SciBlogs

Posts Tagged ETS review

NZ ETS to be watered down (again), but emissions news good Gareth Renowden Apr 12

Join the conversation at Hot Topic

New Zealand’s new Minister for Climate Change Issues and chief climate negotiator, Tim Groser, yesterday announced the government’s intended changes to the Emissions Trading Scheme following last years ETS Review. There will be a limited period for consultation (to May 11) on the proposals before legislation is put before Parliament. The consultation document (PDF) and meeting dates are available here. Key points:

  • Agriculture’s entry to the ETS may be delayed beyond 2015.
  • There will be no increase to the $25/tonne unit price cap.
  • The “two for one” transitional provision for big emitters will be phased out more gradually.
  • The government will give itself powers to auction emissions units.
  • There will be a review of the allocation of carbon credits to pre-1990 forests to take into account the changes to the forestry regime agreed in Durban last year.

Groser also announced the release today of New Zealand’s net emissions position for the 2008-12 Kyoto reporting period, now expected to be a surplus (that is, under NZ’s target) of 23.1 million tonnes, up from 21.9 mt in 2011.

News that agriculture may continue to escape carbon constraints is hardly surprising, given the government’s reluctance to annoy its heartland farming and agribusiness supporters, but it appears willing to risk confrontation with Maori forestry interests on pre-1990 carbon credit allocations. My view is that this tinkering around the edges of the scheme is designed to put the ETS into a kind of domestic political holding pattern until the shape of future international arrangements begins to emerge. Groser doesn’t want to frighten the horses until he absolutely has to, as this quote from Brian Fallow’s piece in the NZ Herald today might be taken to indicate:

Preferences for changing areas of the policy would vary a lot depending on what assumptions were made about the future carbon price, Groser said.

“If you think it will remain at the current low levels, you will reach one set of conclusions. Take a different view of the trajectory of the carbon price – and above all, this is a long game we are playing – and you may reach quite different conclusions.”

Getting international action on emissions reductions is certainly turning out to be a long game. We can only hope that it doesn’t turn into the diplomatic equivalent of a timeless test, and that the climate system is kind enough to give us time to play it. I’d not want to bet on either proposition.

The billion dollar gap Gareth Renowden Apr 07

Join the conversation at Hot Topic

Dr Jan Wright, New Zealand’s parliamentary commissioner for the environment, today released her submission (pdf) to the Emissions Trading Review panel. It calls for a significant toughening up of the scheme that was so extensively watered down by the current government in 2009, in order to avoid a billion dollar per year cost to taxpayers. Wright’s recommendations make it clear that any further weakening of the scheme as the result of pleading by special interests can not be justified. She recommends that:

  • both the price cap and the two-for-one deal expire on 31 December 2012 as currently legislated.
  • a) a cap on the number of carbon credits freely allocated be put in place; and that

    b) the phase-out rates for allocation be increased, not expressed as a percentage decrease of the previous year, and that the latest year in which allocation of free carbon credits must cease be specified.
  • the ETS is amended:

    a) so that new industries that use lignite on a large scale are specifically excluded from receiving any free carbon credits;

    b) to provide criteria for deciding which new activities are eligible to receive free carbon credits, including a requirement that the new activity will reduce New Zealand’s national net greenhouse gas emissions.
  • agriculture is brought into the ETS by 2015 as currently legislated.

The submission contains a picture worth at least a thousand words: this graph makes it very clear why the NZ ETS needs toughening up:

PCEgraph

Current policy settings effectively guarantee that the government’s Copenhagen Accord commitment to a 10% cut in emissions by 2020 is nothing but an empty promise. The ETS is not delivering the goods — and it will be the taxpayers that pay the cost. Wright estimates that the “gap” between target and projected emissions “is likely to cost New Zealand over a billion dollars per year” by 2020.

