Kiwiblog

As I am travelling, I have not yet had time to read through the detailed documents on the ETS changes, and agreement with the Maori Party, or the stolen/hacked e-mails from climate change scientists. So I am not yet in a position to give my take on both of them.

Ian Wishart has a detailed post on the stolen e-mails. Again I have not had time to read them myself, and check for context – but there are links to the originals, so people can do so.

The Beehive announcement on the ETS agreement is here. I imagine it will be passed into law by the time I am home. If the changes are not passed, then the status quo of Labour’s ETS will come into force next year.

An article by Brian Fallow covers issues around the proposed ETS:

Taxpayers will be stuck with 84 per cent of the bill for meeting New Zealand’s obligation under the Kyoto Protocol, while farmers and large industrial emitters get hefty subsidies, according to a report out today.

The report on the Government’s planned changes to the emissions trading scheme by the Sustainability Council’s executive director Simon Terry and economist Geoff Bertram says farmers will be subsidised to the tune of $1.1 billion by the end of 2012, while large emitters get nearly $500 million.

Sounds awful doesn’t it. Certain bloggers rant on about how people are getting paid to pollute etc, But the situation is far more complex than slogans.

Kyoto requires New Zealand to take financial responsibility for any increase in its emissions over 1990 levels during the five years from 2008 to 2012 inclusive. Current estimates are that we will exceed that target by 76 million tonnes, which would cost $2.3 billion (at the carbon price of $30 a tonne the report assumes).

At present we actually (as at 2009) have net emissions that are 10 million less than our 1990 levels – thanks to forestry plantings.  Also the current price of carbon is $20.35 a tonne, not $30. So the projections for 2008 to 2012 are some way from the current situation.

Changes to the ETS being considered by a parliamentary select committee lighten the burden on “trade-exposed” sectors, including farming, which account for around two-thirds of the country’s emissions, to protect their competitiveness when most of the world has yet to impose a price on carbon emissions.

Climate Change Minister Nick Smith said the Government was providing allocations of free emissions units more generously for those emitters because they were trade-exposed.

“It has nothing to do with favouring big over small,” he said.

And this is key. Making trade exposed industries pay straight away the full cost of carbon will merely see them lose production to other countries. And those other countries will often be more carbon intensive. So the net effect is bad for the environment and bad for our economy.

When No Right Turn thunders on about subsidising polluters, he is actually calling for something that will lead to increased carbon emissions.

Dr Smith said it was misleading to talk about subsidies to farmers on the basis that they are not paying for their emissions during Kyoto’s first commitment period (2008 to 2012).

“No country … is imposing a cost on their agriculture industry in the first commitment period. We are likely to be the first in 2015.”

Again this is where the purists just have no idea. They want us to tax (through the ETS) our farmers, in advance of any inclusion of agriculture by any other country. Again if we do what they want, then it is a lose-lose – bad for our economy and bad for the environment.

Roar Prawn is predicting a major fight ahead over the ETS:

There’s a six billion fight over the ETS about to blow up. That’s how much Maori-owned forestry land has been devalued by the ETS. …

Select Committee could get very messy.

The NZ Herald laments the missed bipartisan opportunity:

A bipartisan policy on a subject so important for long-term investment decisions would be a rare and splendid thing, giving all sectors confidence that carbon emission costs would survive the next change of government. …

The economic good sense of ensuring emission costs are passed into prices will be obvious to those in industries that may be relieved by National’s transfer of their costs to the taxpayers.

Relief in those industries will be tempered by the knowledge that the next government is quite likely to reinstate economic sense. That likelihood already makes investment decisions difficult. Such is the folly of National’s failure to embrace a bipartisan approach.

My preference also was for a bipartisan deal, but I would not assume there would be changes made to the ETS by a future Government. National only had an opportunity to amend Labour’s ETS because it got passed just weeks before the election. I think, despite the rhetoric, Labour will be very wary of campaigning in 2011 on the platform of increasing prices.

In some respects the scheme National can now enact with Maori Party support is superior to the previous government’s. Permissible emissions will be based on an industry standard rather than an arbitrary base year so that firms that are efficient by their industry’s measure will be allocated free emission rights. The free allocations will be withdrawn much more slowly than Labour’s scheme allowed, sensibly aligning New Zealand’s scheme with Australia’s.

Labour might have agreed with all of these changes for the sake of a bipartisan consensus. It has found that leadership on climate change is not an election winner. The subject is too big for campaign slogans and some of the nominated solutions – dimmer light bulbs, dribbling shower heads – are annoyances that Labour now regrets.

The issue over allocation of permissible emissions being on an intensity basis, to reward efficiency, was one of the crucial aspects, and I suspect was the issue hardest for National and Labour to agree on. However it does seem that negotiations had not concluded with Labour, and it would have been desirable for them to be allowed to consider in private if they could back the changes the Maori Party agreed to.

The Dom-Post says:

Once the emissions trading scheme was about saving the world from global warming. Now it is about who pays and who gets to pass the cost of their emissions on to someone else.

Actually it was never ever about “saving the world”. Our reduction commitments at Kyoto and Copenhagen are about that, so to speak.  The ETS was always about who pays.

The deal cobbled together by National and the Maori Party is a triumph of political pragmatism. It is also an agreement that has ended, at least for the foreseeable future, the prospect of an enduring bipartisan approach by Labour and National. That turns New Zealand’s emissions policy into a political football.

The deal is a political solution that fails to solve an environmental and economic problem. It will not provide long-term certainty to business or to consumers.

