Canadian Andrew Leach blogs on Canada's announcement of its intention to withdraw from the Kyoto Protocol and the enforcement and penalties issue.
Leach is also in the Globe and Mail.
He confirms that there would be no financial penalty if Canada stayed in the Kyoto Protocol for the first commitment period but do not sign and ratify for the second commitment period. By withdrawing, Canada becomes a 'non-participant' not a 'non-compliant but unpenalised' participant of the Kyoto Protocol.
Or as Leach says "the key reason [for withdrawing] is...to avoid an explicit finding of non-compliance – the analog which immediately jumps to mind is a student dropping a course they are likely to fail".
A blog written to explain that the New Zealand Emissions Trading Scheme will not effectively reduce greenhouse gas emissions.
14 December 2011
30 November 2011
Unlike the UNFCCC climate change negotiations, Neville Chamberlain only went to Munich once
In which I discuss the Durban UNFCCC international climate negotiations through a historic lense of the Second World War and the Rio 1992 Earth Summit.
In a very considered comment on the Hot Topic blog , David Lewis questions whether the Durban UNFCCC international climate negotiations can come up with a binding treaty that effectively reduces GHG concentrations, given the existing public will.
David Lewis compares the global demand for action in the international climate change negotiations with the changing British attitudes to 'Total War' with Hitler's Germany in 1940. Lewis implies that in the climate change negotiations, each government is "trapped in a circumstance where it can’t generate the national will that’s necessary".
In terms of the purposes served by international climate change negotiations, I would go a step further than that thoughtful comment from David Lewis. I say that the negotiations have never had the goal of producing a binding treaty to stabilise greenhouse gas concentrations. Governments instead use the negotiations as one of their reasons for not reducing emissions of greenhouse gases and for continuing with 'business-as-usual'.
Let me summarise my contention using another reference to the Second World War.
Q. Whats the difference between Neville Chamberlain's negotiations in 1938 with Hitler in Munich that lead to the annexation of Czechoslovakia and the UNFCCC international climate change negotiations?
A. Neville Chamberlain only went once to Munich.
In making my argument I am influenced by a paper my late father Robin Johnson wrote in 1992 about the political-economy of the Rio Earth Summit. Robin uses the term "political-economy" to indicate he is considering the various groups with interests in the Earth Summit and asking what interests were served by the outcomes.
Robin noted that the expected outcomes of the Rio Earth Summit were binding signed international conventions on climate change and biological diversity. However, the actual outcome was a "framework convention...full of resounding phraseology and generalities".
Robin says the reason for this outcome was the fundamental split between the 'North' (developed countries) and South (developing country) blocs. Neither bloc was was willing to put global interest ahead of national interests. Instead, the outcome of the Earth Summit consisted of "non-binding language ... adopted to get all major nations to sign".
No agreement except on non-binding rhetorical statements! Sound familiar, doesn't it? Isn't that whats happened with all the subsequent climate change talks?
Robin's paper uncannily predicts much of the next 19 years of inconclusive negotiations. He wrote "Prior to meeting in Rio, some governments expressed concern that the Earth Summit would become a "pledging conference" where world leaders would be expected to step to the podium and announce their country's contribution." Copenhagen 2009, anyone?
Robin concluded "The challenge for those seeking action will be to channel the outcomes of Rio into concrete action by member states". Substitute "Bali 2007" or "Copenhagen 2009" or "Cancun 2010" for "Rio", and we can re-use that conclusion for all subsequent international climate change negotiations.
So, from a political economy point of view, the climate change negotiations have had the effect of ensuring that international opinion stays "behind the demand curve” for decisive action. After all, that is the function they have served in the 19 years since the Rio Earth Summit in 1992.
So I think we need to let go of the idea that the negotiations as they are currently constituted and conducted will make any useful contribution to the kind of decisive international action that is required. We need to accept that the negotiations are just another forum for business and politics as usual.
In a very considered comment on the Hot Topic blog , David Lewis questions whether the Durban UNFCCC international climate negotiations can come up with a binding treaty that effectively reduces GHG concentrations, given the existing public will.
"I don’t see how negotiations on an international climate treaty can proceed to an agreement that would actually stabilize the composition of the atmosphere at a level that would not cause [dangerous anthropogenic interference] without more demand for such an agreement coming from the global population".
David Lewis compares the global demand for action in the international climate change negotiations with the changing British attitudes to 'Total War' with Hitler's Germany in 1940. Lewis implies that in the climate change negotiations, each government is "trapped in a circumstance where it can’t generate the national will that’s necessary".
In terms of the purposes served by international climate change negotiations, I would go a step further than that thoughtful comment from David Lewis. I say that the negotiations have never had the goal of producing a binding treaty to stabilise greenhouse gas concentrations. Governments instead use the negotiations as one of their reasons for not reducing emissions of greenhouse gases and for continuing with 'business-as-usual'.
Let me summarise my contention using another reference to the Second World War.
Q. Whats the difference between Neville Chamberlain's negotiations in 1938 with Hitler in Munich that lead to the annexation of Czechoslovakia and the UNFCCC international climate change negotiations?
A. Neville Chamberlain only went once to Munich.
In making my argument I am influenced by a paper my late father Robin Johnson wrote in 1992 about the political-economy of the Rio Earth Summit. Robin uses the term "political-economy" to indicate he is considering the various groups with interests in the Earth Summit and asking what interests were served by the outcomes.
Robin noted that the expected outcomes of the Rio Earth Summit were binding signed international conventions on climate change and biological diversity. However, the actual outcome was a "framework convention...full of resounding phraseology and generalities".
Robin says the reason for this outcome was the fundamental split between the 'North' (developed countries) and South (developing country) blocs. Neither bloc was was willing to put global interest ahead of national interests. Instead, the outcome of the Earth Summit consisted of "non-binding language ... adopted to get all major nations to sign".
No agreement except on non-binding rhetorical statements! Sound familiar, doesn't it? Isn't that whats happened with all the subsequent climate change talks?
Robin's paper uncannily predicts much of the next 19 years of inconclusive negotiations. He wrote "Prior to meeting in Rio, some governments expressed concern that the Earth Summit would become a "pledging conference" where world leaders would be expected to step to the podium and announce their country's contribution." Copenhagen 2009, anyone?
Robin concluded "The challenge for those seeking action will be to channel the outcomes of Rio into concrete action by member states". Substitute "Bali 2007" or "Copenhagen 2009" or "Cancun 2010" for "Rio", and we can re-use that conclusion for all subsequent international climate change negotiations.
So, from a political economy point of view, the climate change negotiations have had the effect of ensuring that international opinion stays "behind the demand curve” for decisive action. After all, that is the function they have served in the 19 years since the Rio Earth Summit in 1992.
So I think we need to let go of the idea that the negotiations as they are currently constituted and conducted will make any useful contribution to the kind of decisive international action that is required. We need to accept that the negotiations are just another forum for business and politics as usual.
24 November 2011
International climate change negotiations planning to fail
Climate Change Minister Nick Smith seems perfectly happy to pretty much ignore the science (as visualised in the excellent graphic of future emissions pathways) and see the UNFCCC/Kyoto process fail.
Here is a statement he made to Parliament where he implies the lack of an international climate change agreement, after Kyoto ends in 2012, is fine with him as it enables him to tell Kennedy Graham (Greens MP) that there will be no cost after 2012 to the taxpayer from giving emitters free emissions units.
"This member and other members make the gross error of trying to claim that not exposing industries or consumers to the full price of carbon over all their emissions is somehow a subsidy. A subsidy implies that there is a cost to taxpayers. That is not true. It is not true, and members opposite who attempt to run that argument ignore the fact that there is no international agreement beyond the end of 2012 for reducing emissions at this point, and without it, there is no cost to the New Zealand taxpayer."
To me Smith seems to be saying "It's no big deal if the UNFCCC/Kyoto process fails. In fact, we are relying on failure in the crazy design of our NZETS".