Weakened ETS now law Gareth Renowden Nov 25

Join the conversation at Hot Topic

The government’s amendments to the Emissions Trading Scheme became law this afternoon, thanks to support from the Maori Party [Stuff, Herald, Reuters]. Nick Smith called the changes “workable and affordable” and said that they struck “the right balance in protecting the future of our economy and our environment”, but Labour climate spokesman Charles Chauvel was scathing:

It is economically irrational, socially inequitable, environmentally counter-productive and fiscally unsustainable. And its hallmark has been one of poor procedure and hasty consideration.

But what does the new ETS mean for New Zealand’s emissions? The Science Media Centre is collating responses from the science community, and first out of the blocks is VUW associate professor Ralph Chapman:

The passing of today’s Climate Change Response amendment bill through the House is deeply disappointing. Every week, emerging climate science underlines the need for urgent action to cut emissions drastically, with developed countries especially needing to make cuts right now to avoid a global warming drift above 2 degrees, the guardrail against dangerous change. The Government’s amendment bill does way too little to bring down New Zealand’s emissions. The bill has good aspects (e.g. agriculture is included, eventually) but its overall weakness and lack of clarity about its impact on emissions will undermine New Zealand’s reputation and positioning for Copenhagen.

Deeply disappointing. Pretty much my reaction. NZ has now has a much steeper hill to climb in future than was necessary.

Update 28/11: Additional responses from science community, courtesy of the SMC:

Dr Jim Salinger, an Auckland-based climate scientist, comments:

“At present we appear to be bogged down in emission reduction schemes and targets. This thinking is short-term as the high emissions industries in the long run are doomed. We have the low-carbon technology –- which include many forms of renewable energy such as solar electric, solar thermal, wind, wave, tidal, geothermal and bio-energy. All we need to do is scale these technologies up rapidly and harvest the economies of scale.”

Suzie Greenhalgh, Senior economist in the Sustainability & Society team at Landcare Research, comments:

“The passing of the ETS ammendments sends positive signals about New Zealand’s desire to address global climate change, providing greater certainty to business and the population about the path New Zealand will follow. Given that most of the debate so far has been around the risks New Zealand faces with adopting the ETS, now perhaps the debate can switch to where potential opportunities may lie. The inclusion of agriculture, despite its omission in other national schemes, is also an important step for New Zealand’s management of greenhouse gas emissions and may just provide some of these opportunities.”

Associate Professor Euan Mason, of the School of Forestry at the University of Canterbury, comments:

“It is good that New Zealand has begun to address climate change, and if the energy sector is required to surrender credits earned from genuine CO2 sequestration then the ETS should begin to change our behaviour in helpful ways. In its deal with the Maori party the Government implicitly acknowledged that the ETS legislation markedly devalues pre-1990 forest land and that the few credits offered to owners of such land are inadequate compensation. Offering owners of pre-1990 forests the option of replanting elsewhere after land use conversion as an alternative to paying conversion tax would have gone some way to softening the impact on land values. As it stands only a proportion of these land owners have been adequately compensated, and the remainder, both Maori and Pakeha, no doubt feel a sense of injustice.”

Oram on ETS debacle: Business Council for Sustainable Development ordered to shut up by big emitters; Nick Smith guilty of “breathtaking hypocrisy” Gareth Renowden Nov 22

Join the conversation at Hot Topic

Fonterra and other big emitters have used their clout to silence the Business Council for Sustainable Development from commenting on National’s proposed changes to the emissions trading scheme, Rod Oram reveals in his Sunday Star Times column today.

…on November 5 Barry Harris, Fonterra’s head of milk supply and sustainability, delivered a withering speech to the council’s meeting. There were 31 other representatives of corporate members in attendance. Harris sharply criticised the council for what he considered its failure to represent the interests of members like Fonterra that “had a lot of skin in the game”.

The council’s insight into how opposed much of the public and some of business is to the ETS changes has clearly rattled some of its less sustainable members. According to some attendees, council chairman Bob Field, chairman of Toyota New Zealand, ordered council staff to stop making public statements on the ETS.

Perhaps Fonterra and Toyota believe that business can only be sustainable if it is protected from the costs of its polluting ways. The huge subsidies, of course, are their’s by right. Meanwhile, it remains to be seen if some of the less hypocritical members of the BCSD will make their voices heard.