The ETS was always a political solution. And as I said previously I would be surprised if in two years times Labour really wants to campaign on changes, as it will meet massive resistance from the losers from any changes.

Other changes will result in some businesses and agriculture being given more time to adjust, with a delay in bringing them into the scheme, while others are given less time.

That is good news for those who benefit, but it rather misses the point. The aim of the exercise is not to raise money to pay for New Zealand’s Kyoto obligations. It is a stick to encourage those responsible for emissions to cut them.

The Dom Post needs to read up on trade exposed industries and how imposing costs on NZ businesses and farmers that their overseas competitors do not have, may actually lead to an increase in global emissions.

Finally the ODT:

Having stitched up a deal with the Maori Party on its revised Emissions Trading Scheme – which has exercised environmentalists and received only lukewarm plaudits from two of the revised scheme’s more notable beneficiaries, industry and agriculture – the Government might venture to suggest that since no-one is entirely happy it must have the numbers about right.

Indeed.

The big question for the Government has been how to be seen – ahead of the Copenhagen climate meetings in December – to be making a meaningful contribution to mitigating the effects of emission-induced climate change as a good global citizen should, but to be so doing in a manner that does not place an undue burden on industry and agriculture, and thus circumscribe economic growth; nor, in the midst of a recession, place too much immediate cost on the individual consumer.

The proposed new scheme, which it will be able to pass into law with the support of Peter Dunne’s United Future vote, and that of the Maori Party, seeks to achieve this by, in the first instance, delaying entry of agriculture into the ETS from 2013 until 2015.

For the purists who decry the delay, it is worth noting this will be the first ETS in the world that includes agriculture, I believe.

In the face of climate change with its dire predicted consequences, all countries are having to grapple with striking a similar balance, nuanced according to the demands of their individual economies and political sensitivities.

This is new territory. There is an element of guesswork and gamble in reaching all such accords. National has, for better or for worse, both spurned Labour’s hand and taken a conservative approach. In the short term this is likely to pay handsome political dividends; in the longer term, it may prove to be less advantageous – electorally and environmentally.

Again, it would have been desirable to continue negotiations with Labour.

The Herald reports:

The transport and stationary energy sectors will now come into the scheme on July 1 next year, six months earlier and later respectively than under the existing law.

That will provide a local market in which owners of post-1990 forests can sell carbon credits should they wish.

But for the first 2 years, oil and power companies will now have to surrender only a one-tonne carbon unit for two tonnes of emissions. The taxpayer would pay the cost of the other one. Alternatively they could pay the Government a cash price of $25 a tonne.

Agriculture, which is responsible for half the country’s emissions, will still come into the scheme, but two years later, in 2015.

It will also get a more generous allocation of free units.

So will the smokestack industries – large industrial emitters like the Glenbrook steel mill, the Tiwai Point aluminium smelter and the Marsden Point oil refinery – whose international competitiveness would be jeopardised if they had to pay the full cost of their emissions.

I find what the Government has done is interesting. They have moved some sectors into the ETS faster than under Labour’s EST, while they have delayed other sectors. Why the difference?

Basically carbon leakage for trade exposed industries.

Moving the transport sector into the scheme earlier is relatively safe, as we’re not about to start filling our cars up in Australia with petrol.

But certain sectors, such as agriculture, are trade exposed and if one forced them to start paying the full cost of carbon too soon, they may lose market share to overseas producers who are not paying a price for carbon. And this can turn into a lose/lose for the environment and the economy. The environment suffers if we lose agricultural production to China (as per unit we are lower emitting), and our economy suffers also.

So when you read stories about how “polluters” are being subsidised, the reason is because we do not want our trade exposed industries to be losing market share to countries not charging for carbon. Now if you get a global agreement that brings in China, India etc then you get a different scenario.

I would have thought that having seen the massive increase in unemployment when our economic growth drops away, some groups would be less keen to advocate a scheme that would damage economic growth, and not actually benefit the environment.

Of course even this amended ETS will see some reduction in economic growth. But I’ve never regarded it as realistic to think we could be the only country in the OECD that doesn’t set a price for carbon and participate in an international agreement to reduce emissions.  We are far far too small to be able to get away with that, without facing some nasty consequences for trade access.

Matthew Hooton writes (offline) in the NBR:

The clock is surely ticking on Phil Goff’s leadership. New Zealand’s most accurate polls, TV3 and Roy Morgan, both put Labour below 30%, half the support of National and its partners.

Worse for Mr Goff, while the Greens are secure in Parliament, Labour’s other essential ally, Winston Peters, has no chance of resurrection.

And Anderton is retiring. That means Labour and the Greens between them need to get at least 62 seats.  They currently have 52 but on the latest polls are below 50.

Mr Goff does not help himself with his choice of issues. This Tuesday he used all his parliamentary questions to quiz John Key on whether the Ministry of Foreign Affairs and Trade (Mfat) had advised sending SAS troops back to Afghanistan before the cabinet decided to do so.

Mr Key easily swatted Mr Goff away, saying that no specific advice had been given. The cabinet would decide about putting kiwi soldiers into harm’s way, not bureaucrats.

Yet Mr Goff pushed on, asking increasingly detailed questions about what Mfat may have told Mr Key about security in central Asia. …

It’s difficult to see what Mr Goff hoped to achieve. Afghanistan is far from a driver of voting behaviour.Informed observers also know that Ms Clark was so committed to Afghanistan that she broke up her coalition with the Alliance and called an early election on the issue in 2002.

