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:

Author Gareth Renowden’s views might jar against a farmer and ACT Party campaign to dump the Emissions Trading Scheme but he’s not about to be pitch-forked into that particular political debate.

“The laws of physics aren’t left-wing or right wing. They’re not green or red or blue. The laws of physics are the laws of physics – and what they tell us is that if you put more carbon dioxide into the atmosphere the earth is going to warm up,” he says.

People can argue about how warm the planet will become but the trend will remain the same whether you’re an environmentalist or a libertarian, the entrepreneurial tree-cropper and author says. “What I’m trying to do in my writing and when I talk to people is to say, ‘look, the science is not political, please just step away from that, look at the evidence and then decide what you’re going to do’.”

Adopting an ETS needn’t be a sickly economic pill, says the North Canterbury blockholder. “I’m very confident that in New Zealand’s position as a trading nation and as an agricultural nation we are uniquely well placed to cope with climate change and, to be blunt, profit from climate change.” The ETS gives NZ farmers a real chance to be “seen to be” the most carbon efficient on the planet.

“If we show the world that we’re carbon efficient as well as production efficient we’ll find probably that we’ll end up saving our own costs by giving ourselves a marketing edge in key markets.”

Such optimism isn’t commonly heard on NZ’s pastoral plains and hill country but Renowden is adamant that the country can thrive by adapting to what the climate has in store. “I’m actually very bullish about agriculture’s prospects in a world where the climate is changing rapidly. We’re a small country. We’re remote, in the middle of a big ocean which is going to warm slowly. The changes that take place will, with luck, be slower than in other places so our growers will have time to adapt to changes as they happen.”

So, farmers might ask, why should we rush into an ETS and other climate initiatives if we have so much time to spare? Renowden, an innovator in growing and marketing truffles, counters that NZers are wasting time debating the science of climate change when we could be working on responses to it. “What it’s actually doing is taking a valuable voice out of the debate … because if you deny the problem, you don’t have a seat at the table about what we do”.

He puts Federated Farmers firmly in this camp of counter-productiveness. “They are showing all the signs of saying ‘we don’t want to do anything’ … whereas I think the best approach for NZ agriculture is to confront the problem.”

He accepts that the ETS will be a cost “but it will only be an insurmountable cost if you don’t respond to the pricing signal that the ETS sends. I mean, it’s a market-based mechanism to change people’s behaviour”.

Thoughts may turn at this point to what an ETS imposed on NZ agriculture could possibly do to maintain the balance of the world’s climate. Renowden isn’t ruffled by these doubts. “Funnily enough (former agriculture minister) Jim Anderton gets it quite well. You’ve got a Crown responsibility through the Kyoto Protocol to account for our carbon emissions and that is a cost on all of society. The ETS is a means of taking that cost and distributing it around society.”

Agriculture, producing 50-60% of the country’s greenhouse gas emissions, should naturally be subject to the scheme, Renowden says. “If we give 50-60% of our economy a free pass on emissions then the rest of the country has to pay for it. And believe you me, our competitors out there around the world will notice and they will say that NZ is subsidising its farmers.”

In European markets, for instance, products were typically by judged by “a perception of how green they are or how planet-friendly they are” so NZ could not afford to be seen to give its producers an easy ride.

The New Zealand wine industry is benefiting from being pro-active in this area, Renowden says. “They are already there, already thinking about ways they can adapt themselves and cope with the future because they can see their colleagues having to do it overseas.”

In case the wine industry is dismissed as being irrelevant to the experience of a livestock producer, Renowden can point to his neighbour Ian Turnbull, a Federated Farmers stalwart, who converted to organic farming about six years ago. Renowden reports that Turnbull is now growing Dorper sheepmeat on irrigated pasture “and the last time I saw him he seemed to be quite happy and was doing quite well”.

His own experience of farmers tells him that care for the natural farmed environment is not – and perhaps never was – the exclusive domain of zealots. In fact, there’s a rich variety of environmental initiatives out there that you wouldn’t expect “if all you ever do is listen to Don Nicholson, Rodney Hide or for that matter the National spokesperson”.