In a coruscating column, Oram calls Nick Smith’s headlong rush in to bad legislation “breathtaking hypocrisy”, and quotes extensively from Smith’s comments a year ago when Labour’s ETS was being debated in Parliament.

Oram’s take on the current situation is right on the money:

National is making a dreadful mistake if it believes it can railroad through incompetent, damaging legislation hugely favouring heavy emitters.

At the next election, it will be easy for Labour and Greens to win support from the substantial number of voters who want an ETS that might actually cut emissions. Such an ETS would save the next government some $2 billion a year in subsidies to the heavy emitters, money voters would like spent instead on them and investment in new, clean technologies.

The whole column is worth a read. It’s Oram at his well-informed, combative best.

National’s nine ways to stuff up: Oram on climate policy in NZ Gareth Renowden Sep 21

Join the conversation at Hot Topic

Rod Oram’s column in yesterday’s Sunday Star Times so perfectly captures my own feelings on the government’s proposed watering down of the emissions trading scheme that I asked Rod if he would allow me to post it here as a guest blog. I’m glad to say he agreed…

To understand how the government is destroying the Emissions Trading Scheme, it’s important to remind ourselves why we need an ETS in the first place.

Governments representing a majority of people on the planet believe climate change is happening. So they’re taking steps to reduce their nation’s emissions of greenhouse gases. Some have entered into international commitments to do so. Many more will do so in coming years.

In 1997, New Zealand committed to cut its emissions during 2008-12 to its 1990 levels. However, they are currently 24% above. So the National-led government has upped the ante with two new targets: a 10-20% reduction below 1990 levels by 2020 and a 50% reduction by 2050.

To achieve them, we need to invest heavily in new energy and carbon efficient technology for electricity generation and transport and processes in industry and agriculture. And we need to maximise the potential for our forests to act as profitable carbon sinks.

To do that we need to:

  • Put a price on emissions to incentivise change. We chose an ETS as the most effective price signal, a decision shared by virtually every other price-setting country.
  • Put in place a big set of powerful complementary measures such as financial incentives for households and businesses to adopt new technology, plus standards and other mechanisms to foster the take-up of technology.
  • Persuade other countries in international climate change negotiations to give forestry the regulatory framework it needs.

The three are inextricably linked. A good ETS sets a price signal and generates revenues that government and business can invest in the changes we must make. Those are exciting business opportunities which stand to improve the economy and our environmental performance.

In the meantime, revenues help fund some temporary relief for households from the cost of migrating to energy and carbon efficiency. And an effective ETS increases our international negotiating power in forestry.

If these are the virtues of an ETS, how would you destroy them if you were politicians in the clutch of heavy emitters?

How would you achieve an ETS so bad it sets a weak price signal and delivers little revenue, or better, neither? Then households and businesses would carry on with their old technology and ways. The government (ie, taxpayers) would then have to buy credits to cover emissions above the target volume the country has committed to.

Thus, in a bad ETS, we taxpayers pay to perpetuate our current technology while much of the rest of the world plunges into better technology. We become less competitive and badly damage our international trade and investment accounts, not to mention our reputation. Over time we get poorer.

If this were your political agenda, you’d do nine things:

  1. Place no limits on how much greenhouse gas a company exposed to international competitors can emit for free. To give business such a valuable break, you set a very arbitrary measure. If a company emits no more greenhouse gases than the average for its industry based on tonnes of gas per million dollars of sales revenue, you let it keep growing its emissions without having to pay for them.

    Instead, the government keeps supplying it with free emission credits. But there’s no such thing as a free credit. Under the Kyoto treaty, each country is allowed to emit for free up to its commitment level, in our case 1990 volumes. Above that, somebody has to buy credits to emit more. If business doesn’t, then the government does out of taxes.

    And this concept of intensity-based allocations of credits has other failings. For example, the industry benchmark is local and thus it won’t hold most sectors to international best practice. Again, this locks us into old technology rather than incentivise investment in new.

    This is exactly what National intends to do.

  2. Slavishly follow the ETS in Australia, a small neighbour and international laggard struggling miserably to deliver one.

