Kiwiblog

I blogged on Tuesday a comparison between the NZ ETS and the European ETS, concluding the NZ ETS is more “pure” as it includes all gases and all sectors.

The British High Commission has sent me this response, articulating the European view:

Same Game – Shared Targets

Many people note that New Zealand generates only a small proportion of global emissions and ask whether it matters if NZ acts or not. It very much does matter. If New Zealand – with its clean, green image – can’t make the move to low carbon, what hope for other countries? The important statistic in terms of global responsibility is greenhouse gas (GHG) emissions per person, that puts New Zealand near the top of the global league table.

Accurate figures vary depending on the source but the global average is around 7 tonnes of GHG per person per year. The UK and EU average is about 10 tonnes per year while New Zealand is around 19 tonnes GHG per person per year. To meet our global target of reducing emissions by 50%, everyone in the world needs to be at around 2 tonnes per capita by 2050. This shows the scale of the challenge facing New Zealand and all other countries.

The EU’s Game Plan

The ETS is only part of Europe’s response (more on this below). Commentators can only sensibly critique the European approach if the ETS is viewed in this context. More generally, no comment on European efforts should be made without acknowledging what Member States’ are already committed to. For example, by 2050 the UK is committed in law to having GHG emissions 80% less than those in 1990 (and so move from 10 to 2 tonnes per capita). In the nearer term the EU as a whole is committed to 20% (or possibly 30%) reductions by 2020.

It is misleading to make too much of a direct comparison between the EU and NZ ETSs. The crucial fact is that action to reduce an economy’s greenhouse gases requires a portfolio of policies. This is what we have in the EU. The key issue is to look at the best policy tool for reducing emissions in each sector. For example, the EU has looked at light vehicles (cars and vans) and recognised that they produce 12% of the EU’s emissions and so need to be tackled. So the EU passed legislation on the fuel efficiency of cars. It is now EU law that the fleet average for all cars registered in the EU is 130 grams per kilometre (g/km). This is being phased in over the next few years and there are hefty fines for companies that exceed the limit (up to 95 Euros per extra gramme of CO2 over the limit!). This is a sensible and effective approach to tackling transport emissions. So the fact that it is not in the EU ETS does not mean action is not being taken.

The same argument applies to housing, agriculture and waste. Each country also has a binding renewable energy target and their own range of policies (energy tax, feed-in tariffs etc) to ensure those targets are met. In addition the EU is contributing EUR 7.2 billion to climate finance over the next three years. Ultimately when comparing and contrasting the response to climate change of different economies the most important fact is the overall impact on GHG emissions. This shows that the EU is on the right track – 2009 emissions were around 17% below their 1990 level.

If forced to compare the NZ and EU ETS one key difference is that the EU ETS sets binding caps on emissions. So participants in the scheme will have their allocations gradually reduced to 21% below the 2005 level by 2020. There is currently no similar cap in the New Zealand scheme.

Climate change matters

Every country in the world will face stresses from climate change. Increased frequency and severity of floods, storms I and droughts will have a direct impact on New Zealand’s agriculture sector and infrastructure. The faster we all move to a low carbon economy – and there are a whole range of policies to get us there – the better.

Its great to get a response on what is a complicated and challenging issue.

Our per capita emissions are high, but that is partly because of the large number of cows we have, relative to humans. I have not calculated what it would excluding the cows, but suspect we would then be close to the UK average.

The UK response does impress upon me that doing nothing is not a viable option. Even Tony Abbott is not a proponent of doing nothing – he just proposes direct Government spending on climate change mitigation rather than an ETS.

The Greenhouse Policy Coalition have published a fact sheet on the ETS. Specifically they compare it with the European ETS and the ETS proposed for Australia.

This is very useful as in 2011, our ETS will be up for review. Labour and the Greens both say that our ETS is far too weak, and far greater costs should be imposed on businesses and consumers. So it is very useful to be able to compare it with the European scheme especially. First they not the different profiles:

New Zealand’s emissions (2008 figures) primarily come from agricultural gases (46.6%) and energy (45.3%) while the EU’s emissions are largely from energy (79.1%), with agriculture just 9.6%. There are few internationally recognised mitigation options currently available for agricultural emissions, while renewable energy generation is a proven industry.

