Solid Energy, NZ’s state-owned coal mining company, is promoting an alternative to an economy wide emissions trading scheme. According to Carbon News, the approach is being “heavily peddled to policy makers and others in Wellington”, and it is seen to have “great simplistic appeal”. Carbon News has made the document, A Durable Climate Change Strategy for New Zealand, available here.
The essence of the scheme, once you plough through Solid Energy’s reasons for disliking the ETS as currently proposed, is that the government should plant lots of trees, funded by a $1/tonne carbon levy applied across the economy. Lots and lots of trees — a million hectares of new exotic and native forest planted over the next 20-30 years. Solid Energy claims that “Kiwiforest” would provide enough cheap carbon sequestration to allow the economy to grow without the need to impose steep carbon prices. An ETS would only be introduced when there was a truly global interlinked network of carbon markets.
Sounds attractive, on the face of it. Who could object to planting lots of trees? Certainly not me. Unfortunately, as a national emissions strategy it looks too simplistic to be realistic, and on Solid Energy’s numbers delivers emissions reductions that aren’t credible.
The key assumptions are clear in this graph from Solid Energy’s document:
Solid Energy expect that the government will commit to an emissions target of 50% below 2010 emissions by 2050. The graph suggests that forest growth and efficiency gains will essentially “mop up” all but a small portion of the growth in emissions and deliver emissions reductions. Built into this appears to be an assumption that NZ will hit its Kyoto target (100% of 1990 levels), so the 2010 base figure is not shifting the baseline much, and “50 by 50” was National’s stated policy before the election. However, Nick Smith has also promised that NZ will work towards a stabilisation target of 450 ppm CO2 (he said CO2e, but must have been confused), and other countries are looking at much more demanding targets than 50 by 50. Even Australia, where Kevin Rudd has delayed the introduction of the ETS for a year, has said it will support 25% (below 2000) by 2020 if there’s international agreement. Ultimately, to stay within 450 ppm, developed economies will have to commit to 80% cuts by 2050, and probably more to allow room for some emissions growth in developing countries. And if by some miracle the world agrees that we should aim for 350 ppm, then we’ll need to move to negative emissions — fixing more carbon than we emit.
To put this into the context of Solid Energy’s plan, I’ve overlaid the emissions pathway we need to follow to arrive at an 80% reduction in net emissions by 2050. It goes (approximately) through 25% in 2020. It’s obvious that we will need more than just big new forests and efficiency to hit that target — we will need substantial cuts from all emitters, and all sectors of the economy. That means a realistic carbon price in the local market, and to deliver least cost change we need to start soon…
There are other substantial fish hooks in Solid Energy’s plan. A major one is that a national forestry company designed to deliver offsets to the New Zealand economy at $2 – $15/tonne (SE’s estimate) is a huge market distortion. International carbon prices are likely to increase over time as emissions caps bite, so by creating a source of cheap carbon NZ Inc would effectively be subsidising its big emitters. That’s not likely to go down well in export markets where our competitors are exposed to the full impact of carbon pricing.
The economic reality is that a carbon credit asset on this massive scale would have to be valued at international prices. It would make much more sense to a government (and taxpayers) for that resource to be sold at the best prevailing price – the world price for that class of carbon. Milk prices in New Zealand are not set by the cost of production but by the prices farmers can get in international markets. The same would inevitably apply to Kiwiforest’s carbon.
Solid Energy’s plan is certainly superficially attractive, but amounts to little more than a new twist on the special pleading by big emitters for protection from carbon pricing. Although planting lots of trees and protecting and enhancing native forests could and should be a major part of NZ’s climate policy, this proposal looks economically naive and impractical.
The uncomfortable truth for our state-owned coal company is that while it may have good markets for its fossil fuel in the short term, in the medium to long term it is becoming increasingly obvious that we are going to have to leave coal in the ground. If carbon capture and storage proves economical (and it hasn’t yet), then perhaps there’s a long term future for coal, but in a world where we may be looking to suck CO2 out of the atmosphere, CCS technologies would almost certainly be better applied to biomass burning to deliver carbon negative energy. Instead of whinging about the ETS and pleading for protection from carbon pricing, it would be a far better use of NZ’s taxpayer investment if Solid Energy’s management were preparing strategies for the real world.