Tag: ETS

Ask me why

Sadly the Greenhouse Policy Coalition (GPC) welcomes the result of the poll they commissioned from UMR Research, as reported today in the Herald.  I’ll comment on the poll a little later in the post, but first a reminder of what the GPC stands for. It includes some of the largest emitters of greenhouse gases in its membershipwhich it describes as “a large and diverse range of New Zealand industry and sector groups covering the aluminium, steel, forestry (including pulp and paper), coal, dairy processing and gas sectors.”   They are described as responsible for 14% of GDP and 31% of total exports.

Note they do not deny the reality of human-caused climate change:

“The Coalition accepts there is growing evidence of a causal connection between observed changes in the global climate and human-induced emissions of greenhouse gases.  The Coalition considers there is sufficient scientific evidence to warrant the adoption of appropriate precautionary public policy measures.”

But their notion of what constitutes appropriate measures is severely constrained by their determination to protect what they call the competitiveness of all sectors of NZ industry. They urge a wait and see attitude when it comes to doing anything of consequence to reduce NZ emissions.

“Climate change public policy should … be moderate and measured until such time as it is appropriate, and justified, to be otherwise.”

 

Current government policy seems to fit their bill pretty well. Although they would have preferred a suspension of the ETS they have welcomed the relief the revised scheme offered to large businesses.

Given the tepid policies being advanced by the government, the results of the commissioned poll are probably not surprising.  45.8 per cent think climate change is happening and is caused by humans – up 1.6 per cent from previously.  32.7 per cent think the climate is changing but are uncertain as to whether it is caused by humans – down 3 per cent. 19.3 per cent think the problem doesn’t exist – up 1.8 per cent.

But although 45.8 per cent think climate change is caused by humans only 36.3 per cent think it is a serious issue – down from 42.6 per cent last year. Generally speaking numbers were down on all measures aimed at mitigating climate change. For example, the 23.4 per cent of people who agreed New Zealand should reduce its emissions, even if it meant reducing the standard of living was 11 per cent down on last year’s 34.9 per cent.

Last year climate change concern was eighth in order of importance. This year it is tenth.

The GPC’s executive director, David Venables, said the results of the survey reinforced the Government’s decision to moderate the impact of the Emissions Trading Scheme and the need to fine-tune it to keep in step with New Zealand’s main trading partners – which lagged in implementing their own schemes – and the rest of the world.

In other words, in the court of public opinion the government is on the right track.

But can reasonable judgment be delivered by public opinion at the present? Public opinion is not being informed of the seriousness of climate change.  The majority of our political leadership displays little or no sign of concern at the mounting dangers of increasing greenhouse gas emissions. The message they thereby deliver to the public is that the issue is not of great importance. The public gratefully receives this message and turns its mind to more immediate concerns. Whereupon the likes of the GPC point to lack of public concern as a sign that the government has got it right. It’s not too difficult to see a mutual ratcheting down process proceeding happily between politicians and the public until the folly of it becomes too apparent to ignore. And heaven knows how far off that might be.

One has to hope it will be the ineluctable science which interrupts the process and not the onset of severe events. But I have been hoping that for a number of years now, and there is little sign of full appreciation of the science in the political sphere, in the media, or in the leadership of many major companies. From where is the general public able to receive the message if it is excluded from the mainstream of political and economic life?

Real understanding of the scientific evidence would mean that David Venables would lament the result of the poll. It would see John Key and Phil Goff standing alongside each other and saying this public ignorance was dangerous and they wanted to help correct it. Tomorrow’s editorials would declare the same. Some hope.

Meanwhile all the directly measurable effects continue – global temperature rises inexorably, Arctic summer sea ice diminishes with unexpected speed, ice sheets in Greenland and Antarctica continue to lose mass.  And the less specific predictions of increased wildfires, floods and droughts show every sign of coming to pass. Positive feedback loops loom in the shadows.

“Climate change public policy should … be moderate and measured until such time as it is appropriate, and justified, to be otherwise.” And when might that be, David Venables and all those for whom you speak?

[Fabs in Hamburg]

The Carbon Challenge

The Carbon Challenge: New Zealand's Emissions Trading Scheme

Empty rhetoric.  That’s the verdict on the Emissions Trading Scheme (ETS ) from Geoff Bertram of the Institute of Policy Studies and Simon Terry, Executive Director of the Sustainability Council, in their searching book The Carbon Challenge: New Zealand’s Emissions Trading Scheme.