As well as basing the NZETS policy on a bet that the Durban conference will continue 18 years of stalemate, Smith is also wrong in fact about costs to taxpayers. The NZ emissions units are owned by the Crown on behalf of taxpayers. Giving them away free to emitters is a transfer of wealth from all taxpayers to emitters. Or a cost.
Here is a statement he made to Parliament where he implies the lack of an international climate change agreement, after Kyoto ends in 2012, is fine with him as it enables him to tell Kennedy Graham (Greens MP) that there will be no cost after 2012 to the taxpayer from giving emitters free emissions units.
"This member and other members make the gross error of trying to claim that not exposing industries or consumers to the full price of carbon over all their emissions is somehow a subsidy. A subsidy implies that there is a cost to taxpayers. That is not true. It is not true, and members opposite who attempt to run that argument ignore the fact that there is no international agreement beyond the end of 2012 for reducing emissions at this point, and without it, there is no cost to the New Zealand taxpayer."
To me Smith seems to be saying "It's no big deal if the UNFCCC/Kyoto process fails. In fact, we are relying on failure in the crazy design of our NZETS".
As well as basing the NZETS policy on a bet that the Durban conference will continue 18 years of stalemate, Smith is also wrong in fact about costs to taxpayers. The NZ emissions units are owned by the Crown on behalf of taxpayers. Giving them away free to emitters is a transfer of wealth from all taxpayers to emitters. Or a cost.
22 November 2011
Can we defuse the global warming time bomb?
In June, 2003, James Hansen gave an address titled "Can we defuse the global warming time bomb?" to the Council on Environmental Quality in Washington, DC.
I have found a version on the web in html: http://naturalscience.com/ns/articles/01-16/ns_jeh.html.
I have found a version on the web in html: http://naturalscience.com/ns/articles/01-16/ns_jeh.html.
20 November 2011
The IPCC report on extreme climate and weather events
The IPCC report on extreme climate and weather events is discussed at Real Climate
Here is a wordle of it.
Here is a wordle of it.
14 November 2011
Swallowing the elephant flogging the dead horse
A snake swallows the elephant in the room and then flogs a dead horse - The politics of climate change in the 2011 New Zealand Election campaign
So whats happening with climate change in the campaign for the 26 November 2011 election?
I was originally thinking about writing a wonkish post comparing climate change policies between parties. You know the sort of thing. e.g. see Interest.co.nz
Which parties have policies that reflect the seriousness of the impacts the science predicts? Who has got the science wrong? Which politicians are all talk and no action? What are the minute details of the each party's NZ ETS policies. Such as delays to sector entry dates, partial price obligations and varying free unit allocation regimes...MEGO, anyone? (My Eyes Glaze Over....)
Then I thought, Nah! I am looking through the wrong end of the telescope.
You know what really strikes me about climate change in the election?
It's the absence. It is as if climate change is nearly completely absent from the campaign. When climate change does pop up, it's portrayed in simplistic soundbites.
Nick Smith says anthropogenic climate change is real and complex and 'wicked'. But promises more moderating, balancing and delaying of the NZ ETS. Labour says anthropogenic climate change is real and we will fiddle with some NZ ETS details for agriculture slightly earlier than National as farmers don't vote for us anyway. The Greens say anthropogenic climate change is real and we have a detailed wonk-friendly exposition on our website, but for this election we are running with "jobs, kids, rivers". oh no..... MEGO....
What's happened is that climate change, the 'elephant in the room', has been swallowed up whole by the 'snake in the room' -- politics. Along with all other serious political issues.
This snake is the real theme of the election. Russell Brown calls it the politics of absence. Brown says "cultivated political absence...shapes the almost unprecedented popularity of John Key". John Key's political success is because of this successful strategy of "de-politicising" himself. Key's politics-free radio chat show was the perfect example.
The media have largely just played along with the politics of absence. The election is discussed as a poll-driven horse race. Or a rugby game "of two halves" with "kicking for touch". Who looked confident? Who had the best sound bites? Who mispronounced his/her New Zild the least or most. Restructure or "reeshrukcha"?
The media have trivialised and objectified political debate. I give this example. The most discussed electoral contest in 2011 appears to be Auckland Central which the Herald calls "the battle of the babes" as the candidates, Jacinda Ardern and Nikki Kaye, are both relatively young women, whose shared Herald columns are called "Broadsides". Do I need to say more?
After the snake has swallowed the elephant in the room, the snake becomes the dead horse that needs some more flogging.
Climate change has been politically institutionalised. Its now "flogging a dead horse". Everyone has a policy (a horse). Everyone talks their policy. No one does anything.
These policies all have a narrative that explains the problem (the horse is under-performing) and a 'narrative' solution (keep flogging the horse).
It is here that the metaphor of "flogging the dead horse" fits so well. Firstly, the probability of the two main political parties really acting to reduce our emissions of greenhouse gases is the same as the probability of the flogged horse springing back to life.
The second reason is that the best dead horses can be repeatedly flogged.
Take the Resource Management Act (RMA). It's the ultimate flogged dead horse of NZ politics. In its 20 years of life, it has been in an almost eternal state of being vilified from all sides: for environmental failures and for economic inefficiency.
Both National and Labour have both been subjecting it to interminable reviews and amendments. The basics remain the same. Plans are written with lofty goals. Plans don't reflect consent practice. But then consent decisions rarely reflect plan goals. Consents are needed for some activities not others. Some consents need more evidence and take longer than others.
The NZ ETS is the new dead horse in the flogging stable. Its perfect. Like RMA issues, the NZ ETS is fiendishly complex. To most people, the NZ ETS is a MEGO topic. My Eyes Glaze Over. A recital of any of the detail of the NZ ETS is usually enough to induce that response. Thus deflecting most criticisms.
Being complex, if not incomprehensible by design, the NZ ETS can be fitted, usually negatively, into any political viewpoint. Farmers can still oppose it with vitriol despite their generous treatment. It is just as good a political punching bag as the RMA.
National's 2009 amendments institutionalise that most Kiwi of practices -- a five yearly review by committee. To me this is the statutory recognition of the near-permanent state of "fixing" the RMA is subject to. Labour have said they will continue the 5-yearly reviews if they become Government. Thus they have bought into Nick Smith's approach of eternal moderating of the NZ ETS. Labour get a payoff of needing less specific policies.
So debates on the NZ ETS, like this one, between Nick Smith's soundbites and Russel Norman's observations on perverse price incentives, on TV One's Q and A programme, don't really matter politically. The debate itself is just more MEGO. The snake swallows the elephant.
Interestingly, TV One had Jeanette Fitzsimons as their 'pundit' for the Smith/Norman debate. She cut right through the snake punditry by analysing the NZ ETS on the meta level. She said the NZ ETS was now so weak and distorted that it no longer mattered what tinkering Smith did to it. "It's like driving a car fast towards a cliff and arguing whether to go in fourth gear or fifth".
The horse is dead and no amount of flogging will make it trot again.
10 November 2011
Temperature time series BEST and GISS
The Berkeley Earth Science Temperature (BEST) project has made quite a splash. There is a good summary in Skeptical Science. See also Mother Jones and The Economist.
I have made my own charts of the Berkeley Earth Science Temperature data using R.
I downloaded the data as a two-column text file from the Wood for Trees website.
Here is a chart of the BEST global land monthly temperature anomalies from 1800 to 2010. What is plotted for each month is the difference from the January 1950 to December 1979 mean. Clicking on each chart will open a 650 by 550 pixel png image in a new window.
Okay, but what is the trend in the data. Maybe I should add a moving average trend line.
Then I would like to compare the BEST data with the NASA Goddard Institute for Space Studies (NASA GISS) data.
I have made my own charts of the Berkeley Earth Science Temperature data using R.
I downloaded the data as a two-column text file from the Wood for Trees website.
