Category: Climate business

Weakened ETS now law

The government’s amendments to the Emissions Trading Scheme became law this afternoon, thanks to support from the Maori Party [Stuff, Herald, Reuters]. Nick Smith called the changes “workable and affordable” and said that they struck “the right balance in protecting the future of our economy and our environment”, but Labour climate spokesman Charles Chauvel was scathing:

It is economically irrational, socially inequitable, environmentally counter-productive and fiscally unsustainable. And its hallmark has been one of poor procedure and hasty consideration.

But what does the new ETS mean for New Zealand’s emissions? The Science Media Centre is collating responses from the science community, and first out of the blocks is VUW associate professor Ralph Chapman:

The passing of today’s Climate Change Response amendment bill through the House is deeply disappointing. Every week, emerging climate science underlines the need for urgent action to cut emissions drastically, with developed countries especially needing to make cuts right now to avoid a global warming drift above 2 degrees, the guardrail against dangerous change. The Government’s amendment bill does way too little to bring down New Zealand’s emissions. The bill has good aspects (e.g. agriculture is included, eventually) but its overall weakness and lack of clarity about its impact on emissions will undermine New Zealand’s reputation and positioning for Copenhagen.

Deeply disappointing. Pretty much my reaction. NZ has now has a much steeper hill to climb in future than was necessary.

Update 28/11: Additional responses from science community, courtesy of the SMC:

Dr Jim Salinger, an Auckland-based climate scientist, comments:

“At present we appear to be bogged down in emission reduction schemes and targets. This thinking is short-term as the high emissions industries in the long run are doomed. We have the low-carbon technology –- which include many forms of renewable energy such as solar electric, solar thermal, wind, wave, tidal, geothermal and bio-energy. All we need to do is scale these technologies up rapidly and harvest the economies of scale.”

Suzie Greenhalgh, Senior economist in the Sustainability & Society team at Landcare Research, comments:

“The passing of the ETS ammendments sends positive signals about New Zealand’s desire to address global climate change, providing greater certainty to business and the population about the path New Zealand will follow. Given that most of the debate so far has been around the risks New Zealand faces with adopting the ETS, now perhaps the debate can switch to where potential opportunities may lie. The inclusion of agriculture, despite its omission in other national schemes, is also an important step for New Zealand’s management of greenhouse gas emissions and may just provide some of these opportunities.”

Associate Professor Euan Mason, of the School of Forestry at the University of Canterbury, comments:

“It is good that New Zealand has begun to address climate change, and if the energy sector is required to surrender credits earned from genuine CO2 sequestration then the ETS should begin to change our behaviour in helpful ways. In its deal with the Maori party the Government implicitly acknowledged that the ETS legislation markedly devalues pre-1990 forest land and that the few credits offered to owners of such land are inadequate compensation. Offering owners of pre-1990 forests the option of replanting elsewhere after land use conversion as an alternative to paying conversion tax would have gone some way to softening the impact on land values. As it stands only a proportion of these land owners have been adequately compensated, and the remainder, both Maori and Pakeha, no doubt feel a sense of injustice.”

Oram on ETS debacle: Business Council for Sustainable Development ordered to shut up by big emitters; Nick Smith guilty of “breathtaking hypocrisy”

Fonterra and other big emitters have used their clout to silence the Business Council for Sustainable Development from commenting on National’s proposed changes to the emissions trading scheme, Rod Oram reveals in his Sunday Star Times column today.

…on November 5 Barry Harris, Fonterra’s head of milk supply and sustainability, delivered a withering speech to the council’s meeting. There were 31 other representatives of corporate members in attendance. Harris sharply criticised the council for what he considered its failure to represent the interests of members like Fonterra that “had a lot of skin in the game”.

The council’s insight into how opposed much of the public and some of business is to the ETS changes has clearly rattled some of its less sustainable members. According to some attendees, council chairman Bob Field, chairman of Toyota New Zealand, ordered council staff to stop making public statements on the ETS.

Perhaps Fonterra and Toyota believe that business can only be sustainable if it is protected from the costs of its polluting ways. The huge subsidies, of course, are their’s by right. Meanwhile, it remains to be seen if some of the less hypocritical members of the BCSD will make their voices heard.

In a coruscating column, Oram calls Nick Smith’s headlong rush in to bad legislation “breathtaking hypocrisy”, and quotes extensively from Smith’s comments a year ago when Labour’s ETS was being debated in Parliament.

Oram’s take on the current situation is right on the money:

National is making a dreadful mistake if it believes it can railroad through incompetent, damaging legislation hugely favouring heavy emitters.