That is a key aspect – 47% agriculture compared with 10% for Europe.

New Zealand generates much more electricity from renewable sources – 73% in 2009, with a 90 percent target for 2025, as against a European target of 20% of total energy coming from renewables by 2020 (15% in the UK). Europe therefore has much more scope than New Zealand for increasing renewable generation.

This is also key background. Europe can fairly easily reduce emissions by replacing non-renewable power plants with renewable ones. We already have four times the proportion of renewable energy.

The combination of these two factors means it is much harder (ie expensive) for NZ to reduce emissions.

Emissions coverage

The EU: Covers 43% of emissions, rising to 50% from 2013. There are no plans to cover methane from farm animals or agricultural nitrous oxide from fertilisers or global warming synthetic gases like sulphur hexafluoride.

New Zealand: From 1 January 2015 the NZETS will cover nearly all emissions, including all six gases identified by the United Nations.

So 100% coverage vs 50%. This means that even if one left agricultural gases out such as methane, we would still be covering more than the Europe scheme.

Sector coverage

The EU: Combustion and most industrial sectors are currently covered, with aviation due to enter in 2012. From 2013, petrochemicals, aluminium and ammonia will be included. Agriculture will not be covered.

New Zealand: Virtually the entire economy will be covered by 2015. Currently, the scheme covers forestry, industrial processes (includes iron and steel, aluminium, cement, glass and gold), stationary energy (includes coal, natural gas and refining petroleum) and liquid fossil fuels.

If no other country in the word is including agriculture by 2011, then the logical thing to do in the review is to suspend its inclusion into the scheme.

Allocation of free emission units

The EU: Historically, free units have been allocated to many companies at levels well above 100% of their emissions. Average allocation across EU countries in 2009 varied between 92% and 152%. Allocation also covers more sectors than in New Zealand. The scheme will feature more auctioning of units (ie companies having to pay for them) from 2013, with a sinking cap, but 100% allocation is still on the cards for significantly trade-exposed sectors, including those the NZETS covers.

New Zealand: Trade-exposed companies are to be allocated units at a 60% or 90% level on an intensity basis, ie emissions relative to output.

So again NZ is “more pure” than Europe.

Phasing out of allocation

The EU: The number of units allocated to companies will be cut by 1.74% each year from 2013.

New Zealand: Unit allocation will be cut by 1.3% each year from 2013.

The phase out rate is one of the few areas where Europe is moving faster. But considering the lack of movement from the US and China and India, this is fairly prudent.

Carbon pricing

The EU: Has no price caps, but from 2013 member states will be allowed to influence carbon prices by bringing forward auctioning of units within the overall cap.

New Zealand: Has an optional price cap for carbon until the end of 2012, set at $25 per unit (one unit = one tonne of CO₂-e), with companies until then required to surrender one unit for every two tonnes of emissions, an effective halving of the $25 price.

This is the major difference. It halves the cost for businesses (and consumers) by way of effectively a subsidy from the taxpayer.  Unless a change is made this will end in 2013.

Now of course some say there should be no ETS at all, but that is as likely as NZ implementing a flat tax. The real debate next year will be over what changes are made to the ETS – the National Government will review the ETS and decide on some changes. Labour and the Greens will also draw up policy on what changes they want. It will be very interesting to compare the policies after the review is done.

My position is pretty simple. China, India and the US are essential to any meaningful reduction in emissions. Unless those three countries have announced concrete plans to reduce emissions, then there is little point in NZ self-flagellating itself by having the purest ETS in the world. Having no ETS and no emissions reduction target at all is not politically viable as doing nothing would invite trade and reputation repercussions. We need to be doing enough so that we are not seen as the problem, but not so much that we end up exporting jobs to other countries.

Was reported last week that the Australian Government is looking to delay its ETS from implementation in 2010, due to an select inquiry into its effectiveness.

So the small delay in NZ has us on much the same path as Rudd’s Government in NZ.