Here is a chart of the BEST global land monthly temperature anomalies from 1800 to 2010. What is plotted for each month is the difference from the January 1950 to December 1979 mean. Clicking on each chart will open a 650 by 550 pixel png image in a new window.
Okay, but what is the trend in the data. Maybe I should add a moving average trend line.
Then I would like to compare the BEST data with the NASA Goddard Institute for Space Studies (NASA GISS) data.
09 November 2011
Nick Smith spins on emissions trading basics
New Zealand Climate Change Minister Nick Smith has confirmed that agriculture will be unlikely to enter the New Zealand Emissions Trading Scheme. The news has as they say gone around the world with coverage in the NZ Herald, Reuters, Bloomberg and the Sydney Morning Herald.
Gareth of Hot Topic puts it this way.
Just for the sake of argument, let's ignore the Sustainability Council's work on agricultural emissions reduction and assume that Dr Smith is correct that there are no practical technologies that will enable the agricultural sector to reduce emissions.
Let's go back to basics. Why do we even have emissions trading including all greenhouse gases across all sectors and across national borders?
The whole point is so that 'cheaper emissions reductions' can, in the short to medium term, largely carry the can for 'expensive emissions reductions', in meeting emissions limits or caps.
In economics speak, a sector of an economy with 'expensive emissions reductions' options is more or less just the same as a sector without practical technologies to enable reductions of emissions. Agriculture, for example, according to Nick Smith!
To paraphrase from another Nick, Lord Stern, in a well-functioning "deep and liquid" market for emissions permits, emitters with expensive mitigation options become buyers of permits and purchase permits from emitters with cheaper mitigation.
The role of the all-gases ETS, is to provide a wider variety of cheaper markets for emissions reductions, than would be the case in a single-gas ETS (such as a ruminant methane ETS, if there was one).
So the role of the emitting industries with fewer mitigation options (or more costly options) is to provide a flow of funds to reward those industries that have the cheaper emissions reduction options!
Logically, the lack of immediate practical mitigation technology in any one sector, is not a valid reason for leaving a sector out of an all-gases ETS.
Gareth of Hot Topic puts it this way.
"Hon Dr Nick Smith... explained the recent decision to indefinitely delay bringing agriculture into the scheme, stating the technology to do so practically does not yet exist"Nick Smith yet again gets away with a soundbite of spin that is contradicted by the orthodox economic rationale for having an all-sectors all-units and all-gases international emissions trading scheme for greenhouse gases.
Just for the sake of argument, let's ignore the Sustainability Council's work on agricultural emissions reduction and assume that Dr Smith is correct that there are no practical technologies that will enable the agricultural sector to reduce emissions.
Let's go back to basics. Why do we even have emissions trading including all greenhouse gases across all sectors and across national borders?
The whole point is so that 'cheaper emissions reductions' can, in the short to medium term, largely carry the can for 'expensive emissions reductions', in meeting emissions limits or caps.
In economics speak, a sector of an economy with 'expensive emissions reductions' options is more or less just the same as a sector without practical technologies to enable reductions of emissions. Agriculture, for example, according to Nick Smith!
To paraphrase from another Nick, Lord Stern, in a well-functioning "deep and liquid" market for emissions permits, emitters with expensive mitigation options become buyers of permits and purchase permits from emitters with cheaper mitigation.
The role of the all-gases ETS, is to provide a wider variety of cheaper markets for emissions reductions, than would be the case in a single-gas ETS (such as a ruminant methane ETS, if there was one).
So the role of the emitting industries with fewer mitigation options (or more costly options) is to provide a flow of funds to reward those industries that have the cheaper emissions reduction options!
Logically, the lack of immediate practical mitigation technology in any one sector, is not a valid reason for leaving a sector out of an all-gases ETS.
07 November 2011
Estimated historical emissions vs future IPCC scenarios--how ... on Twitpic
Michael Tobis discusses poor media coverage of the highest annual emissions of greenhouses gas ever. He asks why can't the media explain using some good charts?
Here's a chart comparing actual emissions of carbon with various predictions from the IPCC Fourth Assessment Report of 2007.
Estimated historical emissions vs future IPCC scenarios. Provided by Katharine Hayhoe via Twitpic.
The quality is pretty bad though. Try this. From Johns Cook's Skeptical Science website.
Skeptical Science discuss this issue in the post IEA CO2 Emissions Update 2010 - Bad News
Here's a chart comparing actual emissions of carbon with various predictions from the IPCC Fourth Assessment Report of 2007.
Estimated historical emissions vs future IPCC scenarios. Provided by Katharine Hayhoe via Twitpic.
The quality is pretty bad though. Try this. From Johns Cook's Skeptical Science website.
Figure 1: IEA global human CO2 annual emissions from fossil fuels estimates vs. IPCC SRES scenario projections. The IPCC Scenarios are based on observed CO2 emissions until 2000, at which point the projections take effect.
Skeptical Science discuss this issue in the post IEA CO2 Emissions Update 2010 - Bad News
28 October 2011
Sorry Nick its not the only aluminium smelter facing a carbon price and free allocation is an expense
What does The Hon Dr Nick Smith, Minister for Climate Change Issues, say when the Greens accuse him of subsidising greenhouse gas polluters. Well it seems he denies it and he produces instructive soundbites of spin. I am informed that at Wellington's Oxfam election and climate change debate he said that the NZ Aluminium Smelter Ltd's operation at Tiwai Point is the only aluminium smelter in the world exposed to a carbon price.
He has said this soundbite a few times. For example, in response to Kennedy Graham on 29 September 2011:
Another example of a Smith soundbite is saying that the overly-generous free allocation of emissions units to industry in the NZETS is not a cost to the taxpayer. For example: Parliament on 29 September 2011:
Sorry Dr Smith, you can't just create and give away a permit to emit greenhouse gases that has a clear market value and say there is no cost to taxpayers as Treasury did not write out a cheque. The Auditor General says there is a cost to taxpayers of giving emissions units away to emitters.
Footnotes
(1) NB By 'pay any face' I think he means 'face any price'.)
(2) IEA, 2008,'Climate Policy and Carbon Leakage - Impacts of the European Emissions Trading Scheme on Aluminium'
He has said this soundbite a few times. For example, in response to Kennedy Graham on 29 September 2011:
"..the aluminium smelter in Bluff is the only aluminium smelter in the world to face any price at all for its greenhouse gas emissions".On TV One's 'Q and A' programme:
"the New Zealand Aluminium Smelter in Bluff, it is the only one in the world that pays any face at all for carbon pricing." (1)In Parliament in September 2009,
"...the Bluff smelter, on 1 July next year, will be the very first to face a carbon price for its pollution. The European scheme excludes aluminium smelters until 2013..."Does Dr Nick's soundbite stand up to scrutiny? The European Union Emissions Trading Scheme, which started in 2005, excludes the European aluminium smelters until 2013. But it included electricity generation from 2005. And aluminium smelting is very electricity intensive. As the International Energy Agency says: "Although the primary aluminium sector is not directly covered by the (EU) ETS, the impacts of the CO2 price are felt through increases in electricity prices" (p 8). (2)
Another example of a Smith soundbite is saying that the overly-generous free allocation of emissions units to industry in the NZETS is not a cost to the taxpayer. For example: Parliament on 29 September 2011:
"This member and other members make the gross error of trying to claim that not exposing industries or consumers to the full price of carbon over all their emissions is somehow a subsidy. A subsidy implies that there is a cost to taxpayers. That is not true.."Unfortunately for Dr Nick, that's not what the Auditor General, Lynn Provost, says in her accounting and auditing advice for emissions units in the public sector
"NZUs have a market value and the issue of NZUs without charge to participants is an expense to the Government and creates a liability".Sorry Dr Smith, the Tiwai Point smelter is not the only aluminium smelter exposed to a carbon price in an ETS. And the European smelters probably pay a higher carbon price through their electricity costs as the Tiwai Point smelter owner is compensated for electricity costs as well as emissions through excessive free allocation of emissions units.