    Even better, cut our ETS off from America’s. After all, the US is only the biggest market for carbon credits and the biggest source of investment in and markets for clean technology.

    Easy to do. Section 728 of the Waxman-Markey bill on climate change passed by the US House of Representatives explicitly bans the US from linking its ETS with any country that shuns volume caps in favour of intensity-based allocation.

    This is exactly what National intends to do.

  3. Keep giving free allocations as long as possible. This again reduces the incentive on businesses and households to change. For example, phase out allocations at the rate of 1.3% a year, rather than 8% in the ETS approved by parliament last year. That’s nonsense. No technology remains current for 75 years.

    This is exactly what National intends to do.

  4. Place a $25 a tonne cap on the price of carbon until at least the end of 2012. This mutes the price signal and thus the business incentive to change.

    It also creates another big subsidy for business that taxpayers will have to fund when the government goes shopping for credits. The higher the international price, the bigger the subsidy.

    Also, halve emitters’ obligations over the same period. Let them surrender only a credit for one tonne of emissions for every two tonnes of gases.

    This is exactly what National intends to do.

  5. Allow forest owners to sell their carbon credits overseas. It’s absolutely fair they should get the best price they can. But if there’s a price cap here, they will sell lots of our home-grown credits overseas. So when the government has to buy credits to meet New Zealand’s obligations, it will have to buy more overseas.

    This is exactly what National intends to do.

  6. Buy off a minor party to secure the votes to demolish the ETS. Promise to plant some trees together, wave the possibility of increased beneficiary payments and enshrine some other special treatment in legislation.

    The Maori Party is a willing accomplice. For these few favours, the Maori Party has repudiated its sustainability, climate change, economic and social justice principles it articulated in its minority report in the recent select committee report on the ETS.

    Among other things the Maori Party said then: It opposed emissions trading because it…

    …allows sectors to pollute and trade up to the Kyoto target (and) does not include incremental emission reduction targets in its design.

    We are also deeply concerned about protection in the form of intensity-based allocation and subsidies, which distort the market model by allowing protected businesses to increase their emissions without penalty, and to be rewarded for it.

    This is exactly what National intends to do.

  7. Axe complementary measures such as fuel efficiency standards for cars and minimum volumes for biofuels.

    That is exactly what National has done.

  8. Keep households and businesses dependent on taxpayer subsidy. Sow the seeds of dependency now by giving in to special pleading. This will make it even harder to remove price caps and other favours later.

    This is exactly what National intends to do.

  9. Create uncertainty for business. Do so by passing legislation that does not have broad political support. Even better, devise an ETS that will require subsequent governments (even ones led by your own party) to radically overhaul it to stem the ballooning taxpayer subsidies and to impose at last the disciplines and incentives that are needed to drive change.

    10. The government admits these nine actions will cost taxpayers at least $400m by 2013. The NZ Business Council for Sustainable Development, whose 63 member companies’ annual sales of $59 billion equate to about 43% of GDP, says its expects the costs to “run into billions of dollars”.

    There’s no knowing how big the bill will be. But the dynamics are obvious. National’s changes would drive up emissions, perpetuate old technology, necessitate ever-greater subsidies and reduce New Zealand’s international competitiveness and reputation.

    This is exactly what National intends to do.

Climate change policy myopia Gareth Renowden Sep 21

Join the conversation at Hot Topic

This is a guest post by associate professor Ralph Chapman, senior researcher Andy Reisinger, professor Jonathan Boston and senior associate Judy Lawrence from Victoria University of Wellington. It’s a succinct explanation of how and why the government’s climate policy is wrong-headed and ineffective, and is required reading for anyone following the policy debate in NZ. It first appeared in the Dominion Post on Sept 18th.

The deal between National and the Maori party over the emission trading scheme raises serious questions about strategic policy making in New Zealand. The agreement has positive features – a price on carbon will apply from mid-2010 in some sectors – but it raises major concerns about the capacity of our democratic institutions to serve the common good of New Zealand and avoid capture by vested interests.

The deal rests on four myths about climate change policy.

