Simon Johnson guest posts on the mysterious number of emissions units allocated to emitters and a junk chart in the Ministry for the Environment’s Report on the New Zealand Emissions Trading Scheme.
You may recall that I previously commented on the low quality of data presentation in the Ministry for the Environment report Report on the New Zealand Emissions Trading Scheme.
My specific concern was that the report did not clearly indicate how many emission units (NZUs) had been allocated for free to emitters. Or, to say that again but slightly differently, what was the level of subsidy emitters had received in units?
Why am I going on about subsidies? Well, the point of an emissions trading scheme (ETS) is to place a carbon price on emissions. Free allocation of units to emitters unequivocally lessens the incentive effect of the carbon price. So free allocation is unequivocally a subsidy. The Australian Productivity Commission research report on carbon prices Carbon Emission Policies in Key Economies notes that all emissions policies involve either subsidies or prices and that imposing one measure implicitly imposes the other as well (page 49).
‘Carrots and sticks’
Despite the variety of policy instruments, all policies designed to promote lower greenhouse gas emissions essentially must either provide incentives to abate or disincentives to emit greenhouse gases, or both. Broadly speaking, all policies can be classified as those that:
1. encourage substitution of low-emissions technologies and products (for example, renewable electricity and biofuels) for higher-emissions technologies and products (such as coal-generated electricity and fossil fuels) — these policies essentially focus on the production or supply side
2 discourage consumption of products that generate emissions, either through price increases of those products and/or non-price induced decreases in demand for emissions-intensive products — these policies work through the demand side.
But whichever side of the market policies target, they will have implications for the other. Policies that effectively tax one commodity implicitly subsidise others. Effective subsidisation of a commodity implicitly taxes others. Put another way, to achieve their objective, policies that seek to reduce greenhouse gas emissions must alter relative prices to favour products that involve low emissions and to discourage products with the opposite characteristics.
Now back to the junk chart. The Report on the New Zealand Emissions Trading Scheme included this pie chart, labelled Figure 8 on page 16 within the section titled ‘Sector Report Industry’.
In my previous post, I also noted that there appeared to be a gap of 3.4 million gifted NZUs, not disclosed in The Report on the NZ ETS, as the total number of NZUs allocated by free gifting between 1 July 2010 to 31 December 2011 is 12.7 million, according to the Ministry of Economic Development Chief Executives report.
The reply from Nick Smith arrived last week. It gave the data for Figure 8.
|Forecasted allocation of NZUs for period from 1 July 2010 to 31 December 2011|
|Iron Steel Aluminium Manufacturing||40%||2787045|
|Market Pulp Tissue Paper Packaging & Industrial Paper Newsprint||23%||1644956|
|Cementitious Products & Burnt Lime||18%||1227303|
|Methanol Ethanol & Hydrogen Peroxide||9%||633992|
|Ammonia-urea Caustic Soda Glass Containers and Gelatine||6%||424905|
|Meat By-product Rendering||2%||122964|
|Reconstituted Wood Panels||1%||94708|
|Fresh Tomatoes Capsicums Cucumbers and Cut Roses||1%||67613|
|Clay Bricks & Field Tiles||0.10%||7595|
However, the data is not for the same compliance period; 1 July to 31 December 2010; that the Report on the New Zealand Emissions Trading Scheme seems to report on. The allocations data is for the 18 month period to 31 December 2011. The data is not actual units allocated (obviously), it is a forecast. So we have inconsistent treatment of units surrendered (the demand) in Figure 5 and the units allocated to emitters (the supply) in Figure 8. It would not have been hard to correctly indicate that Figure 8 was a pie chart of forecast allocations, not actual. So why was this not done?
I am still left with the question of why the Ministry for the Environment is saying units allocated to 31 December 2011 will be 7 million, when the the Ministry of Economic Development Chief Executive’s report says that the total number of units allocated by free gifting between 1 July 2010 to 31 December 2011 is 12.7 million. I think the public deserve a better level of disclosure.