Sorry Dr Smith, you can't just create and give away a permit to emit greenhouse gases that has a clear market value and say there is no cost to taxpayers as Treasury did not write out a cheque. The Auditor General says there is a cost to taxpayers of giving emissions units away to emitters.
Footnotes
(1) NB By 'pay any face' I think he means 'face any price'.)
(2) IEA, 2008,'Climate Policy and Carbon Leakage - Impacts of the European Emissions Trading Scheme on Aluminium'
19 October 2011
120% Pure Subsidy NZ Aluminium Smelters Limited Part 2
I have had some very good comments on the 120% Pure Subsidy post about the quantity of free emissions units that NZ Aluminium Smelters Limited (NZAS) has received under the NZ ETS in 2010. Enough good comments that they justify a second post on NZ Aluminium Smelters free units.
Simon Terry of the Sustainability Council points out that we shouldn't be surprised at the high level of free allocation of units to big emitters. Simon Terry documented this in June 2008, in the report Corporate Welfare Under the ETS, which looked at free allocation of units to eight energy intensive companies under the proposed NZ ETS.
In particular, Simon Terry reminds us that in the NZ ETS the free allocation of units includes a factor to compensate for NZ ETS related electricity price increases. As the NZ ETS will make some power generation more expensive to the extent that it uses fossil fuels (Huntly Power Station for example). This explains why the 'allocative baseline' factor for aluminium smelting is 2.645 units per tonne aluminium when the emissions factor for the MfE Greenhouse Gas inventory is 1.67 tonnes CO2-e per tonne aluminium.
This feature of using free allocation of units to compensate emitters for electricity price increases is explicit in the Labour Government's original NZ ETS proposal Framework for a New Zealand Emissions Trading Scheme, released in September 2007. As indicated by this quote under the heading "Allocation of emission units"
Another regular commenter, Password1, says my analysis is totally incorrect because I have left out the indirect emissions from using electricity, that I not comparing the same sets of data, and that I need to redo my calculations based on what is in the legislation. Further, my assertion that there has been an "overallocation" of units "is wrong, wrong, wrong".
Password1 concludes that
Okay maybe I will redo my calculations. So off I will go down the rabbit-hole and look into this electricity factor. So what is the proportion of the 'allocative baseline' factor for aluminium smelting, 2.645 units per tonne of aluminium, is to compensate for NZ ETS-related electricity price increases?
This idea of fossil-fuel-thermal power costs (increased by the NZ ETS) affecting a smelter that only exists because of hydroelectric dams on Lakes Manapouri and Te Anau seems a bit bizarre. Especially since NZAS's supply contract is with Meridian Energy, the 100% renewable power company.
However, the wholesale electricity market works by preferentially using the lowest priced generation offer in any one half-hour trading period. Brian Fallow points out that this means that wholesale price is set by the most expensive block of electricity offered into the market which is needed to ensure demand is satisfied and that block may be from Genesis Energy's Huntly coal and gas thermal plant.
When demand is high and hydro lakes are low, thermal power sets the wholesale price. As was the case through much of 2008. When demand is low and hydro lakes are full, then the Huntly Power Plant may be on the substitutes bench and the NZETS costs won't flow through to the wholesale electricity price.
So it does seem that there is some level of carbon price from the NZ ETS reflected through the wholesale price that ends up in the electricity price paid by NZAS. However, it is quite hard to quantify this price.
Allocative baselines are discussed in June 2010 in this Cabinet paper. Paragraph 37 tells us that the electricity allocation factor is 0.52 tCO2-e/MWh. Paragraph 40 tells us that an analysis of NZAS's electricity contract with Meridian Energy indicates that the use of this factor would result in over-allocation of units as the actual extra electricity costs are less than 0.52 tCO2-e/MWh.
Unfortunately the actual extra electricity costs, the degree of over-allocation and the fiscal cost of allocation to NZAS, have all been blanked out from the cabinet paper, apparently as 'the information is commercially sensitive'. I appear to be at the end of that rabbit-hole.
The next rabbit-hole is to check the emissions factor that gives CO2-e from tonnes of aluminium produced.
In terms of emissions reported and units surrendered, Regulation 35 of Climate Change (Stationary Energy and Industrial Processes) Regulations gives a 10-variable formula for the smelter's aluminium emissions factor. I am missing about 4 of these variables. So thats also a dead end for duplicating the emissions and the units to be surrendered.
But why don't I just use actual numbers? The Ministry of Economic Development Chief Executive's Report shows that the NZ aluminium manufacturing sector has only one NZ ETS 'participant' and that the sector, and therefore the one participant, NZAS, reported emissions of 615,814 tonnes CO2-e for the 2010 year and 312,294 tonnes CO2-e for the six months from 1 July to 31 December 2010.
So 312,294 tonnes were emitted in the six month period of obligation to surrender matching units. So we divide by 2 for the two-for-one unit deal, and that results in 156,147 units to surrender.
210,421 units were allocated to NZAS for the six months according to the Ministry for the Environment.
That's 54,274 more units allocated than surrendered or alternatively the units allocated to NZAS exceeded the units surrendered by NZAS by 135%.
This result is pretty much a mid-point between my previous estimates which were from 147% to 122%, as summarised in this table.
Summing up
The bottomline for me is that if NZAS were not in the NZ ETS, they would at least be paying the some carbon price as a 'downstream' electricity user where some costs of fossil-thermal power generation are factored into the wholesale electricity price when fossil-thermal power is not priced out by cheaper hydro-generation.
Under the current policy settings, the smelter would face a higher carbon price if it were exempted from the NZETS.
Simon Terry of the Sustainability Council points out that we shouldn't be surprised at the high level of free allocation of units to big emitters. Simon Terry documented this in June 2008, in the report Corporate Welfare Under the ETS, which looked at free allocation of units to eight energy intensive companies under the proposed NZ ETS.
In particular, Simon Terry reminds us that in the NZ ETS the free allocation of units includes a factor to compensate for NZ ETS related electricity price increases. As the NZ ETS will make some power generation more expensive to the extent that it uses fossil fuels (Huntly Power Station for example). This explains why the 'allocative baseline' factor for aluminium smelting is 2.645 units per tonne aluminium when the emissions factor for the MfE Greenhouse Gas inventory is 1.67 tonnes CO2-e per tonne aluminium.
This feature of using free allocation of units to compensate emitters for electricity price increases is explicit in the Labour Government's original NZ ETS proposal Framework for a New Zealand Emissions Trading Scheme, released in September 2007. As indicated by this quote under the heading "Allocation of emission units"
"indirect emissions associated with the consumption of electricity, as well as direct emissions from ... industrial processes will be included in the concept of emissions from industrial producers...The basis for allocation for electricity consumption will be one that compensates firms for the cost impact".
Another regular commenter, Password1, says my analysis is totally incorrect because I have left out the indirect emissions from using electricity, that I not comparing the same sets of data, and that I need to redo my calculations based on what is in the legislation. Further, my assertion that there has been an "overallocation" of units "is wrong, wrong, wrong".
Password1 concludes that
"The smelter is not getting a ‘refund’ – they are facing a proportion of the full cost of emissions both at the point of aluminium production and from being passed down from the electricity generator."
Okay maybe I will redo my calculations. So off I will go down the rabbit-hole and look into this electricity factor. So what is the proportion of the 'allocative baseline' factor for aluminium smelting, 2.645 units per tonne of aluminium, is to compensate for NZ ETS-related electricity price increases?
This idea of fossil-fuel-thermal power costs (increased by the NZ ETS) affecting a smelter that only exists because of hydroelectric dams on Lakes Manapouri and Te Anau seems a bit bizarre. Especially since NZAS's supply contract is with Meridian Energy, the 100% renewable power company.
However, the wholesale electricity market works by preferentially using the lowest priced generation offer in any one half-hour trading period. Brian Fallow points out that this means that wholesale price is set by the most expensive block of electricity offered into the market which is needed to ensure demand is satisfied and that block may be from Genesis Energy's Huntly coal and gas thermal plant.