They present a picture of governmental processes captured by powerful groups pursuing their own interests at the expense of the rest of the community. Large industry and agriculture have won for themselves exemptions and delays of such an order as to make significant emissions reduction impossible in the first commitment period (CP1) of the Kyoto Protocol. At the same time the costs have been loaded disproportionately on to households and small industry. Those responsible for 30% of emissions will carry 90% of the cost. Agriculture with 49% of emissions will pay 3% of the costs.

The authors don’t accept the claim of the agricultural sector that there are few options open to them to reduce emissions. In fact they claim agriculture offers by far the biggest set of low-cost abatement opportunities. There are a number of options that are not only commercially available but profitable to undertake. They instance means for reducing nitrous oxide emissions – nitrification inhibitors, stand-off pads, new grasses, supplementary maize feed, improved soil drainage.  Selective breeding offers the possibility in due course of some reduction of methane as does the supplementary feeding of various plant matter. The processing of casual effluent from milking sheds through bio-digesters cuts both carbon dioxide and methane. Improved carbon storage in soils through pasture management appears possible as does sequestration through biochar burial. Meanwhile agriculture’s exemption from the ETS bolsters higher land prices. Nice for landowners, but subsidised by the community at large.

In the longer run the ETS exemption is against farmers’ own best interests. It is shielding them from likely winds of change in world markets. The authors instance large companies in other countries seeking low-emissions milk, as Cadbury is doing in the UK,  and point to the likelihood that New Zealand will surrender first-mover advantage to such countries if we continue with our present dogged denial.

There is self-defeat for large industry, also, in the favoured position they have gained for themselves. The ETS opens the possibility of production subsidies for high-emission industries by focusing on the intensity rather than the overall quantity of emissions. It is likely, for example, that Solid Energy would be entitled to subsidies for the manufacture of urea from South Island lignite, even though it would be the country’s biggest single industrial emitter of greenhouse gases after the Huntly power station. By this provision New Zealand could provide a welcoming environment for industries relocating from other Annex I countries, via ‘carbon leakage’ from those economies. Such production subsidies will invite tariff retaliation from other countries and could shut New Zealand exports out of key markets.

New Zealand will emerge from CP1 with a level of emissions considerably higher than the 1990 benchmark to which we are expected to have returned. The role of forestry as a carbon sink to offset the country’s emissions is the subject of close investigation in the book, which warns of the reckoning which must be faced when the trees are cut down. Potentially enormous costs could be faced by the next generation when the final accounting is made. Indeed, the costs may be so high as to raise questions about the country’s ability to meet them. This prospect may see other nations disallowing the plantation forest offsetting practice in successor arrangements after CP1. Permanent forests are a different matter, and the authors see these as a real key to balancing the country’s future carbon budgets. They lament the uncertainties and potential retrospective taxation the forestry sector faces by comparison with the government response to demands from large industrial operations.

The book’s discussion of forestry, as of many other aspects of the ETS, is complex and demanding for the general reader. But the ETS itself is highly complex and often difficult to follow. I can well understand the authors’ claim that it’s a reasonable guess that no more than a handful of MPs understood the detail of what they were voting on in 2008 and 2009. I often found myself struggling to get a proper hold on the ramifications of the various processes the book explores, even though the authors have been exemplary in the patience and thoroughness of their explanations.

It is the exhaustive care they bring to their task which makes the reader respectful of the summary statements which emerge from time to time in the course of their discussion, such as this one:

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

However there are countervailing forces at work against the formidable clout wielded by agricultural and other major emitter lobbies. The authors nominate three domestic factors which could upset the current political equilibrium. One is the possibility that the lack of trust in the forestry regulatory regime may deter new planting in general and permanent afforestation in particular; this would increase pressure for reform of the ETS.  The second is that sections of the population and the economy will become more concerned about climate change and the lack of any effective action at home to reduce emissions. The third is that the recognition of the size of the carbon debt we are passing to future generations by using forest credits to cover excess emissions may become a moral issue.

They also point to international factors which will put our ETS under pressure. One is the pressure we will come under if international emissions targets move towards being set more on a per capita basis. It would be very risky for us to go forward with gross emissions far above any we could hope to defend in a global commons debate.  Another is the possibility mentioned above of changes to the rules relating to forestry in a CP2 period. A third is the risk of border taxes and other adjustments we could well face from other governments and from private-sector firms if our climate change policy is shown to be incapable of matching the climate change objectives it espouses.

In the ETS we have shied away from the present costs involved in serious action to reduce emissions. But in doing so we have laid up for ourselves the far greater costs which will be the result of doing nothing now. That is the basic warning of the book. New Zealand is part of the developed world and will not be able to escape its fair share of responsibilities as we appear set on trying to do.

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”.