A response to climate change therefore starts with the state of mind.

“Instead of seeing climate change and the ETS as somehow a threat that you’ve got to resist I think you’ve got to accept that it’s happening and make the most of it.”

Fulton captured the essence of our conversation well, I think, and the piece provided an interesting counterpoint to the reports in the same issue about plans for last week’s protest at Parliament. It remains to be seen how successful the farming campaign will be. ACT’s Hide and Boscawen and the Feds Don Nicholson have pretty much had the field to themselves for the last few months. John Key and Nick Smith have been content to tough it out, and although Smith is now on the road defending the policy, there’s still no sign of any coordinated effort to explain to the wider population why action on climate change is necessary, and why carbon pricing is an important part of that response. Whether this government’s watered down ETS is the best way to go about it is, of course, a matter for debate…

20 thoughts on “Twas the night before… the ETS”

  1. “agriculture gets a free pass until 2015” – Really? If you assume ag gets 100% allocation for biological emissions and 0% for energy, dairy farmers recieve 75% allocation. Less than steel, aliminium etc.

    During the transition period (CP1) dairy will actually recieve 50% allocation for energy emissions, moving the allocation to 87.5%. This is VERY simular to the 12.5% ag was over 1990 levels in the 2009 inventory. Note in the latest inventory ag is only 9.3% over 1990 levels so is actually paying MORE than its share of the Kyoto bill now.

    “What I’m trying to do in my writing and when I talk to people is to say, ‘look, the science is not political, please just step away from that, look at the evidence and then decide what you’re going to do’.”

    Wise words, but then you talk about the need for NZ to have an ETS, how will be viewed in markets etc. These are all political matters.

    “Agriculture, producing 50-60% of the country’s greenhouse gas emissions…”

    Really?? I guess this is including energy emissions. Last inventory had biological emissions at 46%. Dairy uses a lot of energy to run milking machines and evaporate milk, but dry stock farming is less energy intensive. I am not 100% sure agricultural energy emissions would be 4% of NZ emissions, but willing to be proven wrong…. 60% is a very high ‘guess’ and a little unfair to the industry responsible for 64% of NZ exports.

  2. For reference:

    I said 50-60% in the course of conversation, and wouldn’t attempt to defend the numbers.

    Policy is of course, and quite properly, a political matter. My central point, however, is that if you ignore, minimise or deny the problem, you are either dangerously distorting the policy-making process, or denied a seat at the table. Accept the evidence, then argue about what to do.

  3. I was also commenting from memory. The correct figure is 46.6%. So ag energy use would need to be 3.4% rather than 4%. But anyway we are both splitting hairs, the point is the range of 50-60% is a little unfair.

    The main thing that prompted me to comment was the statement that ag was getting a free ride.

  4. “Accept the evidence, then argue about what to do.”

    Personally I am non-committal on the validity of mainstream climate science, while I accept evidence but not neccasarily everyone’s conclusions. Does this mean that I am unable contemplate questions such as; “If the IPCC projections are correct, what is the best policy response from the global community?”, “Given the response of the global community, what is the best policy response for New Zealand?”, “Given the policy response the current Government has adopted, where do the costs of the ETS fall?”, “Who should pay New Zealand’s Kyoto liability?”.

    I think I have the cognitive power to tackle these questions without bias regardless of my thoughts on mainstream climate science, the origins of the universe or which Star Wars episode was the greatest.

  5. C3: Given that you are prepared to accept the evidence — even if only for the sake of argument/discussion — then of course you are entitled to consider the questions you posit. That’s no different to any form of contingency planning, though I would argue that the contingency in this case must be based on rational risk assessment not wishful thinking.

  6. Conclusion: The invasion of Iraq has prevented terrorism
    Evidence: Since The USA lead the invasion there has not been a major terrorist attack on US soil.

    On the above, I accept evidence is a factual, but I do not accept the conclusion. Accepting the evidence does not mean you accept the conclusion.

