Fixing the NZ Emissions Trading Scheme is just flogging the dead horse

How fast shall we drive over the cliffSimon Johnson looks at ‘fix the ETS’ metaphors and argues that trying to incrementally ‘save’ or ‘fix’ the NZ Emissions Trading Scheme will ensure it remains ineffective in reducing domestic emissions for decades. Politically, its just flogging the dead horse. We don’t have time for a unending institutionalised cultural conflict over ‘fixing the NZETS’ like the one we have had for ‘fixing’ the Resource Management Act.

In my last post I used the metaphor or framing of ‘arguing over the gears while accelerating towards a cliff’ for the latest review of the New Zealand Emissions Trading Scheme.

Other commentators are using a very different framing for the review; that of ‘fixing the NZETS’. For me that raises some fundamental questions. What are the political advantages and disadvantages of the two framings? Where will each framing lead us? Which framing is more ‘science-informed’?

Brian Fallow, Generation Zero and Geoff Simmons (of the Gareth Morgan Foundation) are all accepting the ‘fix the NZETS’ framing in their comments on the review. Geoff Simmons heads up his second post in two days on the NZETS review How do we save the Emissions Trading Scheme?.

Brian Fallow starts his Herald column “Possible adjustments to the Emissions Trading Scheme aren’t much, but at least they’d be a start”.

Geoff Simmons and Brian Fallow do a double act of analysis on the NZETS review. I totally respect both Geoff and Brian in their intentions and views and understanding of the NZETS. However they both accept this inherently incremental ‘fix the NZETS’ framing of the politics. Here’s their discussion.

I think this framing, ‘fixing the NZETS’ is fundamentally wrong in it’s politics.

One key point from my last post was that this NZETS review has reversed the burden of proof. The allegedly temporary and allegedly transitional ‘moderating features’ are now the status quo or the default settings in the NZETS.

Policy analysis and assessment now has to be prepared and presented to show that each flawed ‘moderating feature’ of the NZETS won’t harm business interests. Queue the technical report Economic impacts of removing NZ ETS transitional measures by New Zealand Institute of Economic Research.

We need to remember there are a lots of ‘cost moderating’ features (flaws) still in the NZETS: unlimited international linkage and importing of overseas units (access to which officials are trying to restore), overly generous free allocation of units, the hang-over of surplus units in the market, the lack of auctioning (well there is no point having an auction if there is a huge surplus of units).

And the ultimate flaw in the NZETS is that half of New Zealand’s greenhouse gas emissions, those from pastoral agriculture, seem to have a permanent get-out-of jail card.

So we have an emissions trading scheme with multiple flaws. The politically selected burden of proof provides a high hurdle for change each time the hapless officials attempt to remove the flaws. All the lobbyists join in as they already have the dates in their calendars.

Also, what is the messaging you need to do if you are promoting long-term incremental reform of the NZETS?

Well, first of all and before explaining your ‘fix’, you have to try to explain the NZETS from square one for each increment (again and again!). Geoff Simmons gets this as one of his other recent NZETS posts is white board Friday emissions trading for dummies.

The trouble with this is that explaining the NZETS is 95% impossible! I suggest from my own experience that most people find the NZETS the ultimate “My Eyes Glaze Over” topic. Poor old Geoff Simmons better to be ready to do another decade’s worth of ’emissions trading for dummies! To borrow a metaphor from the centenary of the First World War, incrementally fixing the NZETS is like winning the trench warfare one shell hole at a time.

Compare that with the explicit message from the fast-car-to-cliff NZETS metaphor. The NZETS is not effective. It is not worth saving. It’s got to go. Three four or five word sentences. Message transmitted loud and clear, over.

You need more convincing?. Let’s look at one of Tim Groser’s last statements as Minister for Climate Change.

First Groser praises Labour for their shared consensus on having an emissions trading scheme.

We have an understanding that there are certain policy frameworks in New Zealand which take decades to put in place, and where you need a very high degree of consensus – particularly amongst the two major parties of Labour and National – on at least a structure of a policy response.

Labour have supped the kool-aid and have bought into this framing. As shown by this statement to Forest and Bird during the 2014 election campaign.

Labour’s preferred means of pricing is to fix the the existing ETS. Using an ETS to price carbon is the only broad area of agreement in climate change policy, particularly particularly between the two largest parties (despite National’s lip service for an ETS). Labour would not throw that agreement away lightly to start again with a carbon tax.

In other words, Labour will flog the dead horse better than National. As I noted in 2014:

National and Labour in effect have the same policy narrative that explains the problem; ‘THEY undermined the NZETS’, and a narrative solution, ‘WE will fix the NZETS’. This creates the on-going cycle of the ‘horse is under performing’ and the narrative solution (keep flogging the horse). But beneath the impenetrable detail and complexity of the arguments about fixing the NZETS, it will remain ineffective.