Myth 1: Doing the minimum is good enough

Is doing the minimum still credible? It might have been pragmatic while climate science was being clarified in the 1990s, and then with the US refusing to join Kyoto, but it is now clear that urgent action to cut emissions is needed, globally and nationally. The new law committing the UK to cut emissions by 34% by 2020 is one example of international responses.

The delayed entry of agriculture from 2015, and snails-pace (1% per year) adjustment path for other industries are too slow to be credible when our domestic policies are exposed in international negotiations. Other developed countries are moving towards emission cuts of 80% by 2050. New Zealand farming and other sectors cannot afford to defer adjustment to a changing world. Our businesses are innovative; they need a chance to apply their skills within the changing world order. Sheltering them from the inevitable will increase costs in the long run and foreclose business opportunities. This is the clearest lesson from the economic restructuring of the 1980s. Minimising the exposure of businesses to the price of carbon is just poor economics.

Myth 2: We mustn’t get out ahead, especially ahead of Australia

PM John Key has commented that “It’s not my government’s approach for New Zealand to be way out ahead of other countries.” There’s no chance of being ahead of Europe’s 2005 ETS and countries such as Finland, Norway and the Netherlands, which introduced carbon taxes in the early 1990s, or British Columbia which did the same in 2008. But isn’t our ETS different? Well, no. The introduction of a fixed price cap in New Zealand ($25 per tonne) makes the ETS effectively a tax.

Ironically, delaying our efforts to enable a link with the Australian scheme (not yet enacted) could damage New Zealand. An ETS works best if we can trade with bigger partners, such as the EU and the emerging US emissions trading market. In addition, by opting for an intensity-based allocation scheme aligned with the Australians we rule ourselves out of trading with not only Europe but probably also the US.

New Zealand should include the agricultural sector in the ETS as soon as possible to incentivise innovation, improve efficiency, and encourage agricultural gas-reducing technologies and processes that can then earn export dollars and ensure New Zealand’s leading role in supplying high-value markets with its own distinctive brand. New Zealand cannot afford not to be ‘out ahead’ in the sectors that shape its unique economic and international trading position.

Myth 3: Households should and can be protected from price rises

The debate on the costs of the ETS has been woefully misleading, with exaggerated claims of direct impacts, and a failure to analyse indirect impacts, and the policy adjustments other countries are making. The focus in the agreement is on short-term direct impacts on households. Yet, when emitters are shielded from paying for their emissions, the costs fall on the taxpayer, so households still pay indirectly but in a manner that is less fair.

New Zealand has a legally binding Kyoto Protocol commitment and will likely have similar post-2012 commitments. The question is how the costs of these commitments are shared and minimised. The deal means households will pay most through higher taxes than otherwise, with no incentive to contribute to emission reductions and support innovative businesses. Placing the costs largely on taxpaying households is both inefficient and represents a significant wealth transfer to companies and their shareholders, some of whom are foreign.

Myth 4: Market principles are being adhered to

Business sector disapproval defeated the 2005 carbon tax proposal in favour of a trading scheme, yet the ETS with a price cap acts like a tax. Moreover, why should market-responsive business people prefer market signals to be muted? The international carbon price is currently about NZ$30 per tonne: why should that signal be capped? If interest rates were capped, the price signal they send would be undesirably distorted. The carbon price signal proposed is to be further weakened by the ‘2 for 1’ deal, cutting the market signal to $12.50 and halving the efficiency of the market response (and leaving the taxpayer to pay for the rest). Again, this is poor public policy.

The most egregious aspect of the agreement is the intensity-based allocation arrangement that some companies demanded. This allows emitters to increase their emissions at no cost as long as emissions per tonne of product are below the industry average. In conjunction with the slow phase-out of free credit allocations, this dramatically weakens the signal to cut emissions.

Other aspects of the agreement are problematic, such as the fuel subsidy to the fishing industry: this is sheer political horse trading. But the four myths above are the main concern, and create two problems. First, they have resulted in a low-quality public policy agreement. This may reflect the poor quality of independent climate policy analysis in this country. Second, we now have a policy hotch-potch at a time when a strategic vision in support of urgent action is needed.