At the next election, it will be easy for Labour and Greens to win support from the substantial number of voters who want an ETS that might actually cut emissions. Such an ETS would save the next government some $2 billion a year in subsidies to the heavy emitters, money voters would like spent instead on them and investment in new, clean technologies.

The whole column is worth a read. It’s Oram at his well-informed, combative best.

Aquaflow’s NZ tech impresses China

Time for an update on Aquaflow, the Blenheim algae company we have frequently covered on Hot Topic this year. Things continue to look promising for it in the world outside NZ. Its discussions with overseas companies have resulted in a contract with Greenleaf Environmental of Chengdu City, Sichuan Province in China to investigate suitable sites in China for Aquaflow’s technology.

It’s quite a breakthrough. Sichuan is a leading clean technology centre and Aquaflow thinks it is the first company of its kind to move into the region. Greenleaf for its part is impressed by the two-fold function of the Aquaflow technology — remediating contaminated water, and producing green crude oil from the algae which infest the waters.

Aquaflow director Nick Gerritsen reports “amazing” unsolicited interest in recent months and the company is now evaluating more than 40 project opportunities across four continents, not including license and manufactured sales interest.

“The level of interest is mind boggling. We believe it’s because Aquaflow sits slap-dab on the cusp of two of the most fundamental issues that the world faces – fresh water and renewable fuels and chemicals.”

So far as the fuels and chemicals’ economics are concerned, the advantage for the Aquaflow process is its use of naturally-occurring wastewater algae which require no introduced elements such as extra CO2 and the fact that it uses existing infrastructure rather than building high rate ponds or intensive bio-reactor systems. The yield is lower but so are the costs.

The initial Hot Topic post on Aquaflow is here. Updates followed here, here and here.

As you sow… (aka the “bugger” moment)

And so it begins: the rest of the world is starting to notice the major disconnect between New Zealand’s much advertised “clean and green” image and the National-led government’s piecemeal demolition of sensible climate policy. In yesterday’s Guardian, one of Britain’s leading quality newspapers, Fred Pearce devotes his “greenwash” column to New Zealand:

…my prize for the most shameless two fingers to the global community goes to New Zealand, a country that sells itself round the world as “clean and green. […] To rub our noses in it, last year New Zealand signed up to the UN’s Climate Neutral Network, a list of nations that are “laying out strategies to become carbon neutral”. But if you read the small print of what New Zealand has actually promised, it is a measly 50% in emissions by 2050 – something even the US can trump.

Pearce fails to draw the distinction between the policies of the last government — which were for carbon neutrality — and the stance of the current government — which has stopped all work on plans for carbon neutrality — but is spot on about the marketing problem NZ now faces:

Check the UNEP website and you will find an excruciating hagiography about a “climate neutral journey to Middle Earth”, in which everything from the local wines to air conditioning and Air New Zealand get the greenwash treatment.

After extolling the country’s green credentials, it asks: “Have you landed in a dreamland?” Well, UNEP’s reporter certainly has. He cheers New Zealand’s “global leadership in tackling climate change”, when the country’s minister in charge of climate negotiations, Tim Groser, has been busy reassuring his compatriots that “we would not try to be ‘leaders’ in climate change.”

This is not just political spin. It is also commercial greenwash. New Zealand trades on its greenness to promote its two big industries: tourism and dairy exports.

And there’s the crunch. Pearce goes on to point to research that suggests tourism would be badly hit by a loss of the clean green image. To make matters worse, environmental tourism is one of the fastest growing sectors of the market. Our agricultural exports also depend on that image — but Tim Groser and the audience of farmers he was addressing seem to have been blissfully unaware of the pit they were digging for themselves.

It takes years to build a good image and establish what marketing people call positive brand attributes, but it can take only a few newspaper articles to damage or destroy it. Tourism NZ’s British campaign just took a major blow. How long before the news spreads, tourist numbers fall and exports are hit? Will our Minister of Tourism rush to defend our brand? And just how are you going to do that, John? It’s your systematic demolition of sensible climate policies that is doing the damage.

[See also: Bernard Hickey this morning.]

[Hat tip: Sam Tobin]

National’s ETS: the kids can pay

The report released today by the Sustainability Council on the Bill to amend the Emissions Trading Scheme hits hard, and rightly so. It’s straightforward reading over 20 pages if you have the time, but I’ll pull out some of its main points here:

Originally the design of the ETS was to face polluters with the full cost of the nation’s Kyoto Protocol obligations. As legislated in 2008 it was watered down to go half way, but the proposed changes all but abandon the concept. The changes rank as one of the biggest economic reforms since GST was introduced 20 years ago. They promise in excess of $60 billion in new subsidy payments and a major reallocation of responsibility in terms of who pays the Kyoto liability. There has not been authoritative analysis of the costs to the nation in the public domain, yet Parliament has completed hearing submissions and there is less than a month before the government plans to pass the Bill.

