Tag: Simon Terry

NZ’s emissions target scam – Groser & Co’s creative accounting exposed

Simon Johnson (aka MrFebruary) looks at how climate change minister Tim Groser and the National-led government intend to use creative carbon accounting to ensure that New Zealand meets its 2020 climate change target (a five percent reduction) in spite of emissions of greenhouse gases (GHG) projected to increase to 2020 and beyond.

On 10 April 2015, when he was releasing the latest inventory of greenhouse gases, the Minister for Climate Change Issues Tim Groser made this very confident statement about the NZ 2020 climate change target; “We’re well on track to meet our 2020 target”

That target is to reduce greenhouse gas emissions to five per cent below 1990 levels by 2020.

When this was announced in 2013 the target was criticised as useless, pathetic and inadequate.

The five percent reduction stands in stark contrast to the Ministry for the Environments projections of increasing emissions out to 2020. The Ministry estimates that the increase in gross (total) emissions in 2020 will be 29% above the 1990 baseline (from 60 to 77 million tonnes) and the increase in net emissions (gross less any increase in the stock of carbon stored in forests) to 2020 will be 130% (from 33 to 75 million tonnes). So why is Tim Groser so confident that the target will be achieved?

Simon Terry of the Sustainability Council has commented on the ‘kicking the can down the road’ features of the Government’s climate change policies: the mismatch between the emissions target and the predicted emissions, the absence of a credible plan or carbon budget approach and the deferring of liabilities into the future.

Taking Simon Terry’s work as a starting point, I am going to look at how the Government intends to apply the accounting rules for carbon credits to achieve the 2020 target in spite of the likely predicted increase in gross and net greenhouse gas emissions.

So how is NZ going to reduce emissions by five percent by 2020?

Continue reading “NZ’s emissions target scam – Groser & Co’s creative accounting exposed”

Geoengineering down under: Is Stratospheric Sulphate Injection Completely Reversible?

This guest post is by Simon Terry, Executive Director of the Sustainability Council of New Zealand. The risk rating on stratospheric sulphate injection went up another notch on the basis of material presented at a recent geoengineering symposium in Australia organised by the Australian Academy of Science, while the existing climate change risks did not get any better. The event made a useful contribution to the understanding down under of so called ‘geoengineering’ and delivered some perspectives that will be useful internationally, including a review of sulphate injection that raised a new issue: is it completely reversible? More on that below.

While not exactly the “southern hemisphere perspective” that was billed (as the contributors barely exceeded Australia’s borders), it nonetheless delivered strong presentations and discussion — partly as a result of most speakers being specialists in the field related to each technique reviewed but not technique proponents themselves.

Continue reading “Geoengineering down under: Is Stratospheric Sulphate Injection Completely Reversible?”

Can you dig it?

On the same day that I wrote a post about the proposed lignite development in Southland I emailed the Minister for Economic Development, Gerry Brownlee, to express my dismay at the news. I have received a letter in reply which explains all too clearly how such a development could, and presumably will, proceed under current policy.

In my email to the Minister I pointed out that simply offsetting the massive emissions from lignite development would hardly be in line with the intention of the Emissions Trading Scheme (ETS) and the imperative to reduce greenhouse gas emissions. I wrote that unless there are clear plans to capture and sequester the carbon dioxide which will be released the company should not be permitted to undertake any of the proposals. The government is the owner of Solid Energy, able to tell the company it is not to proceed with the plans, and if necessary able to legislate to prevent the development of lignite until such time as sequestration technology is established. I spoke of the Minister’s duty to prevent such development at this time, and stated in conclusion that his obligation to protect our descendants from the potentially terrifying effects of climate change far outweighs any responsibility he carries for present economic development.

 

The Minister’s reply first assured me that, like me, the Government is concerned about climate change and is committed to doing its “fair share” in reducing New Zealand’s greenhouse gas emissions. The fair share theme is a constant in government statements about climate change these days. It’s a politically useful term: it reminds those who want to do considerably less than we are doing that we can’t afford to appear laggard, and it also serves to placate those who feel we are less than whole-hearted in tackling the issue. It’s hard to argue with, and I can understand its attraction for the government. Nevertheless it’s hardly the kind of term that immediately leaps to mind if one really is concerned about climate change. It suggests that the Government worry is not so much climate change as political positioning.

The Minister goes on to say the ETS is the Government’s principal policy response to climate change. It puts a price on greenhouse gases, he explains, and provides an incentive to reduce emissions and to encourage tree planting. He then adds that it does not provide a cap for existing (or future) emissions and hence is not prescriptive about what developments should or should not progress. This strikes me as a very clear admission that the ETS may not, in fact, result in any reduction of emissions at all.  It is a remarkable act of faith in the power of incentives, and an abdication of responsibility for the outcome.