Critically the deal is intensely myopic, creating escalating future costs by deferring inevitable adjustment. A far-sighted and enduring policy is required, based on a broad consensus, that benefits both the economy and the environment. The National/Maori deal is not durable as it is out of line with New Zealand’s long-term strategic needs and interests.

National snub to Labour on ETS: part 2 – the fallout Gareth Renowden Sep 14

Join the conversation at Hot Topic

Carbon News has a special update tonight with the gory details of the government’s snub to the Labour opposition on negotiations to amend the emissions trading scheme. CN has also made available the full text of Labour’s proposed memorandum of understanding with the government (PDF) — which reveals that substantial incentives for agriculture were on the table. Commenting on the news of the deal with the Maori Party, a surprised Charles Chauvel told Carbon News:

“Negotiations with Nick Smith were … (pause) …I’m not sure now we had any discussions in good faith. We’d need to be very careful about whether or not we’d have any discussions with them at any time.”

Labour leader Phil Goff accused National of a “major breach of faith” over the handling of the negotiations, and Chauvel indicated that ETS policy was now likely to become a political football.

Under Labour’s proposed Memorandum of Understanding, Carbon News reports that the agriculture sector would have been given:

…free units for emissions reductions made by farmers before the sector entered the scheme on January 1, 2013. The offer would be worth hundreds of millions and encourage early emissions cuts by farmers who would then have free units to trade on the international market.

[Disclosure: registered users of Hot Topic can claim a discount on subscriptions to Carbon News.]

National snubs Labour, buys Maori support for watered-down ETS Gareth Renowden Sep 14

Join the conversation at Hot Topic

Nick Smith announced this afternoon that National has cut a deal with the Maori Party to support an amended, watered-down emissions trading scheme. Key features (from the press release):

  • Revised entry dates of 1 July 2010 for transport, energy and industrial sectors and 1 January 2015 for agriculture
  • A transitional phase until 1 January 2013 with a 50% obligation and $25 fixed price option for the transport, energy and industrial sectors
  • A production-based industry average approach to allocations for trade exposed, emissions intensive businesses
  • A phase-out of industry support aligned with trading partners and the Government’s long-term -50 by 2050 emissions reduction target
  • Incentives for afforestation created by a domestic and international market for carbon credits
  • Enhanced transitional support for the fishing industry

Smith says that these changes will reduce the impact of fuel and electricity price rises to 3.5 cents per litre and 1 cent per kWh. In addition, the Maori Party get assurances that “further work will be done” on extending the energy efficiency assistance for low-income households, promoting new forestry planting, biodiversity protection, and provisions for treaty settlements affected by the deforestation provisions applying to pre-1990 forests. The government aslo released two background documents: a summary of the proposals and “Questions and Answers” about the changes.

A couple of thoughts spring to mind. The Maori Party’s support flies in the face of their minority report on the ETS Review, where they said they would prefer stronger action, not a weakening of the emissions cuts being considered. I suspect that the real meat of their deal lies in the treatment of pre-1990 forests, where many tribes have very significant assets.

It also looks as though Smith could not cut a deal with Labour, who would have objected to the price cap and reduced obligations during the new “transitional phase”, and the considerable softening of the long term phase out of free allocations to big emitters. Both of these moves have the effect of increasing the subsidy from taxpayers to big (often foreign-owned) corporates. At the same time, delaying agriculture’s entry into the scheme by two years may not do much to blunt objections from farmers if recent Federated Farmers pronouncements are anything to go by.

I’ll have more on this in due course, but here’s a revealing line from the Q+A document:

Assuming new afforestation of 50,000 hectares per year, New Zealand’s emissions in 2020 would decrease by approximately 20% relative to 1990 levels.

In other words, despite refusing to acknowledge forestry’s role in meeting targets during the “consultation” process, Smith has clearly known all along the role it would have to play — because he’s expecting it to deliver a big enough carbon sink to offset all of New Zealand’s emissions growth since 1990 and then 20% more. Words fail me — but only briefly, you may rest assured… ;-)