Groser saves his well-known invective for Russel Norman and the Greens and their carbon tax policy. And stretches a very long bow to equate that policy with the Rudd-Gillard-Rudd Australian Labor Prime Ministers’ revolving door.

What I didn’t appreciate was that Russel Norman — then leader of the Green Party — saying you want to throw the policy structure away and have a carbon tax… I can guarantee you what that would have done — it would have set us back on a cycle of internal political conflict, which would have repeated exactly the problem in Australia.

Groser concluded:

I do not believe there is anything fundamentally wrong with the emissions trading scheme.

I rest my case that the best science-based and ethically based climate mitigation policy is the opposite of what Groser says!

A ‘horse-flogging’ process of ‘fixing the NZETS’ will last a very long time – if it ever concludes. It could just become an social and cultural institution like the never-ending debate over the Resource Management Act. In a previous post I used the metaphor of flogging the dead horse after the snake swallows the elephant in the room to describe this possibility.

Applying the maths of our carbon budgets, Kevin Anderson’s analysis and the Paris Agreement, we just don’t have enough time for a never-ending institutionalised horse flogging debate over the NZ emissions trading scheme. The political goal must be to remove the social licence of the NZETS, to de-legitimize it in the eyes of the public and then to scrap it so a simple carbon tax can be adopted instead.

28 thoughts on “Fixing the NZ Emissions Trading Scheme is just flogging the dead horse”

  1. Though both Labour and National support the ETS they differ radically in that Labour genuinely intended it to work while National did everything short of discarding it altogether to ensure it does not work.

    The exclusion of farming from the NZ ETS on the excuse that an answer has to be found for cow methane emissions – a diversion like the flag debate in my estimation that means even less with the collapse of the milk powder price now everyone else is onto it – does not alter the fact that carbon trading is fundamentally flawed anyway.

    No trading scheme has reduced total emissions or even stopped them rising. Economic problems have been more effective short term. I saw once an argument as to why trading schemes have some sort of floor below which the incentive to reduce emissions fails. Small scale emitters may never have much incentive to reduce emissions and trading has lent itself to deception rather than emissions reduction. It is easier to get an ETS in place compared to a carbon tax just because it is not as effective.

    A trading scheme worked to reduce SO2 emissions but there the target was not the elimination of emissions. So Kyoto carbon trading has not worked and in the most seriously implemented scheme, the EEC ETS, the carbon price crashed in 2013 so the UK Chancellor introduced a stabilising measure, progressive carbon floor price, to howls of outrage. In 2014 just when it was beginning to sink in that he might have got a progressive carbon tax actually working in the EEC he froze the carbon floor price at £20/tonne to more howls of outrage.

    In contrast to any ETS, any carbon tax, even weak ones, have worked.

    It seems that an ETS scheme is fundamentally flawed in concept and while we fiddle the world burns.

  2. On a carbon tax in NZ I submit that agricultural methane emissions have to be separated from fossil fuel emissions to be equitably dealt with.

    The Green party carbon tax will work and has the advantage of simplicity and a populist implementation that I can appreciate every year when Auckland lines company, Vector, sends me $3xx. A woman was recently quoted as saying that the Vector rebate gives her 3 months “free” electricity each year! Emitters do not have to be consulted on the principle of a carbon tax – we all know what their submissions will be: “not us”. However, the proposed carbon tax does not address carbon sequestration nor methane emissions. The populist approach does have its limitations.

  3. The emissions trading scheme is one huge problem. It is one of those things that makes sense in theory, but seems to be a big problem in the real world. The ets is a price signal mechanism that has no guarantee of working, and is very slow, and is full of loopholes and all sorts of problems.

    By the time we have found out whether it works, its too late because global warming is not going to wait.

    This is exactly what has happened with the ets. After about 6 years we have figured out it doesnt work, but are toying with small changes and another 6 years will go by and they probably wont work and so on. Even quite big changes or increases in carbon prices could go askew with unpredictable results.

    Unfortunately carbon taxes would have similar problems, but are definitely better than an ets as they have less complexity and loopholes.

    But why not just regulate the main emitters directly with limits and specific rules. We know what the main sources of emissions are, and what basically needs to be done. We know immediately that such direct measures will work.

    Have some incentives for buying electric cars. That one billion we spend on the ets each year would provide plenty of electric car subsidies.

    1. “Unfortunately carbon taxes would have similar problems, but are definitely better than an ets as they have less complexity and loopholes.”

      Carbon taxes do not have similar problems – they actually have demonstrably reduced emissions and if applied to all fossil fuels at source or point of sale, get everyone thinking about reducing emissions, not just a big few. They are so fiercely attacked just because there are no loopholes. Targeting a chosen few “main emitters” as happened in Oz did work but not well enough to do the job needed.

