Latest NZ ETS report: policy failure is main feature

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:

  1. 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.
  2. 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

4 thoughts on “Latest NZ ETS report: policy failure is main feature”

  1. Can anyone clarify the “paid to pollute” aspect? I don’t quite get it. Are the trade-exposed industries being paid in the form of NZUs? If so that’s a bit different than being paid in the form of NZ dollars because NZUs are only usable in the carbon markets. The way I read these posts though is that taxpayers have given these industries a whole lot of extra money (NZ dollars).

    Sorry for being dense…

    1. Someone has to pay for the $17m of free credits given to the companies. That someone was the taxpayer. If they hadn’t gotten the free credits the companies would have had to pay $17m for them. Imagine how they’d be scrambling to cut emissions if they’d actually have to pay for those credits. It’s a subsidy. Pure and simple. Paid to pollute.

  2. Nearly all the countries in the world cheat with cabon credits but New Zealand took a cynical approach to look as though we had a scheme when we do not. As others have pointed out our farmers and coal and oil users do not pay anything and so we are making no progress to a cleaner world.

  3. I have been intrigued by the Prime minister saying things like “We must take this seriously” or “We must do something” about climate change following the release of the Pope’s encyclical on climate change and the coincidence of some serious flooding. It seems that religions are ramping up the pressure to seriously address climate change – quoting from their own sources to back up the moral imperative. So far the following have come up with declarations:

    Roman Catholics
    Church of England

    A UN page on the Muslim Declaration links to all the above statements. It cites some Pew research to say that these groups plus the Hindus engage about 84% of humanity. It also mentions Interfaith groups working with respect to the Paris CC Conference.

    Hindus are still working on their Climate Change Declaration but had a presence at the Muslim conference. I find it of significance that such apparently disparate groups can be of one mind on any issue, putting humanity first and making stewardship of the earth and its lives a moral imperative – a spiritual development?

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