I’ve said it many times before. Labour keep concentrating on Wellington issues, not issues that connect with the average voter.

And a useful reminder of how committed Labour was to the war in Afghanistan.

Were Mr Goff prime minister, it’s likely he’d be far quicker than Mr Key to provide military support to the United States.

Most embarrassing, Mr Goff’s parliamentary attack coincided with revelations that Ms Clark had secretly sent kiwi spies to Afghanistan.

As her foreign affairs and then defence minister, there is no doubt Mr Goff was intimately involved in that decision. Only parliamentary rules prevented him being called a hypocrite.

The thought that Labour would turn down President Obama’s request for assistance from the SAS, after lending them to President Bush on three previous occasions is farcical. Of course they would have.

Mr Goff’s last hope lies with the emissions trading scheme (ETS). Labour understands that Mr Key became prime-minister-assumptive when he stood with Ms Clark on smacking.

Mr Goff knows that if a deal is done, he and Mr Key will stand as equals. Labour’s broad approach to climate change will be implicitly endorsed.
More importantly, the National/Maori Party/ACT Government would be seen as dysfunctional.

The business, farming and iwi sectors would be furious.
The ratings agencies and influential media such as the Wall Street Journal would continue lampooning New Zealand for our stupidity.

What international investment that might be possible in the midst of a global recession would evaporate.

National would get the blame for the $5,400 a year the ETS will cost a family of four.  And Mr Goff would be back in the game.

It is definitely an opportunity for Goff. His problem is whether he has enough control of his caucus to get them to back any compromise he does with Key.

I attended the AGM of the NZ Institute of Economic Research last night. After the AGM and guest lecture (which I will blog on separately) there was a dinner at Icon Restaurant at Te Papa.

It was perhaps the only dinner I had been to, where you could have a discussion about the pros and cons of an intensity based approach to credit allocations in an emissions trading scheme, and the entire table understood the discussion!

In discussing the ETS, it became very clear that the preferred options of the NZ business sector is for National and Labour to reach agreement on the ETS, rather than National to rely on the Maori Party or ACT. They want certainty of policy.

Now Labour and National do actually agree on around 32 of the 35 issues around an ETS. However the issues they differ on are pretty big – the dates certain sectors enter the ETS and the merits or otherwise of an intensity based approach (which I will try and blog on at some stage also).

Now NZ already has an ETS, passed into law. Labour did this in 2008. So if Labour and National do reach an agreement, it is Labour that is arguably making the greater concession in order to give businesses policy certainity.

The Herald reports:

Labour is trying to rope Prime Minister John Key into the climate change negotiations, saying leader-to-leader talks are the way ahead. …

This is an opportunity for Phil Goff. In fact again at last night’s dinner we discussed how if Labour does do a deal with National on the ETS, this could be the equivalent of John Key’s compromise with Helen Clark on the smacking law.

And if Labour do put the national interest ahead of partisan interest, and strike an agreement with National, Phil Goff deserves his day up on the podium with John Key, looking Prime Ministerial.

But the issue is at what stage do you turn this into a negotiation at the leadership level.  If I was advising John Key, I would have two reservations about negotiating with Goff at this stage.

1. Can you trust him to be sincerely wanting an agreement, or is he just trying to get the PM involved so Key gets personally blamed when Goff walks away. Up until the Richard Worth affair, Goff would have been trusted. But his behaviour over the Choudary allegations, has dented Goff’s trustworthiness. And his use of confidential MFAT staff notes to embarrass Don Brash has not been forgotten either. In a negotiation both sides need to be able to put forward positions in confidence, and trust the other not to report the details.
2. Can Goff deliver his caucus? Key had a strong enough grip on the leadership that he could strike a private deal with Clark, and cheerfully walk into Caucus and tell them all that they are now voting for the bill they have spent the last six months fighting. A deal with National might involve (for example) a change of stance on the intensity issue. Could Goff get his Caucus to agree to that, just to get him his day in the sun?

Now these are not reasons to not meet with Goff at all. If Labour does do a deal, he should be the one to get the credit and share the podium with the PM. For putting the national interest of policy certainty first, he would deserve it.

But such a meeting is unlikely to happen, until the lower level negotiators can report back that there are reasonable prospects of success.

It is 132 pages long and can be read here.

The main recommendations are:

1. Accept IPCC 4th assessment report as consensus of the science, noting there are uncertainties but not enough to delay action
2. The point of obligation for agricultural sector should initially be at the processor, not the farm gate, as administratively too costly to do for now
3. An ETS is preferred over a carbon tax as it can better link up internationally.
4. That all sectors be included in the ETS long-term
5. Important to have certainty legislated for forestry asap to ensure further planting not inhibited
6. Consider a price cap in the short-term while the market matures
7. Agriculture to be in the ETS but no date specified
8. Will support changing rules to allow offsetting for forestry, but need international agreement

Labour, in its minority report says:

1. Supports an all gases all sectors ETS
2. Are against capping the price of carbon initially
3. will support delaying entry of stationary energy, industrial and transport sectors until 1 July 2010
4. all other sectors to enter by 1 Jan 2013 (status quo)

Greens say:

1. Used to support carbon tax but ETS now preferable
2. ETS should be all sectors and gases
3. Against a price cap

ACT say:

1. says response to climate change should be based on actual measurable change, not projections of future change
2. If one has to respond, prefer low rate carbon tax to ETS
3. Much of NZ emissions come from producing food for export, not domestic consumption.
4. Does not accept there is a strong chance of trade reprecussions, as seen by Singapore and Hong Kong