When demand is high and hydro lakes are low, thermal power sets the wholesale price. As was the case through much of 2008. When demand is low and hydro lakes are full, then the Huntly Power Plant may be on the substitutes bench and the NZETS costs won't flow through to the wholesale electricity price.
So it does seem that there is some level of carbon price from the NZ ETS reflected through the wholesale price that ends up in the electricity price paid by NZAS. However, it is quite hard to quantify this price.
Allocative baselines are discussed in June 2010 in this Cabinet paper. Paragraph 37 tells us that the electricity allocation factor is 0.52 tCO2-e/MWh. Paragraph 40 tells us that an analysis of NZAS's electricity contract with Meridian Energy indicates that the use of this factor would result in over-allocation of units as the actual extra electricity costs are less than 0.52 tCO2-e/MWh.
Unfortunately the actual extra electricity costs, the degree of over-allocation and the fiscal cost of allocation to NZAS, have all been blanked out from the cabinet paper, apparently as 'the information is commercially sensitive'. I appear to be at the end of that rabbit-hole.
The next rabbit-hole is to check the emissions factor that gives CO2-e from tonnes of aluminium produced.
In terms of emissions reported and units surrendered, Regulation 35 of Climate Change (Stationary Energy and Industrial Processes) Regulations gives a 10-variable formula for the smelter's aluminium emissions factor. I am missing about 4 of these variables. So thats also a dead end for duplicating the emissions and the units to be surrendered.
But why don't I just use actual numbers? The Ministry of Economic Development Chief Executive's Report shows that the NZ aluminium manufacturing sector has only one NZ ETS 'participant' and that the sector, and therefore the one participant, NZAS, reported emissions of 615,814 tonnes CO2-e for the 2010 year and 312,294 tonnes CO2-e for the six months from 1 July to 31 December 2010.
So 312,294 tonnes were emitted in the six month period of obligation to surrender matching units. So we divide by 2 for the two-for-one unit deal, and that results in 156,147 units to surrender.
210,421 units were allocated to NZAS for the six months according to the Ministry for the Environment.
That's 54,274 more units allocated than surrendered or alternatively the units allocated to NZAS exceeded the units surrendered by NZAS by 135%.
This result is pretty much a mid-point between my previous estimates which were from 147% to 122%, as summarised in this table.
| Table 1 Low actual and high estimate of units to surrender | |||
|---|---|---|---|
| Low | Actual | High | |
| Units to surrender | 143,342 | 156,147 | 172,526 |
| Units allocated | 210,421 | 210,421 | 210,421 |
| Excess allocation (units) | 67,079 | 54,247 | 37,896 |
| Excess allocation (per cent) | 147% | 135% | 122% |
Summing up
- NZAS was allocated 210,421 emission units in the six-month NZ ETS compliance period in 2010. Without any reasonable doubt, this represents 54,274 more emission units than it surrendered to match emissions.
- At today's NZ unit price of $14, the value of the units allocated is $2,945,894. The value of the excess of units allocated above units surrendered is $759,836.
- An unknown (or undisclosed) proportion of the free units are intended to compensate NZAS for NZ ETS-related electricity price increases in a year characterised by highest level ever of renewable generation.
- I can't prove that the amount of free units allocated is more than the sum of the units to be surrendered for emissions plus some units as compensation for electricity price increases. But I think it is highly likely.
- In any case, it hardly matters whether the volume of free allocation is either just under 100% of costs or whether its 135%. Both options pretty much effectively negate the carbon price and mean no real incentive to reduce emissions.
The bottomline for me is that if NZAS were not in the NZ ETS, they would at least be paying the some carbon price as a 'downstream' electricity user where some costs of fossil-thermal power generation are factored into the wholesale electricity price when fossil-thermal power is not priced out by cheaper hydro-generation.
Under the current policy settings, the smelter would face a higher carbon price if it were exempted from the NZETS.
12 October 2011
Trans-Tasman Emissions Trading Scheme Test
Yesterday the Australian Parliament adopted legislation for its greenhouse gas emissions trading scheme.
So I thought I would write another post on the theme of the Trans-Tasman Emissions Trading Scheme Tests, this time looking at the key differences between the New Zealand Emissions Trading Scheme and the Australian Emissions Trading Scheme. The number one key difference between the two emissions trading schemes is in how clearly each scheme sets the carbon price.
1. Unequivocal carbon price vs volatile carbon price.
Unlike the NZ ETS, the Australian ETS will set an absolutely clear and unequivocal price on greenhouse gas emissions.
The price will be $AU23 per tonne from 1 July 2012, then $AU24.15 in 2013-14 and $AU25.40 2014-15 (Securing a Clean Energy Future, The Australian Government's Climate Change Plan, p 26). From 1 July 2015, the carbon price will float within and upper and lower ceiling with the Government setting an overall 'Cap' or limit on GHGs (Securing a Clean Energy Future p 27).
The price for "New Zealand Units" under the NZ ETS is being set at a discount to the price of international Kyoto units in the volatile international carbon. So the NZ price is ...well...it's yeah whatever. As in this chart for 2010. Did you note that the Australian minimum carbon price of 23.00 Australian Dollars converts to 29.50 New Zealand Dollars? A price of 29.50 NZ dollars is off the scale of this chart!
And as in this updated chart for September, showing the fall in the international price driven by the Euro-Zone debt crisis is further pushing the NZ unit price down.
This direct importing of the international price into the NZ unit price is because of two intrinsic design features of the NZ ETS. The NZ ETS has no cap on domestic GHG emissions (or on free allocations of units). The NZ ETS allows almost all international Kyoto units to be imported and surrendered by emitters. So an emitter would say to a seller of NZ units "Why should I buy your NZ units instead of international units, which I could sell in a much wider market, unless the NZ units are at a discount?"
Of course, the Australians, influenced by Ross Garnaut and Bob Brown of the Green Party, are not having a bar of this price volatility. In terms of the economics literature, this is absolutely the right way to go. A clear and consistent carbon price set out for several years will clearly signal to emitters which emission reduction technologies to adopt - ones that will break even at the set carbon price!
The same goes for developers of windfarms and producers of biofuels. A clear carbon price into the future will give investors confidence that they will not lose their shirts putting capital into windfarms and biofuel plants. Carbon price volatility, like in New Zealand, just makes investment in either mitigation or substitution of fossil fuels a bad bet.
So why on earth would a big industrial emitter want to have an emission trading scheme where they have an unpredictable and volatile liability to pay a carbon price instead of an unequivocal and consistent-over-time carbon price?
The only answer I can give is that if like Rio Tinto NZ Alcan Limited, you are given more emissions units than you need for your actual emissions then it just doesn't matter what the price is.
So I thought I would write another post on the theme of the Trans-Tasman Emissions Trading Scheme Tests, this time looking at the key differences between the New Zealand Emissions Trading Scheme and the Australian Emissions Trading Scheme. The number one key difference between the two emissions trading schemes is in how clearly each scheme sets the carbon price.
1. Unequivocal carbon price vs volatile carbon price.
Unlike the NZ ETS, the Australian ETS will set an absolutely clear and unequivocal price on greenhouse gas emissions.
The price will be $AU23 per tonne from 1 July 2012, then $AU24.15 in 2013-14 and $AU25.40 2014-15 (Securing a Clean Energy Future, The Australian Government's Climate Change Plan, p 26). From 1 July 2015, the carbon price will float within and upper and lower ceiling with the Government setting an overall 'Cap' or limit on GHGs (Securing a Clean Energy Future p 27).
The price for "New Zealand Units" under the NZ ETS is being set at a discount to the price of international Kyoto units in the volatile international carbon. So the NZ price is ...well...it's yeah whatever. As in this chart for 2010. Did you note that the Australian minimum carbon price of 23.00 Australian Dollars converts to 29.50 New Zealand Dollars? A price of 29.50 NZ dollars is off the scale of this chart!