  7. All you’re demonstrating is that a logical fallacy is fallacious. When it comes to policy to deal with climate change — mitigation and adaptation — you have to work with the evidence, and the risk assessment that follows, and then do your best to make policy that works. The last part is the hardest, especially when there are people and organisations working hard to derail action by all available means.

  8. Not free, but certainly cheap. Note that the Crown has to account for all emissions wherever they occur in NZ, but that agriculture will only have to pay for 10% of its direct emissions, and then not before 2015.

    There are certainly lots of real issues surrounding including agriculture in the ETS, not least to do with “points of obligation”, but I think that pretending that there’s little or nothing farmers can do to reduce their emissions is pretty daft. And while some increased costs may impact bottom lines in the short term, smart farmers — and there are plenty of those — will adjust their farming systems to reduce those costs. That will reduce emissions, and improve our export marketing “story”.

  9. Gareth, there are two main criticisms from green groups on the treatment of agriculture, one that they are getting a free ride (equity), and two that they should be in to incentivise mitigation (efficiency).

    I was talking about the claim you made in the above that “agriculture gets a free pass until 2015” and pointed out that from an equity point of view dairy farmers were paying for 87.5% of their emissions during the transition phase of the ETS. You have now jumped to the efficiency argument. I have no problems with the efficiency argument but would like to point out that by no means is ag getting off any easier than transport or electricity when you consider the growth in emissions for each sector since 1990 and the percentage of the ETS liability that will be sheeted home to farmers.

    I also note that Crown has to account for all emissions but they will be allocated a level equal to 1990 emissions. Agriculture will be accountable for all emissions also but will be allocated an amount equal to 90% of a historical average emissions per unit of production. Agricultural emissions have risen 9.3% since 1990 so there is no mismatch (although by the time Ag enters, if they enter, NZs obligation will have either disappeared or got tougher depending on the outcome of UNFCCC negotiations).

  10. You need to check your numbers. IIRC, ag emissions are grandfathered at 90% of 2007 emissions (or were before National’s amendments) so most of the post-1990 growth was built-in to the scheme. I’m also dubious about your claim that dairy farmers are liable for 87.5% of their emissions during the transition phase (but they don’t enter the scheme until 2015, so it’s not clear to me what you mean by transition). By definition, they will only have to account for 10% of their emissions above 2007 levels…

  11. Yes, your interview with Farmers Weekly came out very well. I think you phrased the issues well for the audience. Good on you Gareth!
    By the way, I got my copy of ‘The Carbon Challenge’ from Unity Bookshop, Willis Street, Wellington the other day. I didn’t want to wait for fishpond.

  12. Thanks Mr Feb. I’m hoping we’ll have a guest blog from Simon Terry some time soon — and Bryan will have a book review up before too long. He’s a speed reader… 😉

  13. Gareth, Post 11, did you read the link I posted?

    Dairy farmers pay 50% of their emissions from petrol, diesel, electricity and indirect energy use from today. They also pay for 50% of the emissions from dairy processing. I got this a little wrong before, over the value chain this will be 7.5% of their emissions (not 12.5%). But EITE industries will only be paying 5% during the transition period. After the transition period ends dairy farmers will pay 15%, and once ag enters they will pay 25%.

    2007 is not mentioned in the legislation as a base year for ag emissions. The benchmark is to be set in regulation. For industrial emissions it will be based on data provided for the years 2007-2009 but not strictly the average.

  14. So R2, are you also C3PO? “The link I posted”… seems to refer to a C3PO comment. Please use only one identity when posting here.

    The fact is that while farms direct energy use is included in the ETS at the same time as everyone else, that is only a small part of total farm emissions.

  15. A small but significant part, and 100% of 15% is 15% of total, which is more than some participants pay. Of course a stronger marginal price signal could be sent by including 100% of emissions with intensity allocations, but I am refering to equity concerns.

    On names: I forgot both passwords but have auto login on 2 different computers.

  16. Please standardise on one name, please. If you need a password reset you can do that while logged in, or ask me to reset for you. Now – do you intend to be tall and golden or short, tubby and squeaky?

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