Maori Party say:

1. Against ETS as won’t sufficiently lower domestic emissions
2. Prefer carbon tax

To my mind there are no big surpises here. And from what I can see, the ETS will proceed. It will be amended from what Labour and passed, but not in a fundamental way. The three big issues appear to be:

1. Do you have an initial cap on the price of carbon? I actually tend to favour the Labour/Greens view that you should not.  A price cap will make the ETS less effective, and more importantly may not get the forestry sector sufficient incentives to increase plantings.
2. What date do sectors enter the ETS.  The big two sectors politically are transport and agriculture. The first will put up the price of petrol and the second will see an increase in costs for the agricultural sector. And if you bring agriculture in too soon, you risk merely exporting the emissions overseas making it a lose-lose. Remember that when Labour/Greens demand a 2013 entry.
3. How many free allocations in each sector? A sector will be given an allocation of credits initially, so that you don’t have sudden and massive price shocks. Key issue is how big that allocation is, and when does it run out.

The ball is now clearly in the Government’s court. There is little doubt we will have an ETS – in fact we already have one – passed into law. The Government will want to make some changes to it. ACT look unlikely they will support changes as they don’t want an ETS at all. However they might be reluctant to vote against (for example) a delay in Agriculture entering the ETS.

Labour and Greens are relatively happy with the current ETS and unlikely to want to vote for changes. So this means the Maori Party is pretty important for getting any changes made.

It is possible National will not be able to get agreement on any changes. Unlikely, but possible. If that happens it does not mean there is no ETS. It means the one passed in 2008 will continue.

Nick Smith said:

A joint report by economic consultants NZIER and Infometrics concludes that a modified emissions trading scheme is the best way forward for New Zealand on climate change policy.

“This report is a useful contribution to the important debate on how New Zealand meets its environmental goals to reduce greenhouse gas emissions at least cost to the economy,” Dr Smith said today in releasing the report.

The report was commissioned by the Ministry for the Environment and provided to the Emissions Trading Scheme Review Committee as part of its terms of reference.

“This report concludes that a modified emissions trading scheme is the best way forward. I am releasing this report to assist with informed public debate on climate change.

“The report highlights that the costs to New Zealand’s climate change policy are significantly greater if other countries do not put a price on carbon. This reinforces the Government’s policy of aligning our response more closely with other countries.

Yep any post-Kyoto arrangement must include all major emitters.

Anyway let us look at the actual report. They note:

There are a number of policy options available to New Zealand to pay for any international liability. The options are all on a continuum between the following two ‘extreme’ bounds:

(i) The government purchases all of the liability offshore using general taxation to raise the revenue required to do so. In this scenario, no carbon price is introduced in the New Zealand economy.

(ii) The government introduces a price for all greenhouse gases in all sectors, with no exclusions. In this scenario, emitters face the entire burden of the international liability.

They conclude:

Our modelling shows that if the rest of the world takes steps to price carbon, and technological change is induced by this pricing, then a broad-based domestic carbon pricing scheme is the least cost way to meet New Zealand’s international obligations. Without action by the rest of the world or technological change, the least cost option can include the free allocation of permits and exemptions for some industries and/or gases.

My version of this is they say we should have an ETS. If the rest of the world signs up to a price on carbon, then our ETS should cover all sectors. If however major emitters (such as China and the US) do not sign up, then some industries should be exempted from an ETS – agriculture being my guess as the most likely.

Indeed I am right. They say:

On balance, our recommendation in the short run is to introduce an ETS with free allocation to competitiveness-at-risk sectors, with agriculture excluded if measurement of its emissions is prohibitively expensive. Free allocation should be output-linked and phased out as our competitors adopt carbon pricing. If agriculture is initially excluded it should be transitioned into the ETS, with free allocation if required, as measurement becomes economic.

It will be interesting to see what the Select Committee recommend.

The Fed Farmers VP has an op ed in the Dom Post:

Today, we can ill afford to further weaken the economy unless we wish to replace recession with depression. Research by the New Zealand Institute of Economic Research shows that the ETS could lead to 22,000 job losses.

The Agriculture and Forestry Ministry says the ETS will progressively reduce farm profitability and viability by 61.6 per cent for the average dairy farm and 80.3 per cent for the average sheep and beef farm. That is an economic implosion.

All of this will be taken from a sector that has outperformed the rest of the economy for 25 of the past 27 years.

The ETS over-reaches itself by putting a price of carbon on all emissions, whereas Kyoto requires New Zealand to account only for emissions above 1990 levels. We don’t need an ETS to meet our Kyoto obligations.

For better or worse we are in Kyoto. But whether a carbon tax, an ETS or simply just paying our liability (if we even have one) is the best option is far from clear. And if we have an ETS, will we be the only country in the world to include agriculture?

Worse, the ETS takes us where no other country has gone and applies a price of carbon to emissions arising from food production. It also prevents productive land being used for farming if it has trees on it. Forests are best planted on marginal land unsuited to food production, so we need pragmatism not dogmatism.

Therefore, we must ask, where is the global upside if New Zealand artificially throttles back its agricultural production, allowing less efficient producers to fill the void?

And that is why any replacement to Kyoto, must include all emitting countries. Otherwise we will damage our economy and damage the environment more.

But before anyone accuses Federated Farmers of being reactionary, climate change is real. There is no doubt that 6.8 billion human beings affect the environment and humanity grows at the rate of 80 million new mouths each year.

