked, because ”the country will have to pay the NDC offset costs one way or another”.

3.    Reliable estimate of quantum

The Herald reports that: “The forecast cost of [the NDC] varies wildly. A 2023 paper by Treasury, Ngā Kōrero Āhuarangi Me Te Ōhanga - Climate Economic and Fiscal Assessment, found, frustratingly, that the forecast cost of this mitigation had an “uncertain” cost." 

But this uncertainty is largely fabricated. Under its only applicable scenario (advanced economies) the International Energy Agency (IEA) assumes a carbon price of $227 per tonne, so that the 143- million-tonne donation would cost in excess of $30 billion. (Coughlan does not explain how his $23 billion cost is derived).

“Pariah status”   

The Coughlan article goes on to suggest that vague extra-legal enforcement action might somehow be brought to bear by trading partners if the Ardern Government’s NDC is changed by the new administration: “…there is an implicit enforcement of Paris which is the pariah status that will likely be given to countries that flout it, and an explicit enforcement in the trade agreements with the likes of the European Union that require New Zealand to honour its Paris agreements”.

I am far from advocating that we should either “flout” or “dishonour” the Paris Agreement. Rather, I believe we should adhere strictly to its actual agreed terms and decline to be distracted by the motivated reasoning of campaigners, such as the Green Party or activist media. The New Zealand Government had the right to “nationally determine” its contribution in 2021 and it has the ongoing right to “nationally-redetermine” its contribution in 2024.

The term “pariah status” is palpable nonsense. Did either Japan or Canada gain such a status when they respectively withdrew from the Kyoto Protocol? Did the US become a pariah when it pulled out of the Paris Agreement in 2017 (and may do so again in 2025)?

The UNEP “Gap Report” at COP28 found that there was not a single developed country that was “on track” to meet its first NDC. Yet the OECD countries did not all send each other to Coventry.

Rather than huddling amongst the non-performers, our new Government should openly declare the $30 billion of offshore credits to be “a mistake” and warn that no such largesse will be forthcoming.

Later this year, the NZ Climate Commission (hopefully with new personnel) is charged with commencing public consultations on its recommendations for NDC-2. It can scarcely do that with a straight face when neither it nor the public has any idea what policy settings the Coalition Government intends to apply to NDC-1.

Barry Brill OBE JP LL.M(Hons) M.ComLaw is a former MP and Minister of Energy, Petrocorp director, and chair of the Gas Council, Power NZ, ESANZ, and EMCO. He is presently the Chairman of the New Zealand Climate Science Coalition.