And as in this updated chart for September, showing the fall in the international price driven by the Euro-Zone debt crisis is further pushing the NZ unit price down.
This direct importing of the international price into the NZ unit price is because of two intrinsic design features of the NZ ETS. The NZ ETS has no cap on domestic GHG emissions (or on free allocations of units). The NZ ETS allows almost all international Kyoto units to be imported and surrendered by emitters. So an emitter would say to a seller of NZ units "Why should I buy your NZ units instead of international units, which I could sell in a much wider market, unless the NZ units are at a discount?"
Of course, the Australians, influenced by Ross Garnaut and Bob Brown of the Green Party, are not having a bar of this price volatility. In terms of the economics literature, this is absolutely the right way to go. A clear and consistent carbon price set out for several years will clearly signal to emitters which emission reduction technologies to adopt - ones that will break even at the set carbon price!
The same goes for developers of windfarms and producers of biofuels. A clear carbon price into the future will give investors confidence that they will not lose their shirts putting capital into windfarms and biofuel plants. Carbon price volatility, like in New Zealand, just makes investment in either mitigation or substitution of fossil fuels a bad bet.
So why on earth would a big industrial emitter want to have an emission trading scheme where they have an unpredictable and volatile liability to pay a carbon price instead of an unequivocal and consistent-over-time carbon price?
The only answer I can give is that if like Rio Tinto NZ Alcan Limited, you are given more emissions units than you need for your actual emissions then it just doesn't matter what the price is.
11 October 2011
NZ ETS news items
Firstly, did you know that NZ has had a an online spot trading platform for carbon instruments since May 2011? I did not know that.
According to BusinessGreen.com in this article Coming of age: New Zealand’s carbon market gets an exchange, the new trading platform is called Carbon Match.
Today they are reporting spot prices between $14 and $15. Bid to but at 14.10, offer to sell at 14.50 and last sale at 14.80. It's enough to make a carbon trader cry into their key board
According to BusinessGreen.com in this article Coming of age: New Zealand’s carbon market gets an exchange, the new trading platform is called Carbon Match.
Today they are reporting spot prices between $14 and $15. Bid to but at 14.10, offer to sell at 14.50 and last sale at 14.80. It's enough to make a carbon trader cry into their key board
05 October 2011
150% Pure Subsidy - Industrial allocation of free emissions units to Rio Tinto Alcan NZ
Last week, (back on 29 September 2011 actually), Green MP Kennedy Graham was questioning Climate Change Issues Minister Nick Smith over his apparent lack of consistence over subsidies for fossil fuel industries.
Kennedy Graham was wondering why Nick Smith and Climate Change and Trade Negotiations Minister Tim Groser were happy on the one hand to oppose billion dollar subsidies to fossil fuel industries on the international stage, while on the other hand have the New Zealand Emissions Trading Scheme include subsidies in the form of generous free allocation of emissions units to big industrial emitters of GHGs.
The Hon Dr Nick Smith replied:
A brief recap, Tiwai Point Aluminum Smelter at Bluff, out on the edge of Foveaux Strait near Invercargill, is operated by NZ Aluminium Smelters Limited, which in turn is owned by Rio Tinto Alcan NZ Limited, a subsidiary of Canadian multinational Rio Tinto Alcan.
NZ Aluminium Smelters Limited has received an allocation of free emissions units under the NZ ETS. That is clear from that un-labelled pie chart I have been banging on about. The chart shows that iron, steel and aluminium production are to receive 40% of all free industrial allocation of emissions units.
However, we don't need to do any guessing as the Ministry for the Environment has just released an analysis of how many free emissions units were allocated to whom under industrial allocation for the half-year compliance period 1 July to 31 December 2010.
NZ Aluminium Smelters Limited received 210,421 NZ emissions units or 12% of the total allocated of 1.77 million units. By the way, only New Zealand Steel, the operator of the Glenbrook Steel Mill, received more units. They got 494,704 units.
How does this allocation of free emissions units compare with the number of emissions units that would need to be surrendered? Is the allocation more or less than the number of units surrendered?
With a bit of ferreting, I have found enough data to make some back-of-envelope-but-on spreadsheet calculations. Here are the inputs and constraints I used.
My estimate of units allocated is 204,327, which is only 6,000 odd units (or 2.9%) less than the actual units allocated of 210,421. So it seems my inputs are roughly good enough.
Nick Smith implies that the free allocations reduce but do not remove the exposure to the carbon price. This is simply not correct. If it was correct, units allocated to NZ Aluminum Smelters would be less than units surrendered. However, units allocated exceed my estimates of units needed for surrenders.
I estimate that NZ Aluminium Smelters Limited were required to surrender between 143,000 and 172,000 emissions units for the six months to 31 December 2010. NZ Aluminium Smelters Limited were given, under 'industrial allocation', 210,421 units. My low and high estimates of the units to be surrendered exceed the actual units allocated by 37,000 and 67,000 units respectively.
Nick Smith says emitters are not being subsidised by free allocation. This too is simply not correct. Allocations greater than surrenders equals over-allocation or a net gain to NZ Aluminium Smelters Limited. The estimated over-allocation is from 124% to 147%. NZ Aluminium Smelters do not face a positive carbon price at all. If the NZ ETS was a carbon tax, NZ Aluminium Smelters would have a negative carbon tax rate!
This perverse outcome is exactly why carbon taxes are in practice simpler, more effective, and a more robust way of carbon pricing than emissions trading.
Kennedy Graham was wondering why Nick Smith and Climate Change and Trade Negotiations Minister Tim Groser were happy on the one hand to oppose billion dollar subsidies to fossil fuel industries on the international stage, while on the other hand have the New Zealand Emissions Trading Scheme include subsidies in the form of generous free allocation of emissions units to big industrial emitters of GHGs.
The Hon Dr Nick Smith replied:
"...this Government is not providing subsidies to greenhouse gas polluters. I remind the member that we are the only country outside the EU to have an emissions trading scheme. Our aluminium smelter in Bluff is the only aluminium smelter in the world to face any price at all for its greenhouse gas emissions".Lets examine this assertion in two parts; that the Tiwai Point Aluminum Smelter, receives no subsidies from Government and it faces a carbon/GHG price.
A brief recap, Tiwai Point Aluminum Smelter at Bluff, out on the edge of Foveaux Strait near Invercargill, is operated by NZ Aluminium Smelters Limited, which in turn is owned by Rio Tinto Alcan NZ Limited, a subsidiary of Canadian multinational Rio Tinto Alcan.
NZ Aluminium Smelters Limited has received an allocation of free emissions units under the NZ ETS. That is clear from that un-labelled pie chart I have been banging on about. The chart shows that iron, steel and aluminium production are to receive 40% of all free industrial allocation of emissions units.
However, we don't need to do any guessing as the Ministry for the Environment has just released an analysis of how many free emissions units were allocated to whom under industrial allocation for the half-year compliance period 1 July to 31 December 2010.
NZ Aluminium Smelters Limited received 210,421 NZ emissions units or 12% of the total allocated of 1.77 million units. By the way, only New Zealand Steel, the operator of the Glenbrook Steel Mill, received more units. They got 494,704 units.
How does this allocation of free emissions units compare with the number of emissions units that would need to be surrendered? Is the allocation more or less than the number of units surrendered?
With a bit of ferreting, I have found enough data to make some back-of-envelope-but-on spreadsheet calculations. Here are the inputs and constraints I used.
- 2010 production of aluminium: 343,335 tonnes. From 2010 Sustainability Report , NZ Aluminium Smelters Limited.
- Emissions factor for aluminium: Low estimate . 1.67 tonnes CO2-e per tonne Aluminium. From Ministry for the Environment's New Zealand’s Greenhouse Gas Inventory 1990–2009.
- Emissions factor for aluminium: High estimate. 2.01 tonnes CO2-e per tonne Aluminium. From Heavy Industry Energy Demand Update Report Prepared for Ministry of Economic Development February 2009, Covec Ltd.