Under Milk Woodford

I opened the farming page of the Waikato Times yesterday evening to see a prediction from Lincoln University agribusiness professor Keith Woodford that the government is likely to dump the methane component from the ETS. He was speaking to farmers at a Lincoln sheep and beef seminar. The articleis on Stuff’s website.

The basis for his prediction was political — in particular that the government couldn’t afford to lose the rural vote to ACT over climate change issues. However what struck me was not his political calculations but his claims about climate change.

 

There’s no consensus about the extent of climate change, he reportedly said, although some scientists claimed otherwise. He’s not saying there is no climate change, mark you, but pointing out that there’s a great deal of uncertainty “out there”. There’s an unfinished debate going on and anyone who says it is finished is either ignorant or untruthful.

In particular “some groups” have exaggerated fluctuating global temperatures, sea ice levels and the destruction of coral reefs. As for sea levels, they have been rising modestly for thousands of years, and earthquakes in New Zealand have tended to counterbalance that anyway.

Note the vagueness. Who are “some groups”? What is exaggerated about the rising trend in global temperatures which has been so painstakingly tracked? Are the sea ice extent graphs and measurements doctored? Is the concern of those who monitor coral reefs misplaced?  Is the measured increase in the rate of sea level rise imaginary? Is there no loss of mass from the Greenland and West Antarctic ice sheets?

Woodford seems to think all the specifics can be waved away with words like “exaggerated” or “uncertainty” or “unfinished debate”. And he accuses those who feel they must take the science seriously of ignorance and untruthfulness!

In terms of what we are hearing from farming circles these days Woodford’s statements are pretty standard fare. The New Zealand farming community appears to be foolishly cocooning itself in a protective shell of denial that climate change can possibly be as serious a threat as sober science says it is. Federated Farmers has been pointedly describing climate change as climate variability. They talk to one another and not surprisingly confirm their opinions by frequent repetition. But one might have hoped that the academics among them might inject some reality into the conversation. Evidently not at this university seminar from this professor.

What we do about climate change is one thing.  What we know about it is another. We may well be reluctant to take some actions, and there is certainly room for a variety of opinions as to how best to tackle the issue. The farming community may even have a case in relation to the ETS. But to bolster our preferences by claiming that the science is not settled enough to justify action is stupid and reckless. Where on earth does an academic like Woodford find the confidence to declare that there’s no consensus about the extent of climate change?  Does he have the faintest idea of the scientific literature?  Has he looked at any of the IPCC reports of what that literature reveals? Far from being marked by exaggeration the reports of climate scientists are on the whole marked by caution and caveat. That’s one of the reasons for taking seriously their generally agreed central findings.

The agribusiness professor no doubt has expertise in his own field. But he is only pretending to knowledge in climate science. He also confirms the prejudices of any farmers who likewise can’t be bothered to acquaint themselves with the reality of climate change. If farmers want to argue for exclusion from the ETS they should be doing so in full awareness of the climate crisis. Perhaps the trouble is that might undermine their case.

[Gareth adds: Keith Woodford is well-known for his role in promoting the health benefits of “A2” milk in his book Devil in the Milk: Illness, Health and Politics – A1 and A2 Milk. Perhaps less well-known is his 2006 paper Agriculture’s greenhouse emissions. How should they be calculated? in which he argued that NZ should use a 500-year timeline for calculating the global warming potential of methane in order to minimise its relevance to our emissions reduction activities. Woodford’s big idea has gained little traction, perhaps because it is impractical nonsense…]

Climate Capitalism

Climate Capitalism: Global Warming and the Transformation of the Global Economy

Climate change science is clear and undeniable in its general thrust.  Climate change politics by contrast are murky and uncertain.  Peter Newell and Matthew Paterson have spent nearly two decades researching and writing about the politics, and their new book Climate Capitalism: Global Warming and the Transformation of the Global Economy reflects all the uncertainties and ambiguities.

They well understand the suspicions and anxieties felt in relation to the capitalist economy by many who take seriously the threat of climate change. The economy’s growth has been fed by increasing CO2 emissions and many of its actors seem heedless of the need to change that dependence. The early business response to climate change was automatic denial. More than that, positive attempts were made to discredit the scientific base on which the case for action was made and to give the impression of widespread public opposition to action. Some companies are still stuck in those responses and in some sectors of the economy they seem likely to remain vociferously opposed to the economic transformation required.