      A carbon tax can be simple as described above. It could be made complex too. Sweden avoided unnecessary complexity by having a certification scheme alongside now shared with Norway. They’ve gone a long way from 75% dependance to a declaration that they will be emissions free in a short time and at the same time are making money available to help other countries on their way.

      Trading schemes, even if applied in good faith, just can’t be good enough because they depend on price signals that depend on demand.

      1. Fair comments noelfuller. Maybe the ideal answer is a carbon tax, plus some other direct government measures. I don’t see why we would rely on just one mechanism alone like a tax or ets. This so called economic purity doesn’t convince me. It just defies commonsense.

        For example the carbon tax income could be used for incentives to help get recharging networks started. Put some of the money from the tax into subsidising electric cars.

        Here is another example. In NZ the electricity system is pretty much controlled by the electricity authority, and they determine future generation. It just seems to make sense for them to directly decide future generation and ensure its all clean and green, rather than wait for a carbon tax to put pressure on.

      2. noelfuller: In the real world carbon taxes have the same major issue as emissions trading: Rent seeking by big polluters leads to subsidies and exemptions. This weakens effectiveness in reducing emissions and shifts the burden onto households and small businesses.

        It is fanciful to compare a pure no-exemptions, no-subsidies carbon tax with our current ETS. The carbon tax that gets delivered by Parliament will be just as hamstrung as the current ETS.

        This was perfectly demonstrated in New Zealand as it prepared to implement a carbon tax under Labour. Politicians granted agriculture an exemption and big polluters negotiated generous subsidies (so-called negotiated greenhouse agreements).

        Focussing on a tax vs an ETS is the wrong issue. The issues to focus on are 1) a material carbon price and (2) full economy coverage with no exemptions, subsidies or rebates.

        1. Troy “Focussing on a tax vs an ETS is the wrong issue. The issues to focus on are 1) a material carbon price and (2) full economy coverage with no exemptions, subsidies or rebates.

          And that is exactly what I would call a carbon tax! That the so-called stake holders would try to corrupt it is a given. In the past when Labour and National both tried to implement a carbon tax it seemed to me to fail because the vested interests got to the party rank and file who were not really climate literate.

  4. Noel,
    I agree completely! That’s exactly my point. The NZETS is the result of so many compromises that it’s the opposite of a material carbon price with no exemptions economic coverage.
    Troy, what’s easier to explain to a disinterested friend – the NZETS, with all it’s wrinkles, or a no-exception carbon tax?
    Also, full economic coverage (pastoral agriculture) is not even within the scope of this review. If we read the NZETS Assessment document, there are other exclusions of scope – such as ‘environmental integrity of units’. So a material price is also arguably out of scope too. Don’t even get me started on the ‘purposes’ of the Climate Change Response Act. Hint – it’s not reducing GHGs in a quantum consistent with the science.

    1. To quote Troy again: “…full economy coverage with no exemptions, subsidies or rebates.”

      I have been expecting someone to point out that Janes Hansen’s idea of distributing carbon tax income equally among all the populace is a “rebate”. It will be so regarded,

      It is a magnificent “Robin Hood” policy – afterall, the richer people are the more carbon they use. The populace spend the carbon money according to their desires so there is probably an emission boost in that. The other way is to use the tax to stimulate carbon free develoment – infrastructure for instance. The problem and complication here is to do so wisely.

  5. If you scrap the ETS you need to deal with the issue around forestry credits, since people invested in forestry (perhaps) on the assumption that they would make money out of the scheme.

    1. The value of a forest as a carbon sink, in the form of standing timber, and as a way of sequestering carbon in the soil, is something that has to be considered indeed.

      The International community has consistently, and rightly, rejected the proposition that a forest that is then cut down, should earn carbon credits. Inevitably most of that timber returns to the atmosphere by burning or decay, that is it becomes a carbon source! It has no value as sequestered carbon once cut. Labor started that hare I believe, which National has persisted in promoting. A startled hare, in my experience, always returns to its starting point!

      Nor can a simple carbon tax help, but as Nijeli suggested, companion mechanisms may be considered. As far as climate mitigation goes, as well as sustainable agriculture, a value can be placed on carbon sequestered from the atmosphere. I have wondered seriously if the Sweden-Norway certification scheme could be adapted so that these forms of carbon management have equivalent value to energy generation. A while back I also envisaged a more complex carbon tax, income from which is used to realise the goal of sequestering carbon through soil and forest management.
      Sequester carbon: gain value, lose carbon; lose value.

      A risk to forestry in areas that are getting drier with climate change is that the forestry carbon sink all too readily turns into a large carbon source. Forest fire in Oz for one has increased in frequency.

      1. Generally speaking, taxes work better if they are simple. In this respect, NZ’s GST system is better than Australia’s because there are fewer exemptions. More exemptions mean more regulatory cost, which is especially burdensome on small businesses.