So, if we abandon the ETS, what could be done to get New Zealand through to 2012 when the Kyoto protocol lapses?

Given carbon is cheap right now, the Government could purchase Kyoto emissions units to put in the bank, giving us the means to meet our liabilities through to 2012.

A low-level carbon charge could be introduced and set at a rate that recovers just enough revenue to account for any emissions deficit.

The Government could fund the planting of lots of trees to develop new forestry sinks and jobs. Instead of following the international pack, New Zealand could lead it by pushing for each country to allocate a percentage of GDP toward climate change initiatives.

It is interesting that even Australia has delayed its ETS by a year.

Denmark, one of Europe’s greenest countries, considered a tax on its farming sector in February but quickly realised what folly this was and excluded the primary production of food from its Kyoto response in March. Denmark correctly saw there was no point in sacrificing its farmers when less efficient countries would only produce more.

In Denmark, agriculture accounts for about 19 per cent of all exports; in New Zealand, it’s a jaw- dropping 64 per cent. So why should we care if New Zealand agricultural emissions actually increase? Our farmers generate enough food to feed at least 1 per cent of humanity but are continually chastised for the supposed 0.1 per cent of global emissions this generates.

He makes a strong case.

Wow, National has been in office over six months, and it has already solved climate change. Nick Smith announced today that previous Kyoto deficit (which had been getting as high as $1 billion) is now a Kyoto surplus of $240 million. We can all relax now – the world has been saved.

Okay I am being sarcastic, but the change in forecast shows how much uncertainty there is – even counting the level of greenhouse gases is no simple thing.

We are now forecast to be 9.6 million tonnes under our Kyoto target of 1990 levels of net emissions. So what has happened?

The 2007/08 drought and better information on carbon captured in forests. I always said we should simply shoot one in ten cows, but instead a drought is just as good it seems. Now here is an interesting idea – global warming is predicted to cause more droughts, which will lower our carbon emissions – so maybe it is self correcting?

Now the figures may be a bit dodgy, as they are done by the Ministry for the Environment. They are being checked, rechecked and audited.

But whatever the figures really are, even the possibility of a surplus completely undermines Labour’s claim that its Emissions Trading Scheme was about “who pays New Zealand’s deficit?”

The truth is that Labour’s ETS was always about one of the biggest illicit tax grabs in New Zealand’s history.

According to David Parker himself  (see attached document letter-from-minister-re-revenue-and-cpr-30-may-20081 which a friendly Kiwiblog reader dropped me) Labour always knew that it would receive a $21 billion windfall from households and firms. Colin Espiner wrote about this before the election but it never really took off as a story because everyone was distracted by Winston Peters and the election.

The $21 billion windfall was why Michael Cullen was so keen on the ETS – he could raid our wallets by $21 billion without us even noticing. It was taxation by stealth at its worst. This is also why Cullen was so willing to pay billions in policy concessions to New Zealand First and the Greens – it was nothing compared with the $21 billion he knew was on its way.

National has always promised to make the ETS fiscally neutral but here’s the problem. Cullen designed the scheme to take money from households and firms and deliver it to him – how can you modify it to turn a $21 billion tax grab into a fiscally-neutral scheme? Or even one that hands the $241 million back to the public?

It is looking more and more likely that a carbon tax is the superior way to go, as the Greens originally proposed.

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.

IrishBill notes at The Standard that submissions are open on the review of the ETS, and close 13 February.

He says it is of particular concern that the TOR include:

identify the central/benchmark projections which are being used as the motivation for international agreements to combat climate change; and consider the uncertainties and risks surrounding these projections

I disagree. Anyone who actually has read the IPCC reports knows there are significant uncertainties and risks. In fact almost every page of their reports detail these uncertainties. They even detail in their fourth report what specific terms mean:

1. virtually certain >99%
2. extremely likely >95%
3. very likely >90%
4. likely >66%
5. more likely than not > 50%
6. about as likely as not 33% to 66%
7. unlikely <33%
8. very unlikely <10%
9. extremely unlikely <5%
10. exceptionally unlikely <1%.

So when you read:

It is very likely that cold days, cold nights and frosts have become less frequent over most land areas, while hot days and
hot nights have become more frequent. {WGI 3.8, SPM}

It is likely that heat waves have become more frequent over
most land areas. {WGI 3.8, SPM}It is likely that the incidence of extreme high sea level3 has increased at a broad range of sites worldwide since 1975. {WGI 5.5, SPM}

This means there is a higher degree of confidence in the assertion there are more frequent hot days than in the assertion that extreme high sea levels have increased.

Effects of temperature increases have been documented with
medium confidence in the following managed and human systems: agricultural and forestry management at Northern Hemisphere higher latitudes, such as earlier spring planting of crops, and alterations in disturbances of forests due to fires and pests {WGII 1.3, SPM}

Now medium confidence is also defined as about 5 out of 10, so far less certain.

It is very likely that the observed increase in CH4 concentration is predominantly due to agriculture and fossil fuel use.

And much higher confidence here for the source of CH4, but still only 90%, not 95% or 99%.

So when you hear people rail against the considering the uncertainties and risks of projections, they are actually railing against people understanding the science, and reading the IPCC reports.

We see this with IrishBill who goes on to say:

Which is the opening to question the basic science of climate change. We’re about to become the nation state equivalent of the flat earth society.

Nope the flat earth society is those who think you can’t question or consider risk and uncertainty.

My position on climate change is I accept the IPCC reports. I know there are legitimate criticisms of them, but I think overall they do a good job of documenting what they beleive to be happening, and why.

