Category: environment and ecology

Empty rhetoric.  That’s the verdict on the Emissions Trading Scheme (ETS ) from Geoff Bertram of the Institute of Policy Studies and Simon Terry, Executive Director of the Sustainability Council, in their searching book The Carbon Challenge: New Zealand’s Emissions Trading Scheme.

They present a picture of governmental processes captured by powerful groups pursuing their own interests at the expense of the rest of the community. Large industry and agriculture have won for themselves exemptions and delays of such an order as to make significant emissions reduction impossible in the first commitment period (CP1) of the Kyoto Protocol. At the same time the costs have been loaded disproportionately on to households and small industry. Those responsible for 30% of emissions will carry 90% of the cost. Agriculture with 49% of emissions will pay 3% of the costs.

The authors don’t accept the claim of the agricultural sector that there are few options open to them to reduce emissions. In fact they claim agriculture offers by far the biggest set of low-cost abatement opportunities. There are a number of options that are not only commercially available but profitable to undertake. They instance means for reducing nitrous oxide emissions – nitrification inhibitors, stand-off pads, new grasses, supplementary maize feed, improved soil drainage.  Selective breeding offers the possibility in due course of some reduction of methane as does the supplementary feeding of various plant matter. The processing of casual effluent from milking sheds through bio-digesters cuts both carbon dioxide and methane. Improved carbon storage in soils through pasture management appears possible as does sequestration through biochar burial. Meanwhile agriculture’s exemption from the ETS bolsters higher land prices. Nice for landowners, but subsidised by the community at large.

In the longer run the ETS exemption is against farmers’ own best interests. It is shielding them from likely winds of change in world markets. The authors instance large companies in other countries seeking low-emissions milk, as Cadbury is doing in the UK,  and point to the likelihood that New Zealand will surrender first-mover advantage to such countries if we continue with our present dogged denial.

There is self-defeat for large industry, also, in the favoured position they have gained for themselves. The ETS opens the possibility of production subsidies for high-emission industries by focusing on the intensity rather than the overall quantity of emissions. It is likely, for example, that Solid Energy would be entitled to subsidies for the manufacture of urea from South Island lignite, even though it would be the country’s biggest single industrial emitter of greenhouse gases after the Huntly power station. By this provision New Zealand could provide a welcoming environment for industries relocating from other Annex I countries, via ‘carbon leakage’ from those economies. Such production subsidies will invite tariff retaliation from other countries and could shut New Zealand exports out of key markets.

New Zealand will emerge from CP1 with a level of emissions considerably higher than the 1990 benchmark to which we are expected to have returned. The role of forestry as a carbon sink to offset the country’s emissions is the subject of close investigation in the book, which warns of the reckoning which must be faced when the trees are cut down. Potentially enormous costs could be faced by the next generation when the final accounting is made. Indeed, the costs may be so high as to raise questions about the country’s ability to meet them. This prospect may see other nations disallowing the plantation forest offsetting practice in successor arrangements after CP1. Permanent forests are a different matter, and the authors see these as a real key to balancing the country’s future carbon budgets. They lament the uncertainties and potential retrospective taxation the forestry sector faces by comparison with the government response to demands from large industrial operations.

The book’s discussion of forestry, as of many other aspects of the ETS, is complex and demanding for the general reader. But the ETS itself is highly complex and often difficult to follow. I can well understand the authors’ claim that it’s a reasonable guess that no more than a handful of MPs understood the detail of what they were voting on in 2008 and 2009. I often found myself struggling to get a proper hold on the ramifications of the various processes the book explores, even though the authors have been exemplary in the patience and thoroughness of their explanations.

It is the exhaustive care they bring to their task which makes the reader respectful of the summary statements which emerge from time to time in the course of their discussion, such as this one:

“The ETS has not been designed to promote economically efficient abatement.  It has been designed firstly to protect and promote the position of vested interests that are unwilling to shoulder asset write-downs required to recognise a price on carbon, and secondly to transfer the costs of this to future generations.”

However there are countervailing forces at work against the formidable clout wielded by agricultural and other major emitter lobbies. The authors nominate three domestic factors which could upset the current political equilibrium. One is the possibility that the lack of trust in the forestry regulatory regime may deter new planting in general and permanent afforestation in particular; this would increase pressure for reform of the ETS.  The second is that sections of the population and the economy will become more concerned about climate change and the lack of any effective action at home to reduce emissions. The third is that the recognition of the size of the carbon debt we are passing to future generations by using forest credits to cover excess emissions may become a moral issue.

They also point to international factors which will put our ETS under pressure. One is the pressure we will come under if international emissions targets move towards being set more on a per capita basis. It would be very risky for us to go forward with gross emissions far above any we could hope to defend in a global commons debate.  Another is the possibility mentioned above of changes to the rules relating to forestry in a CP2 period. A third is the risk of border taxes and other adjustments we could well face from other governments and from private-sector firms if our climate change policy is shown to be incapable of matching the climate change objectives it espouses.

In the ETS we have shied away from the present costs involved in serious action to reduce emissions. But in doing so we have laid up for ourselves the far greater costs which will be the result of doing nothing now. That is the basic warning of the book. New Zealand is part of the developed world and will not be able to escape its fair share of responsibilities as we appear set on trying to do.