- The compliance period for surrendering units is from 1 July 2010 to 31 December 2010, a half-year.
- The obligation to surrender units is a half obligation because of the two units for one tonne of GHGs deal.
- Free allocation of units is also reduced by a half.
- Free allocation is calculated as 90 per cent of the allocative baseline (a benchmark number of NZUs per unit output)
- The aluminium allocative baseline is 2.645 units per tonne of aluminium produced. From Section 7 of the Climate Change (Eligible Industrial Activities) Regulations 2010
| Table 1. Estimate of emissions units allocated | |
|---|---|
| 2010 production tonnes Aluminium | 343,335 |
| Half year production /2 (1 July 31 Dec 2010) | 171,668 |
| Half obligation /2 (one unit/2 tonnes) | 85,834 |
| 90% emissions-intensive-trade-exposed allocation | 77,250 |
| Allocation baseline (tCO2-e/t output) | 2.645 |
| Equals estimate of Units allocated | 204,327 |
| Difference (approx. 2.9%) | 6,094 |
| Actual Units allocated | 210,421 |
My estimate of units allocated is 204,327, which is only 6,000 odd units (or 2.9%) less than the actual units allocated of 210,421. So it seems my inputs are roughly good enough.
| Table 2 High and low estimate of units to surrender | ||
|---|---|---|
| 2010 production tonnes Al | 343,335 | 343,335 |
| MfE Emissions factor (t Al/t CO2-e) | 1.67 | 2.01 |
| Estimated emissions 2010 t CO2-e | 573,369 | 690,103 |
| Half year compliance period (1 July 31 Dec 2010 /2) | 286,685 | 345,052 |
| Half obligation (one unit 2 tonnes /2) | 143,342 | 172,526 |
| Estimated Units to surrender | 143,342 | 172,526 |
| Actual Units allocated | 210,421 | 210,421 |
| Excess allocation (units) | 67,079 | 37,896 |
| Excess allocation (per cent) | 147% | 122% |
Nick Smith implies that the free allocations reduce but do not remove the exposure to the carbon price. This is simply not correct. If it was correct, units allocated to NZ Aluminum Smelters would be less than units surrendered. However, units allocated exceed my estimates of units needed for surrenders.
I estimate that NZ Aluminium Smelters Limited were required to surrender between 143,000 and 172,000 emissions units for the six months to 31 December 2010. NZ Aluminium Smelters Limited were given, under 'industrial allocation', 210,421 units. My low and high estimates of the units to be surrendered exceed the actual units allocated by 37,000 and 67,000 units respectively.
Nick Smith says emitters are not being subsidised by free allocation. This too is simply not correct. Allocations greater than surrenders equals over-allocation or a net gain to NZ Aluminium Smelters Limited. The estimated over-allocation is from 124% to 147%. NZ Aluminium Smelters do not face a positive carbon price at all. If the NZ ETS was a carbon tax, NZ Aluminium Smelters would have a negative carbon tax rate!This perverse outcome is exactly why carbon taxes are in practice simpler, more effective, and a more robust way of carbon pricing than emissions trading.
03 October 2011
Nick smith denies polluter subsidies Hot air certified emissions reduction units under review
On Scoop the Greens MP Kennedy Graham takes Nick Smith to task for denying that the NZ ETS provides large subsidies to NZ's industrial emitters of GHGs. Graham points out the irony given Smith and Trade Minister Groser have promoted a multi-lateral climate change group called Friends of Fossil Fuel Subsidy Reform
Kennedy Graham questions Smith
Other news.
The New Zealand Emissions Trading Scheme Review 2011 recommended that 'Ick Smith and the Ministry for the Environment should look at the 'integrity' of some certified emission reduction units allowed in the New Zealand Emissions Trading Scheme.
MfE are now consulting on this issue and it is called Consultation on Proposed Regulations Restricting the Use of HFC-23 and N2O CERs in the NZ ETS
I will download, read and have some thoughts on this.
This seems to just reflect what the CDM Board is doing
Kennedy Graham questions Smith
Other news.
The New Zealand Emissions Trading Scheme Review 2011 recommended that 'Ick Smith and the Ministry for the Environment should look at the 'integrity' of some certified emission reduction units allowed in the New Zealand Emissions Trading Scheme.
MfE are now consulting on this issue and it is called Consultation on Proposed Regulations Restricting the Use of HFC-23 and N2O CERs in the NZ ETS
I will download, read and have some thoughts on this.
This seems to just reflect what the CDM Board is doing
30 September 2011
NZ ETS agricultural special pleading
An agricultural commenter has hit back at the NZ Emissions Trading Scheme Review 2011 and the New Zealand Herald editorial Farmers must share burden on emissions' for saying that there should be no further delay of the 2015 date when agricultural emissions will enter the New Zealand Emissions Trading Scheme (NZ ETS).
The Herald editorial had the temerity to comment on the government's "extraordinary generosity to farmers" in changing the "modest impositions" of the NZ ETS on agriculture so that it "will become truly timorous".
David Anderson, who is described as a former editor of Rural News and a communications consultant in "teh" (sic) agribusiness sector, has just had an opinion piece in the NZ Herald (27 September) arguing for a further delay in agriculture's entry into the NZ ETS.
Just as a brief re-cap, in the Clark-Cullen Labour Government's original version of the
NZ ETS, agriculture was 'last in', with unit surrender obligations starting on 1 January 2013; i.e. after the end of the 2008-2012 Kyoto Protocol first commitment period. In November 2009, Nick Smith and National changed the start or entry date to 1 January 2015 and confirmed that it would be processors and not individual farmers who would have the obligation to report emissions and surrender units. That was done in the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009
As we know, Federated Farmers can be a bit emotive about the NZ ETS, with past President (and now ACT Candidate) Don Nicholson) describing the NZ ETS in 2009 as the road to hell paved with good intentions.
So lets have a look at David Anderson's arguments. The first argument is;
Why would we want to unfairly penalise New Zealand's agriculture sector - and one of the few sectors with the ability to help the country out of the current economic hole - by imposing taxes when our international competitors are not doing the same?
Because agricultural GHG emissions are the New Zealand's largest source of emissions! It's not that hard to understand.
In 2009, agricultural GHG emissions were 32.8 million tonnes (mt) of CO2-e out of a total of 70.6 million tonnes or 46.5 per cent of New Zealand’s total greenhouse gas emissions. The energy sector emitted 31.4 mt (44.4%). Industrial processes emitted 4.3 mt (6.2%). Waste emitted 2.0 mt (2.9%). Solvents and other products emitted 0.03 mt (0.04%) according to the Ministry for the Environment Greenhouse Gas Inventory 2011.
Other developed countries who have signed up for the Kyoto Protocol obligations just don't have agriculture dominating their GHG emissions like New Zealand. For example, here's a chart comparing New Zealand and Australian agricultural GHG emissions.
Lawyer Toni Moyes points out in a 2008 paper in the Ecology Law Quarterly, 35:4, pp. 911–966; Greenhouse Gas Emissions Trading in New Zealand: Trailblazing Comprehensive Cap and Trade that New Zealand is "fundamentally different" from European countries where carbon dioxide from the energy sector emits 80% of GHG emissions. Moyes concludes "Thus, if non-CO2 gases were excluded, the NZ ETS would ignore over half of the problem. Likewise, sectors typically excluded from ETS must be included in the NZ ETS in order to address the majority of emissions. The NZ ETS would be far less effective if agriculture, the single biggest emitter, was ignored." I could not put that better. It is not "unfair" to include agriculture in the NZ ETS, it is essential.
Also, I have to point out that Anderson completely omits to mention the fact that agriculture, once it does enter the NZ ETS, will have (arguably) the most generous free allocation of emissions units of any sector of the economy. Under an ETS, emissions units must somehow get into a trading market. They may be either auctioned to emitters (obviously most wealth-enhancing for the tax payer) or "grandfathered", allocated for free to existing emitters. New Zealand has chosen to 'gift', or allocate for free, all domestic NZ units.