In hindsight supporters of an ETS should be very pleased that Labour and National delayed it coming into effect on 1 January 2009 as originally planned. Having power and petrol prices jump up just as we are heading into the worst recession for 70 years would have engineered a huge backlash against the ETS.

No Right Turn joins the Greens with his unhapiness:

It’s official: the government has delayed the entry of transport – our second largest source of emissions – into the ETS until 1 January 2011. So we will now have an emissions trading scheme which excludes our largest source of emissions (agriculture) for all of CP1, our second largest source for most of it, and which doesn’t impact on anyone other than forest owners until 2010. And this, the government claims, will reduce emissions. Bullshit.

Rather than proceed with such a flawed scheme, why don’t we just wait a few weeks for details of the Australian scheme and look at seeing if we can turn that into a Trans-Tasman scheme.

The official excuse (being reliably trotted out over at The Standard) is that high oil prices will do more than the ETS would. There’s some truth in this – high oil prices have effectively capped usage by driving people towards more fuel efficient vehicles – but the problem is that oil prices can drop. … And there are predictions that prices will also drop over the next one to two years as demand drops due to global recession, before picking back up again. So  … whoever is in government in 2010 is going to face exactly the same pressure to give polluters a free ride as Labour is facing now. And like 2008, 2011 is an election year…

Indeed, it might just keep being indefinitely delayed.

Meanwhile, the government’s veto on regional fuel taxes – also driven by an effort to inoculate against claims that they are responsible for rising petrol prices – will deprive local councils of the very tool they need to reduce emissions and provide people with an alternative to cars. So we get the worst of both worlds: unfettered pollution, and no funding to prevent it. So much for Labour and sustainability.

The irony is that the Government brings in a special law to allow these regional fuel taxes, and then before it is even passed, announce they will not approve any proposals to use the law!!

The Greens aren’t taking this lying down, and have declared that they will not vote for an environmentally compromised ETS. Which means the government will be dependent solely on National to pass it. It’s a dangerous gambit – National’s natural inclination will be to weaken the scheme further – but if they want to renege on their commitments, they can do it without the Greens’ stamp of approval.

The Greens have also said they will be announcing pre-election which party they will support post-election to form a Government. While I am sure it will still be Labour, their decision is getting a fair bit harder.

At he same time as the Government is flip-flopping on biofuels, and flip-flopping on regional petrol taxes, they also are retreating from having the transport sector in the Emissions Trading Scheme.

Jeanette Fitzsimons is not impressed:

“We’re trying to get the best possible legislation through this term … I think there will be legislation before this election but the question is will it be even weaker than what we’ve got now.” Ms Fitzsimons said further backtracks on the trading scheme should see the Prime Minister awarded a “climate ditherers” award to replace the United Nations Champion of the Earth award she recently received.

I can understand the politics around a delay, but you have to ask will it be only for two years? If petrol prices are still high in 2011, will the transport sector be exempted or delayed further. And if you start doing that the whole ETS may collapse if one sector is left out.

If one was to deliver significant enough tax cuts, they would compensate for any increase in petrol prices. But the risk of delivering chewing gum tax cuts which wouldn’t even meet the increased cost of petrol was obviously too high.

The Government’s Emissions Trading Scheme may be heading the same way as their Biofuels legislation – with growing realisation the cures may be much worse than the disease.

Colin Espiner blogged yesterday that “climate change policies no longer sustainable”. This may be the first instance of a press gallery journalist saying that, and this week could be seen in future as the tipping point. Quoting Espiner:

A year sure is a long time in politics. Remember “sustainability”? Remember how New Zealand was going to become the world’s first “carbon neutral” country? Remember electric cars, 90% renewable energy, bold plans to slash vehicle emissions by 40%?

The United Nations sure does. It’s awarded Prime Minister Helen Clark a gong for her commitment to fighting climate change, despite the fact that not a single of these pledges has yet been formally implemented, let alone had any effect. Our carbon emissions went up last year, not down. They’ll probably be up again this year.