That abdication becomes clearer as the letter proceeds. It is admitted that lignite developments of the scale being investigated by Solid Energy will create significant greenhouse gas emissions, depending on the particular projects chosen. However any development will be “carbon compliant” with New Zealand’s greenhouse gas emission management frameworks. That looks like meaning that Solid Energy will pay whatever is required under the ETS to cover the cost of its emissions, and if the project remains profitable under such a regime it will go ahead whatever the level of its  emissions.

But if Geoff Bertram and Simon Terry have it right in their book The Carbon Challenge, Solid Energy, far from paying for the emissions from a plant to manufacture urea from lignite, may well be entitled to subsidies in the form of free emission units for its operations provided it meets certain benchmark standards for ‘emissions intensity’. Bertram and Terry estimate that subsidy could go as high as between $500 million and $1 billion dollars in nominal terms over the first twenty years of the plant’s life. This, even though it would be the country’s biggest single industrial emitter of greenhouse gases after the Huntly power station.

Back to the Minister’s letter. A paragraph follows noting that to potentially mitigate against CO2 emissions Solid Energy is actively following the progress of Carbon Capture and Storage (CCS). The letter referred me to a page on the Ministry of Economic Development website for information about government-industry collaboration on the active investigation of the feasibility of CCS in New Zealand. Maybe I missed something but the page looked pretty sleepy to me. There’s little sign there that CCS is likely to figure prominently in Solid Energy’s lignite projects.

The Minister’s letter then emphasises that projects of this scale have long lead times. He is aware of investigative drilling and pre-feasibility studies, but as yet the decision to commence project construction has not been made. As no formal proposal has been lodged he cannot pre-empt outcomes. I don’t know what pre-empting means in this context, but it seems pretty clear from the rest of the letter that he won’t be looking to create any obstacles.

A final paragraph points out that a development of this scale “that can effectively manage its emissions profile” would provide significant opportunities for New Zealand, maybe even bringing about “a step change” in New Zealand’s growth.  Given that the bar for the management of emissions is set so low what this seems to mean is that we’re soon to enjoy major economic benefit from the development of lignite. Am I being unfair in drawing the conclusion that this counts for the Minister ahead of any climate change concern?

The kindest thing one can say of the Minister and the Government he represents is that they have as yet no adequate conception of the magnitude of the threats that come with climate change. I’ll do them the courtesy of presuming that if they did they would have made it very clear by now that the lignite will stay in the ground.

[Mock Turtles]

NZ ETS passes the Kyoto bill to our children

This guest post is by Simon Terry, Executive Director of the Sustainability Council and co author with Geoff Bertram of “The Carbon Challenge: New Zealand’s Emissions Trading Scheme” (published by Bridget Williams Books).

New Zealand’s failure to reduce emissions to its Kyoto Protocol target means the taxpayer still faces a $1.1 to $5.7 billion net liability after all the ETS charges have been paid. That is the bottom line after taking account of what the ETS will contribute to paying off the Kyoto bill and Treasury’s advice about how to price what is left.

Years of narrow accounting, which had given the impression that the government was at various times in credit under the Protocol, was finally abandoned in the May Budget – at least in part. It broke with the past by recording key deforestation liabilities on the books, thereby signalling the real cost of New Zealand’s 22% overshoot of its Kyoto target.

This Budget entry officially scotches the myth that the government faces no financial impacts under the Protocol because it can rely on offsetting credits from plantation forests. Those plantation forests are earning credits now, but the credits must be paid back when the trees are harvested in the 2020s. Using these credits to pay the Kyoto bill is the equivalent of putting the cost of these emissions on the plastic for the next generation to pick up.

The Budget’s inclusion of a contingent liability for harvesting forests that are earning credits today is an important step, but it covers only the five years of the ETS to 2012. What the Budget failed to show is that the next period from 2013 to 2020 will be even more costly. New Zealand is actively negotiating a new international commitment that it expects will involve a stricter emissions target, while official projections are for the nation’s emissions to keep rising and carbon prices to also go up.

During that period there will be an even larger volume of forest credits earned by New Zealand and a corresponding contingent liability for their harvesting, which the Budget still does not record. This is despite a Treasury statement a year ago that it “will be necessary to recognise” a contingent liability right out to 2020. While the detail of the international commitment New Zealand will take on remains to be agreed, based on pledges to date and the current ETS settings, there would again be a very significant taxpayer liability after all ETS charges are paid.

The ETS simply fails to collect enough revenue to cover expected international commitments.

The ETS simply fails to collect enough revenue to cover expected international commitments. During the first Kyoto period, after all the exemptions, rebates and compensation payments are allowed for, the Government will receive just 12 million emission units net under the ETS, with each unit accounting for a tonne of greenhouse gas emissions. Compared to the current estimate for the Kyoto liability of 69 megatonnes (Mt), the ETS will reduce this by only a sixth during the Kyoto period.

That means over 80% of the cost of dealing with today’s emissions is to be dumped on a future generation of taxpayers.

