How fast over the cliff? More tinkering with the train-wreck NZ Emissions Trading Scheme

How fast shall we drive over the cliffSimon Johnson aka Mr February looks at the Government’s latest token consultation about tinkering with the train-wreck New Zealand Emissions Trading Scheme. We are still driving fast towards a cliff but the argument has moved from which gear to air-con versus heater. The Government has kindly given us the opportunity to make a submission about how hot or cold we should be as we go over the emissions cliff.

Back in September 2012, when Tim Groser and the National Government were last watering down the New Zealand Emissions Trading Scheme (NZETS), I wrote a post that used an excellent metaphor for amending the NZETS, tinkering with the gears while driving a car fast towards a cliff.

All credit should go to former Greens co-leader Jeanette Fitzsimons who had absolutely nailed her answer to questions from TVNZ about the relevance of amendments to the NZETS.

“Look, its like we are in a very fast car, we are heading towards a cliff, which is getting really close, and we are arguing whether to change from fifth to fourth gear”.

Now we roll forward and there is another review of the woeful NZETS.

For all that has happened in the last three years, such as the Doha COP meeting, the Poland COP meeting, NZ opting out of a binding second Kyoto commitment, NZ being excluded from the international carbon markets, the 2020 target and 2030 target and the recent Paris Agreement, the fast-car-over-the-cliff metaphor still nails the state of the NZETS; that it is so far from being an effective emissions mitigation policy that ‘reviews’ are merely futile tinkering in the face of the impending threat of climate change. Especially when the scope of the review deliberately excludes the option of including agriculture in the NZETS.

The first stage of the review is a perfect example of futile tinkering. It is very narrowly focused on just two of the many ‘cost-moderating’ measures inserted in the NZETS in 2009 and extended in 2012.

  1. Should we end the two tonnes-for-one unit deal, so that energy and industry emitters have to surrender one unit for every tonne of GHG emissions, rather than one unit for two tonnes of emissions?
  2. Should we adjust the existing $25 price cap/fixed price surrender option?

The role of these ‘cost-moderating’ features is discussed in Jessika Luth Richter’s 2012 masters thesis Institutional Feasibility the end or the means in emissions trading Evaluating the New Zealand Emissions Trading Scheme (106 pages, 1.8MB pdf) with the University of Lund.

Richter makes several interesting observations (No really! The thesis is worth a read if you are a ETS wonk). In some ways the political influences on the NZETS design were typical of the international experience (page 60): “allocation is nearly always contentious, often free, and often heavily influenced by lobbying”.

In other ways, the NZETS experience of these ‘cost-moderating’ features is unique to New Zealand. During the 2007 design stage, Treasury and the Ministry for the Environment assembled a complete smorgasbord of possible ‘cost-moderating’ features (free allocation, access to international markets, safety-valve price caps, two-for-one obligations). As these measures all had the same function (reducing cost and therefore price impacts), they felt only some were necessary in the 2008 NZETS. However, the 2009 amendments added all the cost-reducing measures into the NZETS. As Richter notes with understatement

“Additional moderating design features in the NZ ETS are also mentioned in literature and have been used in other schemes; however New Zealand is unique in the range of these features all incorporated into one ETS.”

In other words, the National Government threw the whole kitchen sink of cost-moderating features into the NZETS. They said to New Zealand’s big businesses “Forget your diets, just try and eat everything on the buffet”.

Let’s get back to the review discussion document. It describes the two-for-one deal as follows:

The one-for-two surrender obligation allows participants from the liquid fossil fuels, industrial processes, stationary energy and waste sectors to surrender one unit for every two tonnes of emissions (ie, a 50 per cent surrender obligation). This means that these participants do not face a full obligation for their emissions. As a result, the effective carbon price they pay is half the unit price. For example, with a New Zealand Unit (NZU) price of $7, these emitters pay an effective carbon price of $3.50 for each tonne of emissions, with a maximum effective carbon price set at $12.50 due to the $25 fixed price surrender option (page 12).

What to do with the two-for-one deal. This is just a no-brainer. Of course, the two-for-one deal should just end! It was meant to end in 2012, and the 2012 extension was flagged at the time as being temporary and ending in 2015.

So why are we even consulting about this non-issue? Surely the policy default is that any well-designed transitional measure should simply end on the date specified in the original policy? Of course, from the point of view of political economy, such things as policy defaults and burdens of proof can be influenced by political interests.

We can view the Ministry for the Environment’s decision to have a consultation over the end of a transitional measure (such as the two-for-one deal) as changing the burden of proof. Instead of the transitional measures (of which there are many in the NZETS) simply expiring, a process must be held to arrive at that decision. This involves policy assessment and consultation. The expected end-point of the two-for-one deal changes in character from that of an automatic expiry, to an open “yes/no” decision where the default is the status quo of indefinite extension.

And so the burden of proof now falls on the advocates of change (to a tighter ETS) and is removed from the advocates of the status quo who want an eternal transition.

The discussion document even expands the unnecessary scope of the decision by presenting three options (page 13); maintain the 2-for-1 deal indefinitely, or extend the term then review it, or scrap it and make emitters pay for each tonne of greenhouse gases. The document at least states the real world implication of keeping the 2-for-1 deal indefinitely: NZ unit prices would remain less than $NZ12.50 per unit, i.e. half of the price cap of $NZD25.

