ETS Debate continued

On Tuesday I blogged a “fact sheet” by the NZ which compared the NZ and the European ETS,

On Thursday I blogged a response to it, from the British High Commission, pointing out NZ’s high emissions per capita, and what Europe is doing on top of having an ETS.

Today, I’m happy to present a response to that response, from the Greenhouse Policy Coalition. Personally, I’m finding it a very useful debate as the NZ ETS will have its first formal review next year – and a key issue will be comparing what NZ is doing, to what other countries are doing.

The GPC responds:

NZETS and EUETS

Response to Kiwiblog item “British High Commission on European ETS”

29 October 2010

The British High Commission’s comments on the differences between New Zealand’s and Europe’s emissions trading schemes and wider climate change commitments require a response.  Specifically:

  • The focus on per capita emissions is deeply misleading in understanding New Zealand’s situation, especially the role of agriculture;
  • New Zealand’s experience with an ETS is much less than Europe’s; and
  • New Zealand performs well in its own commitments outside the ETS.

Per capita emissions and agriculture

Focusing on per capita emissions is a standard approach used to make New Zealand and some other developed countries (e.g. Australia) look bad on climate change while making more populous countries (particularly China and India and some EU countries) look relatively good.  It helps avoid the real issue, which is the total amount of carbon going into the atmosphere.  New Zealand accepts its responsibility to do its share, but New Zealand isn’t the problem – action (or inaction) by the major emitters (China, the US, India, Russia and Japan) will determine whether global emissions keep rising or start to fall.  Per capita figures are a red herring.

What if we measured emissions in terms of each country’s consumption of goods, i.e. the amount of carbon embedded in the products used in an economy?  By this measure, New Zealand’s per capita figure would fall significantly, while that of the EU and the UK would rise dramatically.

The central issue to consider is why, with 73% renewable electricity generation (as against the UK’s 2020 target of just 30%), New Zealand rates so high on an emissions per capita basis.  The answer is simple – our super-efficient agricultural sector.  Our relatively small population produces a huge amount of highly-nutritious, high quality food largely for export to feed a booming world population.  We do this so efficiently that the productivity (and hence emissions of agricultural greenhouse gases methane and nitrous oxide) per person is very high by world standards.  The carbon footprint of our agricultural produce is not bettered by any of our competitors.

So, why don’t we just do something to reduce emissions from stock (methane) and fertilizer (nitrous oxide)?  Many options for this have been suggested but none has yet proved cost-effective (methane) or they have limited regional application and are not yet recognised by the UN (nitrification inhibitors).  New Zealand is doing more than its share in this respect.  We have put $45 million into the Global Research Alliance on Agricultural Greenhouse Gases, which we are leading with the UN’s blessing.  The challenge facing this group is to produce more food while reducing the intensity of emissions.  The bottom line is the world needs New Zealand to keep producing food, but at the moment the only way to cut agricultural emissions is to cut stock numbers, which is no solution at all.  If we stop producing, other, less efficient, producers will simply take over.

Efficiency is an important point.  It’s not just about being efficient in terms of emissions per unit of production, which this country’s agriculture sector certainly is.  New Zealand also produces food without subsidies that, in other parts of the world, such as Europe, soak up huge amounts of money.

It’s also worth noting that New Zealand has the only ETS with agriculture in it.  While the agricultural gases methane and nitrous oxide are not due to come into the ETS until 2015, farmers are already paying a price for their emissions through increased fuel and electricity bills.  Our food processing sector is fully in the ETS and gets almost no allocation of free emission credits, which will cost these companies tens of millions of dollars over the next year and more in future years.

New Zealand’s short ETS experience

The High Commission makes much of the EUETS having a cap on emissions, which the NZETS does not have.  This is misleading on two counts.  First, New Zealand does operate within a wider cap – its binding commitment to keep net emissions (total emissions less the carbon taken up by trees) at 1990 levels for the period 2008-2012.  Furthermore, New Zealand’s ETS, like the EU’s, phases out the support of companies via free carbon credits – and at almost the same rate.  Second, emissions trading is a brand new experience for New Zealand companies.  The EU has been doing it for five years and has made some huge mistakes along the way.  Its initial effort crashed the price of carbon because of over-allocation of emission credits.

Yes, it’s true the EU is on track to meet its 2020 target of a 20% reduction on 1990 emissions.  However, this is due to the recession cutting production in emission intensive areas and not the ETS.  Recent publications point to minimal gains from the EUETS.  Michael Jacobs, a Visiting Fellow at the London School of Economics, says analysis shows the EU scheme is projected to cut just 32 million tonnes of carbon emissions in the period 2008-2012, which is tiny alongside annual European emissions of over 3500 million tonnes.  The Climate Spectator (5 October 2010) reported recently that the EUETS had also failed to deliver a move towards renewable energy.  The story reported on a survey of investment managers conducted on behalf of the Institutional Investors Group on Climate Change, called Shifting private capital, suggesting this failure stemmed from the piecemeal nature of EU climate policy.

On balance, the NZETS isn’t looking too bad.

New Zealand’s climate change commitments outside the ETS

The High Commission focuses a lot on what the EU is doing outside its ETS to cut emissions.  As noted above, most of the success here is due to the recession.  The EU’s commitment to renewable energy is much less than New Zealand’s – an overall 2020 target of having 20% of all energy coming from renewables (i.e. including transport).  The figure for the UK is lower – 15%.  This compares with New Zealand’s renewable electricity generation last year reaching 73%, with a national target of 90% by 2025.

New Zealand’s international leadership of agricultural emissions research is also evidence of this country not sticking solely to the ETS in responding to the risk of climate change.

Finally, one contextual point leaps out as we consider New Zealand and the EU on climate change.  The EU is a collection of 27 countries, which largely trade with each other and are all in an emissions trading scheme together.  New Zealand is on its own; its major trading partners do not have a price on carbon.  This is a dangerous spot to be in when your entire economy rests on trading with the outside world.

The things I am also interested in, in this debate, are:

  1. What will China do? If China does not sign up to anything meaningful, then by 2020 I estimate their emissions will exceed total global emissions in 2005
  2. What will the US do, if it does not do an ETS?
  3. Will there be a formal post-Kyoto agreement?
  4. Will the next few years of climate data strengthen or weaken the projections with regard to future warming
  5. what are the relative costs and benefits of mitigation vs adaptation.

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