You can imagine the reaction if someone proposed that the government take out a loan to cover 80% of everyone’s power bills and that loan was not due for payment until the 2020s. Yet that is the direct equivalent of what is happening under the ETS during its first five year at least. Consumers may not be accustomed to facing a price on carbon, but newness is hardly a moral defence for passing the bill to our children. Unless Parliament votes to withdraw from Kyoto (and only Act supports this), it is basic that today’s polluters pay today’s emissions bill.

The remaining unpaid liability of $1.1 to $5.7 billion is calculated as set out below:

  • The Budget lists, as a contingent liability, the need to cover 86.1 Mt of emissions resulting from harvesting forests that earn credits between 2008 and 2012. On the basis of the low carbon price of $20.29/tonne used in the Budget, it puts the gross liability for this at $1.747 billion.
  • The deficit from the Kyoto agreement however is only 69 Mt and once ETS revenue equal to 12 Mt is accounted for, the shortfall of 57 Mt represents a net Kyoto liability of $1.1 billion. Yet the Treasury warned in July 2009 that carbon prices could go as high as $100/tonne, and so the net liability could be as much as $5.7 billion.
  • During the next period from 2013 to 2020, the Treasury has projected a related contingent liability of roughly another 100 Mt. On that basis, the Budget should also show a further entry for this of about $2 billion at the $20/tonne carbon price.
  • It is possible that certain forests that are earning credits today will never be cut down, but there is no scenario under current government policy in which forest owners do not need to be paid for the newly stored carbon in those forests.

For today’s polluters to fully meet the Kyoto liability, total ETS payments obviously need to rise a great deal. However, households and small businesses are paying their fair share of the Kyoto bill, and it is major industrials and pastoral farmers that receive the heavy discounts at the taxpayers’ expense.

These subsidies and other compensation arrangements dominate the ETS flows such that only one in five of each dollar charged under the ETS becomes available to the Government to pay off the Kyoto liability.

Households already bear half the total costs resulting from the ETS during its first five years (52%), while accounting for just a fifth of all emissions (19%). Together with small-medium industry, commerce and services, and transport operators, they would pay 90% of the costs resulting from the ETS during the first five years while being responsible for 30% of total emissions.

With a tighter international commitment to come and New Zealand’s gross emissions still rising, the scale of the subsidies to major industrials and pastoral farmers is set to deliver increasing fiscal stress that will build up pressures for change in addition to the inequity that will be increasingly observed. Other moves overseas will also tend to put pressure on the ETS, including carbon border taxes.

Fortunately, New Zealand is well endowed with low cost options for reducing its carbon footprint

Fortunately, New Zealand is well endowed with low cost options for reducing its carbon footprint, including agricultural efficiency measures that cut emissions and the planting of permanent forests to newly store carbon. Once the notion that doing nothing will be costless is abandoned, it is surprising how much progress can be made under even modest assumptions. There are a series of options that together could deliver a 40% net reduction on the business-as-usual emissions otherwise expected in 2020 – and at no economic cost if the effective carbon price is assumed to be $30/t or higher.

As it currently stands, the ETS will reduce gross emissions by less than 1% during its first five years – relative to what they would have been anyway. Emission actually keep growing, but at a slower rate. Much the same is true out to 2020 if the ETS settings are not changed. Getting the Kyoto accounts straight is the starting point for a major reworking of carbon pricing policy.

Note: The Budget estimates of contingent liabilities can be viewed at: http://www.treasury.govt.nz/budget/forecasts/befu2010/038.htm The Treasury document drawn on states with respect to the gross liability for both periods: “180 million forestry credits will be used … At a price of $100/unit, this contingent liability could be as much as $18 billion for the period 2008 – 2020”. See: 2020 Emissions Reduction Target: Further Analysis, T2009/1811, 31 July 2009, p.7. While the Treasury amended the government’s online accounts following this July document, it has not registered a contingent liability for harvesting on its own website that tracks the Kyoto “net position”.

Twas the night before… the ETS

Tomorrow morning, a large chunk of New Zealand’s much debated Emissions Trading Scheme comes into effect. Forestry’s already been in it for two years, but July 1st is the day that the liquid fuels and electricity generation sectors start to have to account for their emissions, and it’s the first day that consumers might see a change in fuel and electricity prices that can be blamed on the ETS. Last week’s National Business Review had a pretty good overview of the state of play here. The scheme has also come in for some robust criticism in a new book, The Carbon Challenge, by Sustainability Council executive director Simon Terry and VUW economist Geoff Bertram (of which more in another post soon, I hope).

Federated Farmers have been out protesting in force — even though agriculture gets a free pass until 2015, and then gets 90% of its emissions “grandfathered” (effectively free). A few weeks ago Farmers Weekly editor Tim Fulton popped in for a cuppa and interviewed me about my views on climate change, agriculture and the ETS for an article that appeared a couple of weeks ago. Most of what I said won’t be news to Hot Topic readers, but I thought it worth passing on my thoughts on agriculture and the ETS to a wider audience:

Continue reading “Twas the night before… the ETS”