The discussion document describes the second issue about the $25 price cap/fixed price option as follows:

The $25 fixed price surrender option allows businesses to surrender an NZU by paying the Government $25 per unit. It was established as a transition measure in 2009 to protect firms and the economy from price spikes or excessive costs. It acts to cap the maximum carbon price in the NZ ETS, and in combination with the one-for-two surrender obligation, it currently ensures that the maximum effective carbon price any non-forestry participant will face is $12.50 per tonne (page 14).

Again it is a no-brainer that this price cap should be removed. It was always obvious that in the long-term it would cap NZ unit prices at $12.50 per tonne. However, to the best of my recollection, this is the first time the Ministry for the Environment has explicitly said so. The inclusion of the price cap in itself indicates a lack of real commitment to an emissions trading approach. If the Government was that concerned about upward volatility in emission unit prices, they should have implemented a carbon tax and not an emissions trading scheme.

Rather than discouraging me, writing this post has made me more determined to make a submission. Perhaps even two, as the trustees of carbon forest project I am involved in, also want to make a submission. Both submissions will probably use the expression “no brainer” several times.

Submissions on these two issues close at 5pm on 19 February 2016. Submissions can be made online, by emailing or writing to the Ministry for the Environment, PO Box 10362, Wellington 6143.

To end this post I give you this cultural mash-up by the under-rated American performance artist Vin Diesel which blends car crashes, train wrecks, cliffs and even a bit of Butch Cassidy and the Sundance Kid.

7 thoughts on “How fast over the cliff? More tinkering with the train-wreck NZ Emissions Trading Scheme”

  1. I considered making a submission but then realised that to do so on such questions was to tacitly support this piece of manipulation posed as a consultation. Of course this could mean that the forces opposed to any increase in carbon price, who will all say so, will be a sweeping majority and the government will bow to the “will of the majority”.

  2. You make an excellent point, Noel. I think George Marshall made a similar comment about attending the 2009 Copenhagen COP and afterwards feeling complicit in it’s failure.
    Elsewhere on the web I see that Brian Fallow, Generation Zero and Geoff Simmons are all accepting the “fix the NZETS” framing in their comments on the review. I think this is fundamentally wrong in it’s politics. As the burden of proof is now to show that each flawed element of the NZETS won’t harm business interests, the process of “fixing the NZETS” will take a very long time -if it ever concludes. Applying the maths of our carbon budgets/Kevin Anderson/Paris Agreement, we just don’t have enough time for a never-ending institutionalised cultural/tribal NZETS debate/process. The political goal must be to remove the social licence of the NZETS. One of Tim Groser’s last statements as Minister was to praise Labour and to damn the Greens for their NZETS and carbon tax policies respectively and to say:
    “I do not believe there is anything fundamentally wrong with the emissions trading scheme”.
    I rest my case that the science and ethically based best mitigation policy is the opposite of what Groser says!

    1. It seems to me the only recourse is to create via the co-operation of several relevant NGOs an ongoing consultation that can pose the real questions that address the need for an effective carbon tax. Submissions rather than comments, reports and press releases in place of fake consultations and propaganda, apolitical.

      It is certain this government is not going to do so being locked into a process of deception for so long they have no idea what to do – hence minimal targets set way in the future without ways of implementation.

      Once one decides to address a problem ways and means become apparent.

      My first submission:

      There are just two proper goals that must be addressed concurrently through a carbon tax:
      1. Elimination of GHG emissions ASAP
      The “P” above is the region of targets.

      2. Sequestration of carbon starting yesterday!

      The obvious area for sequestration is through soil improvement.
      Carbon gain is rewarded, loss is penalised.

      If carbon gains are offset against carbon losses that merely continues the present condition which is already bad enough. Carbon gains can be evaluated only against the total carbon footprint of the entity concerned. “Yesterday” in sequestration implies that past sustained gains are taken into account. That the Kyoto protocol did not allow this is a major reason for Japan’s disenchantment with it.

      I have been interested to read of an Ohio crop farmer who caught the attention of the French government looking to address climate mitigation through soil improvement.

      Brandt hasn’t tilled his soil since 1972, when he rented his first 600 acres of farmland to grow wheat, corn, and soybeans. And by keeping plants on his land in various stages of growth and decomposition, Brandt appears to have increased the amount of carbon in his soil over the years. One study estimated that total organic carbon in the top foot of Brandt’s soil increased by 10% after six years of no-till, 35% after 20 years, and 61% after 35 years.(1) (The data on which this estimate was based were not peer reviewed.) Overall, Brandt’s soil stored, or sequestered, an estimated average 960 kg of carbon per hectare per year.

      Our examples please?

      Oh! If a proper carbon tax results in well-off farmers who are sustainably carbon negative I will not mind a bit!

  3. “Elimination of GHG emissions ASAP”

    Simple. Ban all cars, trucks, buses, air travel, and all products that require transport for delivery to destination.
    After all, there is no point in fudging around. Let’s cut to the chase and state what we really want.

    1. Almost practical at last Andy! Unfortunately a carbon tax does not involve bans. However, its net effect should be to incentivise emission free solutions. Of course if I could ban something I would not restrict myself “to stating what we really want”. I would do it, and ban the fossil fuels, not the cars etc. My powers being weak I will restrict myself only to a ban on the fossil fuel supply to your vehicle. There may be a delay. Let me know when it works 🙂

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