The problem is the nutters who then preach doomsday, if nothing is done in the next couple of years. You hear scare mongering about ten metre increases in the sea level. In fact the IPCC has six different scenarios for sea level rises and even the worst one is an increase by 2100 of only 26 to 59 cms. The best scenario is 18 to 38 cms.

Now that is still undesirable, and why I support putting a price on carbon (either through an ETS or a tax). But when you hear people talking about sea level increases of metres and metres, or who scoff at any suggestion of uncertainity – well they probably have not even read the IPCC reports themselves. They are going off the hype.

There is uncertainty. Not enough to warrant doing nothing. A price on carbon is needed. But we have to be aware of how much we don’t know, as well as how much we do know.

Peter McCaffrey at ACT on Campus blogged last night:

I didn’t have a chance to blog about this before heading to the privileges committee to watch Winston Peters, but that story has been covered to (Winston’s) death.

Tonight there was perhaps an even bigger story down at Parliament.

At around 7:10pm – just after parliament had gone back from the dinner break – I was hanging around the office, with the parliament video stream playing in the background, when I heard Te Ururoa Flavell take a point of order to seek leave to send the ETS back to select committee. Surely just a little grandstanding, no? It would never actually get the support of the house…

But then I heard perhaps one of the craziest things i’ve heard in the last three years of parliament.

New Zealand Labour, 49 votes against, New Zealand National, 48 votes against, New Zealand First, 7 votes against, Greens, 6 votes in favour, Maori Party, 4 votes in favour, United Future, 2 votes in favour, ACT, 2 votes in favour, Progressives, 1 vote against.

I didn’t catch how TPF and GC voted, but by that stage my head was buzzing with the realisation that National just missed an opportunity to sink the ETS (and the party that was being thrown tonight too!).

Others got excited by this. So I decided to make some inquiries. I would be very concerned if National voted against sending it back to select committee.

However the motion was not to send the ETS Bill back to “select committee” but to “committee”, being the committee of the whole stage that had just concluded.

And the reason for the motion, was so that a Treaty of Waitangi clause could be inserted into the Bill. That is why the Greens voted for it and the Maori Party proposed it.

So National voting for the motion would not have delayed the ETS by week or months. It would not have given the public another chance to submit on the bill (something National has argued for). It would have merely delayed the ETS Bill by one day – and it would have passed into law today instead of yesterday.

And voting for it, might have led to one of those awful “principles of the Treaty of Waitangi clauses” that no-one understands being inserted into the Bill.

To be fair to Peter McC, and others, I can understand in the heat of the moment not realising the difference between sending the bill back to select committee, and to committee. They sound alike, but are massively different things.

How lovely. David Parker has a big champagne party planned for tonight to celebrate the passing of the ETS. Will they also be celebrating how Helen kept Winston on board just long enough to pass it, and then sacking him? And what will be the carbon footprint of the party? I hear there have been invites to all corners of New Zealand.

Matthew Hooton has taken to blogging like Madonna to sex. Lots of goodies today.

First Matthew highlights the item in Sideswipe about how a candidate’ financial agent had a brick thrown through a window at their home. The Electoral Finance Act has forced residential addresses to be used on all advertising, which is ridicolous overkill for registered political parties and their candidate.

Then Matthew calls on National to fillibuster the ETS third reading today. He think Clark will sack Peters tonight so if it is delayed until tomorrow, then there will not be the numbers for it.

He also speculated on what role Mike Williams may have played in the $250,000 offer to the Maori Party to support Labour, and calls on Tariana Turia to reveal all.

Brian Fallow looks at the costs of an ETS. It all depends on the price of carbon. Treasury is budgeting $23 a tonne, but a last minute change to the scheme has pushed this up to a likely $50 per tonne, and by 2020 it is predicted the cost will be $70 a tonne. For now we will go with $50 a tonne.

• Inflation to increase by around 0.7% per year for the next two years
• Retail electricity prices to increase by 20%
• Petrol prices to increase by 12c/litre
• Reduce payout to dairy farmers by 50c/kilo (once agriculture fully in the scheme) or 6%

As Fallow notes:

It would be a perverse outcome for the global climate if growth of the pastoral farming sector in New Zealand were hobbled by climate change policy here, only for the demand for dairy products and meat it might have satisfied to be met instead by production elsewhere in the world whose carbon hoof-print (emissions per litre of milk or kilogram of meat) is greater.

So the ETS exempts livestock emissions altogether until 2013 and taxpayers will continue to pick up the great majority of the bill (up to 90 per cent) until at least 2019.

Agriculture is not the only sector where the NZ ETS may simply lead to production transferring off shore, which will result in even worst environmental outcomes, and a drop in income for New Zealand.

A very useful editorial from the Dominion Post on the ETS:

There is one certainty in the global warming debate: the problem of climate change is not one that will be solved by an overnight fix, writes The Dominion Post. That’s why it is absurd that Labour believed it needed to stitch together a series of backroom deals and then pull out all the stops to rush through an emissions trading scheme in the final few days of Parliament before the election.

Especially as Labour had delayed the entrance into the scheme of major sectors anyway.

That comes at a cost. Labour is proposing 785 amendments to the scheme – which will not begin to be implemented till 2010 – as it completes its gallop through Parliament. Those amendments are a symptom of the complexity of the scheme. It is ridiculous to believe that they will receive the careful consideration they should before they are written into law, and in a scheme where the devil will be in the detail, that is dangerous.