And yet funnily enough you don’t hear much from the Government these days about sustainability. The plan to allow councils to whack an extra 15c on to every litre of petrol is on the back-burner. The idea to force petrol companies to blend their gas with a minimum 5% biofuel suddenly doesn’t seem like such a good idea when respectable environmental lobby groups are warning that most of the world’s biofuel production is unsustainable, is being achieved by felling rainforest, and has led to a huge increase in world food prices.

Add to this that the scheme at the heart of the Government’s ambitious plans to tackle climate change, the Emissions Trading Scheme (ETS), is under heavy fire, and not just from the usual suspects. A bevy of reports from respected consultancies and research firms like the Cawthron Institute, the Institute of Economic Research, and Infometrics say the ETS will cost the country a fortune, will only result in a marginal reduction in greenhouse gas emissions, and could have severe unintended environmental side-effects.

Coming up with solutions which are good for the Environment and do not hurt consumers and businesses greatly is not easy. This is why soundbites such as “carbon neutrality” are so irresponsible. It’s also one reasons why I support roll out of fibre to the home – it is one of the few policies which should be both good for the economy and good for the environment.

Paula Oliver in the Herald reports the Government is now considering delays, as sticking extra costs on petrol at a time when prices are already record high will probably just be seen as revenue collecting. The beneficial effects of encouraging more fuel efficient vehicles and more public transport use are already happening at $1.85 a litre I suspect and a few cents more may have little effect except to piss people off.

Timing is everything sometimes!

The NZ Institute of Economic Research has done a report on the impact of the proposed Emissions Trading Scheme. The report is 77 pages long. For those who don’t read the whole thing, here are some key points:

• The ETS will reduce GDP by $900 million by 2012
• The average household will have $600 less spending
• A reduction in employment equivalent to 22,000 jobs
• By 2025, GDP will be $5.9 billion less than without an ETS
• The average household will have $3,000 less by 2025
• Hourly wages will be $2.30 an hour less by 2025 than they would be without an ETS
• The ETS will reduce emissions by 5% less than merely funding emissions reductions directly
• The ETS may be bad for the climate as some NZ production will become uncompetitive and shift to countries where their increase in emissions will be greater than if they stayed in New Zealand. This is known as “leakage”
• The ETS will see by 2025 a 12.9% reduction in dairy farming, a 41% drop in diary land prices and a 6.6% reduction in sheep and beef farming.
• As the decline in pastoral production in NZ will lead to greater pastoral production elsewhere, the increas in carbon emissions will be 3 million tonnes – around 25% of the reductions from the total ETS.
• Southland and Northland would be most affected by the ETS with a 3% drop in GDP, with Auckland and Wellington less affected.
• Paying for emissions reduction out of general taxation would be cheaper and more effective.

So they are not saying we should not be in Kyoto. They are saying the ETS, as proposed, will cost us more than alternative ways of meeting our Kyoto obligations. And also leakage due to industry relocating to non Kyoto countries will actually be worse for the environment than the alternative of direct funding of emissions reductions.

So one can say slow down with the ETS and don’t rush it into law just because of the election, without being a climate changer “denier” or “sceptic”. This is about how best to meet the Kyoto obligation, and it seems apparent there is a lot more work needed to be sure we have the right model. What will be interesting is what model Australia adopt as there could be considerable merit in harmonising between the two countries.

Mike Moore writes in the Herald on the food crisis:

What has been the most successful 50 years of alleviating poverty in human history is threatened. What’s happening, what’s new?

Nothing is more important than food. In 12 months, corn and rice prices have doubled, wheat price tripled, soy beans up by 87 per cent, and global food reserves are at their lowest levels ever.

They are staggering increases for just one year.

The rush to biofuels is also impacting cruelly in agriculture, where massive subsidies and high oil prices are encouraging agricultural production away from basic foods. Tragically, rich countries are subsidising bio-fuel production, raising prices. Filling a Range Rover with subsidised ethanol takes as much “grain” as would feed an African family for a year. Rich countries’ fuel substitution programmes often consume more energy to produce than they save. It’s a populist Green response to global warming that does the opposite of what was intended.

