This is a guest post by Professor Euan Mason of the School of Forestry at the University of Canterbury. It is cross-posted from his Photosynthesis blog.
New Zealand’s climate change policy failure is the main feature of the 2014 report on New Zealand’s emissions trading scheme (ETS). More than 95% of surrendered credits were imports, and the cost to emitters was approximately 10 cents per imported ‘hot air’ credit during most of 2014, compared to an average of approximately $4 for New Zealand Units (NZUs), our domestic carbon credits, during that year. In addition, during 2014 taxpayers gave 4.4 million NZUs to ‘trade exposed’ industries, representing a windfall for them of approximately $17 million, which is their allocation multiplied by the difference in price between domestic and imported credits; we essentially paid them to pollute. Given the low cost of imported ‘hot air’ carbon credits and the fact that we paid people to pollute, it is unsurprising that New Zealand now lags behind almost all of the rest of the world in its climate change response.
Since imported credits were outlawed earlier this year our NZU price has gradually risen to around $7/credit. This price is much too low to encourage the level of tree planting we need in order to avoid a blowout in our carbon accounts during the 2020s as trees planted during the 1990s are harvested. Figure 3 of the ‘Facts and Figures’ report shows that only 42% of post-1989 forests are registered in the ETS. Figure 4 shows the dramatic reduction in new forest planting and the resumption of deforestation that coincided with imports of cheap ‘hot air’ credits that began in earnest towards the end of 2011.
New Zealand’s creative accounting with ‘hot air’ credits has done two things:
- Our government has used the ETS to harvest a large volume of ‘hot air’ credits that will likely be used to claim that we ‘met’ our national commitment to reduce net emissions to 5% below 1990 gross levels by 2020.
- Many ETS participants have hoarded approximately 153 million NZUs in the ETS registry, often by storing grandfathered allocations of NZUs and then surrendering cheap ‘hot air’ credits to account for their pollution instead. This will enable them to meet their ETS commitments for many years to come.
Our ETS can be made to work if we:
- Stop grandfathering credits
- Have no random gifting of NZUs from Government to industry
- Apply the ETS equally to all sectors
- Allow trading only between sequesterers and emitters
–If you overpollute you pay someone else to clean up
- Manage our domestic credits as a currency rather than as a commodity
–Set reduction targets each year
–Require surrenders only for “over target” greenhouse gas emissions
–Set annual emission reduction targets that stabilise the NZU price
–Plan to gradually reduce our NZU price as the world solves the climate change problem