Fonterra have already identified one mistake that will cost it $13 million a year. The Government has agreed they are mistakes, but those clauses of the ETS Bill have already been agreed to and can not now be amended without special leave.

There is no question that Labour is well-intentioned. Despite that, the legislation is part of a strategy that remains deeply flawed. It risks concentrating on the accountancy of who ends up picking up the bill for carbon emissions, rather than on reducing those emissions.

Guess how much emissions will be reduced by 2012 under the ETS? Anyone care to guess?

The reality is that the scheme, designed to meet New Zealand’s Kyoto protocol commitment, will end up increasing the prices that consumers pay for all manner of things, and damage the economy, without necessarily doing anything about reducing the amount of carbon emitted in New Zealand.

The impact on emissions by the end of the Kyoto 1st commitment period will be minimal.

The New Zealand scheme needs to be seen in that context. New Zealand is responsible for about 0.2 per cent of the world’s greenhouse gas emissions. Meanwhile Chinese emissions are growing at a prodigious rate – according to some projections, by 2.3 billion tonnes in the next five years, far in excess of what the West is supposed to save under the Kyoto protocol.

The world will gain little fron New Zealand’s rush, but New Zealand risks losing a lot through a flawed scheme.

Unless China and India join in, the impact of the rest of the world reducing emissions will be nil.

National Business Review has this weeks Dispatch From Helengrad.

• Best Play of the Week – Sir Roger Douglas gets an A for his policy of increasing Government spending at no more than the rate of inflation and population growth.
• Worst Play of the Week – The Greens get a D on behalf of the planet for rejecting forestry offsetting in the Emissions Trading Scheme, despite the fact it would have resulted in less carbon emissions. They put money before the environment.
• The Winston scandal gets downgraded to a B+ as there is no longer any real question of credibility left to be resolved.
• NZ First do get the EFA Breach of the Week with their false donations returns. An A grade offence.
• Bernard Hickey gets the blog analysis of the week for his scary tales of debt and credit in NZ.

Comments and feedback can be made over at NBR.

NBR reports that Ngai Tahu is seeking compensation for a loss in value of forests it received as part of its historic Treaty claim.

This is due to the Emissions Trading Scheme legislation about to be passed into law.

How much value?

The Hive heard Mark Solomon say on Morning Report:

PRESENTER: Right, so the ETS has essentially robbed you of value from that settlement.
SOLOMON: Over $100 million.
PRESENTER: From that full and final settlement.
SOLOMON: Yes.

The Hive also explains how much households will get stung by the ETS:

1) The decision to block hot air AAUs has roughly doubled the price of carbon in the scheme from $20-$25 to $40-$50 (Radio NZ Morning Report http://www.radionz.co.nz/audio/national/mnr/2008/09/02/emmisions_trading_scheme_bill_debate ) .

2) The Government’s own numbers (from the explanatory note to the Bill) show the impacts on households (when fully implemented – now 2011) to be:

$100-$200 p.a. at C-Price of $15 / tCO2e
$170-$350 p.a. at C-Price of $25 / tCO2e
$330-$660 p.a. at C-Price of $50 / tCO2e

3) So at the Minister’s spokesperson’s C-price basis of $25 / tCO2e, the “good news of an electricity $120 rebate in 2010” is little comfort for the real cost in the years that follow!

Peter Dunne is also very unimpressed with the “compensation” of $2.50 a week.

It is also worth noting that the Government has just introduced 77 pages of amendments to the ETS legislation!!

Well it was obvious from day one the consultation was a sham. I feel sorry for all those who actually took the time to write in. The Greens have announced they will be voting for the ETS Bill. I wish it had been legal for me to bet $1,000 on that outcome – it was so obvious.

NZ First are in the bag also, so the ETS will be passed into law.

Now I’m not one of those who thinks having an ETS is necessarily bad. My preferred approach would be a carbion tax initially, but an ETS is probably inevitable. Of course the actual design of the ETS is very important – this is effectively about legislation for a complex new set of taxes and permits and issues such as forestry offsets, the profit the state stands to make from it etc should be worked out, before it is passed. They won’t be, so it will be a flawed beast and I suspect Parliament will have to revisit it often.

As previously stated, I think the Greens have informally already decided to back the ETS, despite the failure to get any significant concessions.

The PM has said:

If the emissions trading scheme did not pass into law, the Prime Minister said she would make it a “major election issue”.

Now if I were the Greens, I’d be thinking about why on Earth they would possibly want to remove the biggest most important issue as an election issue? They are hovering just above 5%, and are about to take away their biggest issue and basically portray themselves as no different to Labour. Have they thought about the message it gives to Green supporters? It is, vote for us and achieve the same as voting for Labour on the most important environmental issue of our lifetime?

Clark does not want climate change as a major election issue. Her record on emissions is so hollow, Nicky Hager could turn it into a sequel. Emissions under Helen Clark have grown faster (in relative terms) than under George W Bush or John Howard, The last thing she wants is climate change as an issue. National will quietly probably be quite glad if the Greens back it, and it goes through. So it will be good for Labour and National, and bad for the Greens politically.

Have the Greens considered what they could grow their vote to, if they said the ETS doesn’t achieve enough, and we won’t back it. They could campaign on Labour’s disasterous record with carbon emissions, how National would be little different and only a vote for the Greens will make a difference on climate change. With a good campaign manager they could get 10% of the vote I reckon.

Toad makes similiar points of g.blog. I’d also point out that under Labour’s ETS no major emitting sector comes in until 2011 anyway, so a year’s delay in the legislation is not the same as a year’s delay in a sector coming into an ETS.

