Tim Groser shuts the stable door after the Mickey Mouse carbon credits have bolted

This week the Ministry for the Environment is consulting and seeking submissions on a proposal to ban some of the more ‘Mickey Mouse’ international carbon credits from the New Zealand Emissions Trading Scheme. Apparently this is because Climate Change Minister Tim Groser “wants to maintain the integrity of the ETS” (New Zealand Emissions Trading Scheme).

Thats really too much brazen and intentional cognitive dissonance, especially since Groser said that only five days after he indefinitely excluded agriculture from the ETS and only four days after he announced New Zealand would not sign up for a second commitment period under the Kyoto Protocol of binding greenhouse gas reductions.

I apologise if you had an extreme reaction to the close conjunction of the terms “Tim Groser”, “emissions trading scheme” and “integrity”. My apologies if you just coughed your coffee/beer/tea over your laptop or punched out your PC monitor.

Assuming you have cleaned up, I should provide the context for Tim Groser’s unintentional irony in claiming to be concerned about the integrity of an emissions trading scheme where emission units trade for less than $3 per tonne of carbon dioxide equivalent gas.

Here is the quote from Groser about the consultation.

“The Government has considered whether Emission Reduction Units (ERUs) from HFC-23 and N2O destruction projects, and Certified Emission Reduction Units (CERs) and ERUs from large-scale hydroelectricity projects should be ineligible in the ETS. There are legitimate questions about these types of international units and the Government wants to maintain the integrity of the ETS“.

Whoop Dee Doo

The consultation is asking the wrong question. It is ignoring the “elephant in the room” for the NZETS, the rock-bottom price of the international emissions units.

Here is the latest chart of the collapse of the NZ carbon price from OMF Ltd.

Fiddling and faffing about over the specific attributes of some subset of the allowable international units, when all the international units are over-supplied and under-priced, is just shutting the stable door after the horse has bolted.

We have already been through one futile cycle of banning a few dodgy international units with Groser’s predecessor Nick Smith. And that didn’t make the slightest bit of difference to the NZ price.

Last December (2011), Nick Smith authorised the Ministry for the Environment to ban certified emissions reduction units (CERs) from the UN Clean Development Mechanism projects destroying HFC-23 and N₂O from the NZETS. There is no doubt that the gas-destruction CER units did not represent real removal of greenhouse gases and that the awarding of CERs was incentivising the deliberate extra production of HFC-23 and N₂O.

According to Wikipedia at September 2012 about 418 million CERs had been issued for HFC-23 destruction and about 214 million CERs had been issued for N2O destruction. So in theory that took 632 million CER units out of the picture for the NZ market.

However, as of today there are 1,061,399,151 issued CERs. So with 60% of the CERS banned from the NZETS, there were still 429 million (1061m – 632m) that could still be imported to NZ.

In terms of influencing the carbon price in world’s worst ETS and in the world’s smallest and most open carbon market (where 2011 demand from emitters was 16 million units), it makes no difference whether quantity of available CERS is 429 million units, 1 billion units or 10 billion units. The international price will still set the domestic NZ price.

Another day, another potentially eyes-glazing-over carbon credit three letter acronym; the E.R.U. These Emissions Reduction Units, are units from UN Joint Implementation projects located in Kyoto Protocol Annex 1 countries. It’s similar to the less-developed countries Clean Development Mechanism, except that Joint Implementation projects tend to be in the Former Soviet Union countries.

As of today about 250 million units have been issued. About 80 million ERUs (or 32 percent) are for HFC-23 and N2O destruction. So if these gas ERUs were banned from the NZETS, there would still be 172 million under-priced ERUs able to satiate New Zealand’s demand for international units.

The number of CERs issued to large hydroelectricity projects CERS at 1 November was 108 million, or 10% of the 1.061 billion CERs total. Again, this proposed ban would make no real difference to the international over-supply or to the NZ price.

Submissions can be made until 5.00pm this Friday 30 November 2012 and can be can be emailed to climatechange@mfe.govt.nz or posted to Ministry for the Environment, PO Box 10362, Wellington 6143.

I have not drafted my submission but it will roughly say: the proposal is slamming the stable door after the horse has bolted, and that it ignores the ‘elephant in the room’ – the flawed design of the NZETS which imports the collapsed international carbon price into the New Zealand carbon price. And conclude that NZ should move to a all-sectors no-exceptions no-offsets carbon tax ASAP. The outcome of the consultation will, of course, be to adopt the partial ban.