People should reflect that Federated Farmers have warned that if the price of carbon reaches $50 then the Emissions Trading Scheme would stop basically all food production in NZ – profits are projected to drop 123%. Now before everyone accuses them of scaremongering – what would have been your reaction if say ten years ago someone predicted biofuels would help push 100 million people into poverty and contribute to a doubling of world food prices?

But how can you encourage poor countries to grow food when subsidies from rich countries can drop similar products into their local market, sometimes at a third of local prices?

The medium- and long-term solution is the Doha Development Trade round, which is now at a critical stage. Unless the players at the WTO can get closer in the next few weeks, the deal will not be cut this year.

I could not agree more. Countries at the WTO who do not stop subsidising their food, are a big part of the problem.

If the rich countries cannot find the political courage to front their subsidised farmers when food prices are so high and will remain high, when can they summon up the willpower to save themselves? Subsidies in rich countries are a direct cash transfer from the poorest consumers to the richest of producers.

Indeed. Yet strangely it is so called left wing politicians like Obama and (H) Clinton who rail against free trade,

There is no portfolio area where the difference between rhetoric and reality is greater – than environment – specifically climate change.  Clark talks about carbon neutrality while her growth in carbon emissions record is amongst the worse in the world compared to Kyoto targets.

Now a report by the NZ Institute reveals that the Government’s emissions trading scheme (already under fire by multiple groups) and other announced policies will have NZ miss our Kyoto target by 38 years!

Instead of getting back to our 1990 levels by 2012, they predict it won’t happen until 2050. Dr Skilling makes a valuable point:

Half of New Zealand’s emissions come from agriculture but it is harder to redesign a cow than a car.

The Government has voted in Bali to have a target of reducing emissions by 2020 to 25% to 40% below 1990 levels. To be blunt this is just not going to happen – it is almost a con. Even National’s goal of a 50% reduction by 2050 is looking overly optimistic according to NZI who suggest a 30% reduction by 2050 would be about as challenging as NZ could manage.

Related to this is a poll out by the NZ Business Council for Sustainable Development.  It’s a poll of those who take part within an online panel so not as robust as a truly random poll, but the Hive points out one interesting aspect:

When asked which of the two main parties would be best to manage climate change only 33% picked Labour and 32% picked National.

Also 35% of respondents ranked the Government’s management of climate change as below average and only 18% above average.  Not good when this is meant to be Labour’s biggest issue.

This strongly suggests that the public (or at least those who take part in NZBCSD surveys) are seeing through the Government’s rhetoric and realising how appalling their actual record has been.  I mean it is almost unthinkable that say a year ago just as many people would cite National being as good as Labour on climate change.

Greenpeace has commissioned a report on the proposed NZ Emissions Trading Scheme.

Now I blogged last Friday on how the Flexible Land Use Alliance warned that the proposed scheme would lock up land into uneconomic uses, and could cost billions of dollars. Almost every party in Parliament has backed their compromise option.

So what does Greenpeace have to say? Are they defending the proposed scheme? Let’s read the report and see what their summary is:

The current proposal for the structure of the ETS will deliver no significant reductions in greenhouse gas emissions, will act as an impediment to the rapid implementation of less carbon intensive production technologies in the manufacturing industry and will do nothing to slow the destruction of forests to make way for increasingly greenhouse gas intensive forms of dairy farming.

They then ask Will the NZ ETS deliver significant emission reductions?

The simple answer to this question is no.

Wow that’s a blunt answer.  The ETS simply won’t work in reducing emissions significantly.  And what will it cost?

If emissions growth is at the higher end of the Treasury forecasts then, at a world price of $25 per tonne, New Zealand would need to import at least $3.1 billion worth of emission permits.

So Greenpeace are saying the ETS will cost NZ $3.1 billion and it won’t actually significantly reduce emissions.  Ummm, doesn’t that mean if Greenpeace are correct, you’d have to be pretty crazy to implement such a scheme?

The suggestion of a common or harmonised carbon emissions trading scheme with both Australia and NZ is to my eyes a good one.

Australia is our largest trading partner, and having us implement such a scheme without Australia doing similar always risked increasing their relative advantage over us. If Clark and Rudd can give priority to have a harmonised scheme, this should be beneficial to both countries.