My advice enough is not Trojan Horse advice – it is the advice I would give the Greens if I was their campaign manager. I don’t actually have a strong concern about the differences between the desired Greens ETS, Labour’s ETS and a National ETS. The ETS is a very long term game, and I don’t get too excited over a year’s delay or not for a sector.  NZ’s actual impact on carbon emissions is close to zero. We need an ETS so we do our part as a good global citizen, and so we do not get affected by environmental trade barriers. But let us not think that transport coming into the ETS in 2009 or 2011 will affect global temperatures at all.

Some people have suggested I am too cynical in thinking the Greens consultation is a charade, and it is a PR stunt for a decision already made. However Bill Ralston points out an interesting aspect:

I suspect it is largely a stunt to gain them more publicity because they are languishing in the polls and urgently need to galvanise some voter support.

This suspicion was reinforced when Jeanette Fitzsimons was asked if her caucus was split on how the party should vote.

She replied she would not know until next Tuesday’s caucus because she had not spoken to her MPs.

Good grief. There are only half a dozen of them and the carbon footprint from six phone calls to find out what they thought would not be too great, surely?

Fitzsimons and her cunning co-leader Russel Norman are trying to drag out the issue with this bit of theatre to gain maximum media coverage in the run-up to the election.

Can there be any credibility around the statement that the six Greens MPs have not even discussed what their position should be? I mean seriously? So who decided to ask the public for consultation? Wouldn’t that have been a Caucus decision?

I am so convinced they have already decided to back the scheme, despite their failure to get any meaningful concessions, that I was planning to offer $1,000 to someone willing to bet that they would decide not to back the ETS Bill.

I was going to let the market decide the odds, by letting people state how much they would be willing to pay me if the Greens announce they are backing the ETS Bill, and the highest bidder wins. So if someone was willing to give me $100 (and that was the highest bid) if the Greens back the scheme I’d give them $1,000 if the Greens do not back the scheme. I suspect no one would be willing to go much over $100, or 10:1 odds as they near certain to lose.

Sadly however such a harmless little bet would land me in breach of the Gambling Act 2003, so I can’t do it. However people are welcome to post how much they would have been willing to bid as a bet for a chance to get $1,000.  But you would have lost that money to me should the Greens announce on Tuesday they will be backing the ETS Bill despite gaining no significant concessions.

As I blogged at NBR, I think the Green Party consultation is a sham, and the decision is already effectively made.

Chris Trotter is assuming it is genuine, and unimpressed with the leap away from Burkian principles:

Basically, this is avoidance behaviour on a truly disreputable scale. The Greens know that the ETS falls well short of what they believe (and what all the evidence suggests) is necessary. Equally, they know that nothing better is on offer from any party with the power to deliver on its promises. They have bitter memories of what happened to them the last time they took a stand on principle against Labour (over the issue of genetic modification) and don’t want to repeat the experience. Realistically, they appreciate that backing the ETS is the only viable political decision they can make. But they don’t want to make it. So, in a politician’s version of making another cup of coffee instead of going out to dig the garden as promised, they have appealed to “the people” for guidance.

Trotter then uses one of my favourites quotes from Edmund Burke:

Your representative owes you, not his industry only, but his judgment; and he betrays instead of serving you if he sacrifices it to your opinion.

Chris goes on to ask where was this commitment to follow the people when they foisted the anti-smacking law on a populace that didn’t want it. So he concludes:

Really, the whole Green Party deserves a damn good smacking!

And Danyl at the Dim Post in unimpressed:

Aren’t the Green MP’s supposed to be experts in this very area? Don’t they claim to know more about it than almost everyone in the country? And haven’t they specifically been elected on the basis of this expertise with the expectation that they can make informed decisions about environmental policy?

They’ve spent the last three years lecturing the country in a condescending manner to ‘buy kiwi made’ and not to smack your kids – but when it comes to the issue that is the raison d’etre for their party they’re little lost sheep.

As Paula points out this might just be a stunt, or a bargaining strategy. If that’s the case its a conspicuously stupid one.

It is a stunt, and I feel sorry for all the people who take the time to e-mail in their views on a decision that has already been made in substance, if not in form.

The Press reports:

The Ministry of Agriculture and Forestry has received an assessment of the impact of the Government’s flagship climate-change policy on the value of land handed to iwi under Treaty of Waitangi settlements.

Officials are refusing to divulge the monetary figure placed on the estimated loss in value contained in the assessment by senior Christchurch-based valuer Donn Armstrong, of Forest Land Consultants.

However, Maori say they could be owed as much as $2 billion in compensation, because land currently in forests will not be able to be converted to other potentially more profitable uses.

So we are starting to get to the beginning of the end of settling historic grievances, with compensation likely to be around $1.5 billion.

And the ETS could create a new contemporary grievance of up to $2 billion?

This is why NZ needs to be very careful as we proceed with an ETS. Again, we need to develop one or risk trade sanctions, but need to ensure the costs are proportional to the benefits.

Also we should consider what our Kyoto obligations mean in light of Russia’s invasion of Georgia. You see there is a high possibility that we would have to purchase carbon credits off Russia as we will be well above our 1990 emissions levels. So we may end up giving Russia hundreds of milllions of dollars of hard cash, which they can use to fund their war in Georgia. Yep, there is no mechanism for excluding Russia because they have gone nasty – if they have the carbon credits, they will get billions of dollars in hard currency for them.