However the authors see no likelihood of the abandonment of capitalism or its dependence on growth. For them the question has to be how capitalism can be configured to grow while gradually replacing coal, gas and oil. It’s a very difficult task but not a hopeless one. They point to those within the world of business and finance who have come to realise that the science will not be gainsaid and that the costs of action would not be disastrous.  In a variety of ways those firms have begun to discern economic opportunities in a low-carbon economy. For sunrise industries, the nuclear industry and biotechnology companies the advantages are clear. For others reputation management and corporate social responsibility are to be considered. Overall there is a tendency to see failure to anticipate likely possibilities as a business risk — risk to reputation, risks of legal liabilities, risks of losing out on new market opportunities. It remains a mixed picture, but there is a policy momentum likely to keep the issue relatively high on the executive agenda.

Whether we like it or not, neoliberal capitalism has already shaped the character of our response to climate change. That is why emissions trading has become the preferred policy approach, ahead of environmental taxation measures. The authors comment that emissions trading became almost unstoppable once the dominant financial actors realised its potential as a new market, with its derivatives, options, swaps, insurance, and so on, and thus as a profitable enterprise.

The power of investors is to some extent being felt in driving an orientation to face climate change issues.  One example is the Carbon Disclosure Project (CDP), effectively a consortium of investors who write annually to corporations listed on stock exchanges asking them to report on matters relating to CO2 emissions and their perception of risks from climate change. The uptake has been impressive and by 2008 the CDP was backed by $57 trillion worth of assets from over 3000 financial institutions. Investment growth in renewable energy has been considerable in recent years. The book recognises that, given the neoliberal context we live in, mobilising the money of large institutional investors like insurance companies and investment funds will be crucial to the transformation to a low-carbon economy.

The authors lead the reader patiently through the apparently bewildering variety of mechanisms by which the demands for a flexible carbon market are addressed. Of particular interest is their examination of the Kyoto Protocol’s Clean Development Mechanism and its emission credits whereby purchasers in the North can enable projects in the South. It has proved far more popular than expected, though in practice the book acknowledges that it has not yet delivered the benefits that many hoped for and expected, and critics continue to see it as a fraudulent mechanism that lets rich countries off the hook.

As the explanations proceed it becomes very clear that market governance is the key to whether a market-based approach to climate change will succeed in reducing emissions. The book tackles this squarely. A market requires more than a minimum of creating property rights and enforcing contracts. It needs rules by which trading can occur, elaborate accounting systems to measure emissions and make companies report on them, and complex methodologies to estimate whether a project has reduced emissions. The authors distinguish three basic sorts of governance. First, by quantity. Here rules are set which establish overall limits for carbon emissions, allocate them among different players, and enforce those limits. Second, by price. In emissions trading schemes so long as the targets produce scarcity a price is created for carbon emissions permits which exerts a governing effect on behaviour. Price can also be affected directly, through carbon taxes. Some governments have instituted such taxes and the authors consider they should remain a possibility if necessary. The third type of governance is by disclosure, where business and other actors are required to report on their emissions profile.

How good is all this governance at present?  Not very, is the impression given. Targets set are often too weak. The flexibility allowed in meeting commitments means that carbon offsets are not sufficiently rigorous. The voluntary market is particularly prone to such problems. Can we learn and improve?  The authors think the EU has made considerable improvements to its emissions trading scheme as time has progressed, tightening its allocations and data collection methods. The voluntary carbon market has also considerably strengthened its certification schemes.

In the very uncertain future for climate capitalism the authors have a preference for what they call climate Keynesianism, where strong governance directs the markets more closely towards the goal of decarbonisation and integrates them globally, including a green Marshall Plan-type global scheme. Their filling out of this vision is central to the positive view they have tried to achieve of the potential of a capitalist economy to successfully meet the climate challenge.

The book is sympathetic to those whose interest in climate change is driven not by the potential to make money but by the gravity the issue poses.  But, say the authors, we have to understand how capitalism works if we’re going to have any chance of success in dealing with the threat in a humane way. It’s not easy, and it’s urgent. However there have been significant transformations of capitalist economies in the past. They instance the Bretton Woods system after the second world war which in a short space of time created a new global deal that produced an unprecedented period of smooth, rapid economic growth. On the technology side their analogy is the development of the railways in the mid-nineteenth century, a messy affair involving a number of entrepreneurial engineers acting competitively, and one which had far-reaching effects on daily life.  They urge novel and probably uneasy alliances – environmentalists and venture capitalists for example – as we assemble the necessary coalitions to rewrite the rules of the global economy.

In the course of developing its major themes the book is valuably informative on many of the details of carbon markets and trading. The reader who wants a better picture of complicated systems within reasonably brief compass will be rewarded.

[Buy at Fishpond (NZ), Amazon.com, Book Depository (UK)]