        The ETS is undoubtedly a very complex beast, and the implied property rights conferred by forestry credits create a headache if trying to dismantle the system. The only political party that opposed the ETS (for whatever ideological reason that you might infer) made this point some time ago, when the system was put in place.

        1. Yes dismantling the ETS is would create an issue with forests.

          However maybe its not that hard. Currently forestry owners are paid to have forests, as part of the ETS system. Without an ETS we would still want more forests. A carbon tax would provide income to cover the owners costs etc.

          It would not be that complicated to switch over from an ETS to a new system that incorporates forests. Why would it? Its just an accounting exercise basically. Obviously the owners must be properly paid, thats the bottom line.

          Nobody really liked the ETS. The reason we have an ETS is because the business sector didn’t want either a carbon tax or other more direct regulatory controls. So there’s nothing marvellous about an ETS, it was just the acceptable compromise on the day.

          The main problem with the ETS is cheap imported carbon credits which make a joke of the whole thing. It also puts huge reliance on forestry as a carbon sink. I dont like the idea of relying so much on just one thing. Again it all works “in theory” but lacks basic commonsense.

          Carbon taxes would face the war of what exemptions would apply just like the ETS. However overall a carbon tax makes more sense to me.

          1. So you propose paying (i.e subsidising) forestry owners? Does this include all forestry owners (including the Crown)? Or just ones that received ETS credits?

            Would you also propose subsidising other carbon sinks, such as pastoral land? Would you then tax them when they harvest the crops?

            Not that hard, really

            1. Those are tricky issues, but they could equally apply to the ETS or any alternative system, so we haven’t added complexity if we have an alternative system.

  6. To arrive at an algorithm for effective carbon management, that is elimination of emissions and sequestering of atmospheric carbon, I shall not gnaw on the bones of a dead horse 🙂

    If forests are grown to be carbon sinks a value must be placed on them. Conserving them and ensuring they do their job is a public service, a service to all humanity. Credits gained in the process so far could be transferable via some form of certification. Conserving them means they do not get logged as this removes carbon.

    Effectively a conservation forest has a greater value as a carbon sink than any other use. This point has been made often but I am not aware of any efforts to integrate the idea into an economy. Perhaps you know Simon. In any case the word “subsidy” would hardly apply.

    If this had been so would our conservation department have actually cleared forest for dairy farms thinking to raise money to meet their obligations elsewhere – what an embarassment now! So Act wants them alienated into private ownership painting a mystical picture of all the good things for conservation that would then arise. With such enlightenment it should surely have occured to Act that the best thing that could be done would be to reforest them for climate mitigation – no!

    The purpose of a progressive carbon tax is to deter people from acts that increase carbon emissions, sooner than later. A carbon tax perhaps should also hit land use change that releases more carbon into the atmosphere and certainly should hit imports that are not already equivalently taxed.

    Tradable certificates representing carbon gains by forests and farms pose a problem in metering. How is it done I wonder? Electricity generation certificates are dead easy to meter in comparison. I note China plans a tradable “Green” certificate strategy applied to power generators to encourage non-hydro renewable generation. The idea is getting around but I suspect tradable certificates work best if there is a progressive carbon price in place.

      1. Today all the ‘i’s seem dotted…. must have been a temporary glitch. Even the old posts are good now…. temporary glitches are the programmers worst nightmares…. 😉

    1. Loss of political hearing is the usual prelude to being voted out. In the meantime others have to think a decent policy through. Why leave it to polititians?

  7. India 100% EVs by 2030?
    I’m intrigued by this scheme being floated by a group of ministers in the government of India. If workable it short circuits the carbon tax idea, at least as far as road vehicles go and has the approval already of the local auto industry and I would assume, the car buying populace.

  8. An NZ govt policy and law re the ETS has it that our Councils may not consider climate change with respect to some matters (links anyone?) because the ETS, our dead horse, is taking care of that matter. Plainly it is not , nor will it, Perhaps the councils should apply to the courts to have that law struck out. Is that possible under NZ law?

    1. The Resource Management Act requires local councils to take climate change into consideration in their decision making processes. For example, with respect to sea level rise.

  9. Noel,
    Try this 8 page article.
    The Legitimacy of Climate Change Litigation: Buller Coal in The Supreme Court by Trevor Daya-Winterbottom from the IUCNAEL EJournal.
    West Coast ENT Inc v Buller Coal Limited [2013] NZSC 87 is apparently the last word from the Supreme Court on future greenhouse gas emissions inherent from establishing a coal mine.
    An easier read will be the Anderson Lloyd commentary on the case.
    There is also the blog Climate Change Law by Simon Schofield which unfortunately makes few concessions to non-lawyers. (It’s a bit dense and has small fonts sizes and few paragraph breaks).

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