The official accounts are giving a misleading impression of New Zealand’s emissions so far, by treating the 85 megatonnes (Mt) of credits generated by temporarily sinking carbon in new forests as if they carry no future liabilities when the forests are chopped down. That is how a 22% excess over 1990 emission levels has been turned into a 4% credit. This far understates the urgent need to reduce emissions. However, the Treasury recently advised that it will be necessary to recognise a “contingent liability” on the Government’s books to account for the forestry credits. This would show the cost to a future generation of not making today’s emitters pay today’s emissions bill. The Kyoto accounts need to be updated urgently to include this correction and inform consideration of the Bill before Parliament.

The emission reductions expected from the 2008 ETS legislation during the commitment period from 2008 to 2012 (CP1) were a mere 1.5% down from projected gross emissions under business as usual. The amended legislation reduces this to about 0.7% of gross emissions. We haven’t entered into any commitment for the period after 2012 but the report comments that any target in line with the commitments proposed by other developed nations will open up a huge gap to be filled with emission reductions and/or purchases of carbon credits.

Who pays? Here’s what the report says:

90% of the costs resulting from the ETS during CP1 are paid by those responsible for only 30% of total emissions. The costs, including higher charges for renewable electricity, dominantly fall on the small guys – households and small-medium businesses. This general picture changes only slowly after 2012 due to the very long phase out period for subsidies.

Households (including private road users) would bear half the total costs resulting from the proposed 2009 ETS (52%), while accounting for just a fifth of all emissions (19%).
Small-medium industry, commerce and services, and transport operators, account for 11% of emissions and face 38% of the costs under the 2009 ETS.
Combined, these sectors account for 30% of emissions but would carry 90% of the total costs.

On the other side of the divide:

Large industrials that account for 15% of emissions would pay just 1% of costs under the 2009 ETS.
Agriculture, with 49% of emissions would pay only 3% of the 2009 ETS costs.

The subsidies are large. If the nation as a whole must meet the charges for the 76 megatonne Kyoto liability, at the current price for credits of $30/t this would be a cost of about $2.3 billion. On this basis pastoral farmers would gain a $1.1 billion subsidy. Large Industrial Producers would gain a $488 million subsidy, much of it delivered as “compensation for higher electricity prices”, a form of corporate welfare the report notes is not available to other electricity users.

After accounting for all subsidies and compensation liabilities, the amended ETS could not reduce the Kyoto liability of 76 Mt by more than 16% (12/76 Mt) during the Kyoto period. 84% or more of the Kyoto liability would be transferred to future taxpayers unless current taxes are raised to fund this. On current plans, those in the 2020s will pay – making it a massive intergenerational wealth transfer.

The report asks when the Kyoto accounts will be changed to reflect the reality that in the long term the forestry sector is essentially a zero sum game. As recently as June Treasury estimated NZ being 9.6 Mt ahead of its Kyoto target and valued this “position” as a credit to the nation worth $207 million (based on a carbon price of NZ$21.61/t). The next update will need to change to reflect the real position. By July Treasury was offering new analysis to ministers, quoted in the report:

Treasury considers that it will be necessary to recognise a contingent liability on the Government’s books, associated with the forestry credits that will be used to meet the countries [sic] international commitments between 2008-2020. … At a price of $100/unit, this contingent liability could be as much as $18 billion for the period 2008-2020.

An appendix to the report carries an extended discussion on forestry and regrets the uncertainty and potential retrospective taxation facing the forestry sector which holds the real key to balancing the country’s future carbon budgets.

The report concludes with a consideration of the full eighty-year transition period from 2010 to 2089, and concludes that the proposed changes would deliver subsidies to agriculture and large industries with a nominal value of about $100 billion at $50/t, and $200 billion at $100/t. Two thirds of this would be paid to pastoral farmers and one third to major industries. If the subsidies are later wound back, it is likely these groups will attempt to secure compensation, unless the law clearly precludes this. In support of this possibility the report notes that:

some major emitters and Federated Farmers have already signalled that they view carbon charges as an attack on their claimed property rights – as though they had ownership to, or rights to perpetual use of, the atmosphere’s limited ability to absorb pollutants (by virtue of past use). They further claim that measures infringing their claimed rights are “takings” and require compensation.

It’s at the end of the appendix on forestry that the report delivers its overall verdict:

The ETS has not been designed to promote economically-efficient abatement. It has been designed to protect and promote the position of vested interests that are unwilling to shoulder the asset write-downs required to recognise a price on carbon, and to transfer the costs of this to future generations.