According the Ministry for the Environment, free allocation of units to agriculture will be 90 per cent of the emissions baseline and will phase out at 1.3 per cent per annum from 2016. The baseline will be the industry average emissions per unit of output. The allocation will be uncapped, meaning that there is no set limit on the number of units that may be allocated. Further, there are NO eligibility tests or thresholds for agricultural allocation, meaning that all agriculture participants will be eligible for an allocation.
So the entry of agriculture to the NZ ETS in 2015 will be cushioned by 90%. Or the GHG price signal will be reduced by 90% (compared to other sectors) down to 10% via free allocation. The free allocation percent will be based on "average output", which will be gazetted in regulations. Any processor who does 'better than average' will be in for a windfall gain. Again this is hardly the imposition of an unfair tax.
Number two argument is:
I don't see how handicapping our main economic driver will reduce international greenhouse gases. Surely all that will do is shift the production of these agricultural greenhouse gases from New Zealand to another country?
This is the carbon leakage argument. That businesses and their emissions will relocate to other jurisdictions to escape a carbon price.
Dr Jan Wright, the Parliamentary Commissioner for the Environment, pretty much shot to pieces the agricultural carbon leakage argument in her submission on the 2009 amendments to the NZ ETS.
Dr Wright noted that National was proposing to base allocation of units to agriculture on the industrial allocation model in the Australian Carbon Pollution Reduction Scheme (which was in 2009 only a proposal and which was withdrawn in 2010).
"There is no justification for treating allocation to the agricultural sector the same as industrial processes, either here or in Australia. The impact of the ETS on agriculture is very different to that of industrial process sectors. Productive agricultural land can not be shipped offshore...Carbon credits should not be allocated to prevent an unlikely event."
The nail in the coffin is from Suzi Kerr, an economist who has specialised in permit trading. She had this to say in her submission to the NZ Emissions Trading Scheme Review 2011:
."A small, but crucial, point on agricultural emissions is that all available empirical evidence suggests that leakage of land and production out of the agricultural sector in response to greenhouse gas costs would be small. This evidence is summarised in Kerr and Zhang (2009).
Number three argument is;
It has always argued that it's crazy for New Zealand farmers to be hit with the costs of an ETS when they had no way of mitigating these
This is the 'Agriculture can't mitigate' argument. As blogger Idiot/Savant said in his blog No Right Turn, this is simply untrue. The Sustainability Council wrote a report A Convenient Untruth in 2007 that argues that there are significant mitigation options for agriculture.
Anyway, Anderson almost immediately contradicts this statement in the next paragraph when he states
"There is already evidence - which is also noted by Caygill's Review Panel - that the agriculture sector is reducing its greenhouse gases (my emphasis). Emissions per unit of product from agriculture have fallen by about 1.3 per cent a year over the past 20 years - due to improved management, animal genetics, pasture and crop genetics and technological changes. Opportunities for further reductions included the use of forestry on marginal or erosion-prone land, nitrification inhibitors, and "good practice" management techniques that increase productivity."
Its great that agriculture is reducing emissions! Those responsible deserve all credit for it. However, the advocates of agriculture such as Anderson need to be reminded that reducing emissions is the same as mitigating them!
Anderson's fourth argument is that "critics and environmental doomsayers" are "making claims about farmers being subsidised". And that it is unfair and selective to say farmers are getting a free ride.
Look, as far as I'm concerned, we all have an obligation to do something about climate change. New Zealand's climate change policy reflects that. NZ has emissions reduction targets and climate change policies and commitments under the Kyoto Protocol and the UNFCCC. All of us share the responsibility of making NZ's emissions reductions policies work. If we leave out agriculture, the sector of the economy that is the biggest emitter of GHGs, then that is unfair to everyone else.
16 September 2011
The NZ ETS Review 2011: Clear signals for business as usual
Minister for Climate Change Issues Nick Smith has finally released the delayed report of the NZ Emissions Trading Scheme Review 2011. The 98-page report is titled Doing New Zealand’s Fair Share, The Emissions Trading Scheme Review 2011.
The review panel chaired by former Rogernome David Caygill gave their report to Smith on 30 June 2011. Two and half months later and one week into the Rugby World Cup, Smith has let the report out into the world.
From the title of his press release, Slowing of ETS recommended by Review Panel, I think Smith is pretty happy with the report. It also uses some of Smith's favourite phrases; such as "Doing our fair share" and balancing the environment and the economy.
If you don't want to scroll through another 98 pages of blue-green flannel just like that, the best short sweet on-line summary to read is this Reuters factbox.
For me, these recommendations are the guts of the ETS Review report (as numbered in that report).
Agriculture's planned 2015 entry to the NZ ETS should not be delayed (4.1). At least they didn't cave in to Federated Farmers. But there is a big but to this.
The important issue of the lack of a real cap on emissions is just kicked for touch and left for future reviews (3.15)
The issue of high volumes of subsidised allocation of free emissions units to industry is just kicked for touch (3.9).
Remember that the NZ ETS includes a $25 fixed price option for buying emissions units until 2012? This is limited to energy, transport and industry. This option would have acted as a maximum limit on unit prices, except for the fact that NZU prices were never more than $25 in 2010.
The report recommends keeping the fixed price option/price limit out to 2017 and increasing it by $5 each year (2013; $30, 2014; $35, 2015; $40, 2016; $45, 2017; $50).
I am very skeptical that actual NZ units prices will reach these levels. The Euro-zone debt crisis has just contributed to the recent collapse of the international carbon price. The international carbon price is the dominant driver of NZ unit prices. It is pure speculation that actual NZ prices will be any where near the proposed price ceiling.
Remember Nick Smith's two for one deal for 2010 to 2012? Where emitters can can emit two tonnes of greenhouse gases and surrender one emission unit? In other words it halved the emitters obligations to surrender units. The report recommends extending this to out to 2015. So 2013 would be the "three for two" deal, 2014 would be the "five for four" deal, before finally going to one tonne to one unit deal in 2015. So in carbon pricing we look to simplistic sales slogans. Only in New Zealand.
And I said there was a 'but' for agriculture. On entry in 2015, the report recommends that agriculture should be eligible for the two for one deal until 2016. Then three for two deal, the five for four deal, before finally going to one tonne to one unit in 2019. Oh I forgot to mention that from 2019 there would still be 90% allocation of free units declining at a linear rate of 1.3% each year.
Summary
I must admit I am completely underwhelmed by the report, its analysis and it's recommendations. I didn't think it was possible to further dilute the carbon price signal in the NZ ETS with more exemptions. I didn't think it was possible to make the NZ ETS sound even more like a bad used car parts advertisement. But I am wrong on both counts.
The review panel chaired by former Rogernome David Caygill gave their report to Smith on 30 June 2011. Two and half months later and one week into the Rugby World Cup, Smith has let the report out into the world.
From the title of his press release, Slowing of ETS recommended by Review Panel, I think Smith is pretty happy with the report. It also uses some of Smith's favourite phrases; such as "Doing our fair share" and balancing the environment and the economy.
"The Panel acknowledges there needs to be an appropriate balance between managing these short-term costs and providing a clear long-term direction. Given the current international uncertainty and the challenging state of the economy, this means there should be measures in place which ensure the increase in the costs of the ETS occurs at an appropriate pace."
If you don't want to scroll through another 98 pages of blue-green flannel just like that, the best short sweet on-line summary to read is this Reuters factbox.
For me, these recommendations are the guts of the ETS Review report (as numbered in that report).
Agriculture's planned 2015 entry to the NZ ETS should not be delayed (4.1). At least they didn't cave in to Federated Farmers. But there is a big but to this.
The important issue of the lack of a real cap on emissions is just kicked for touch and left for future reviews (3.15)
The issue of high volumes of subsidised allocation of free emissions units to industry is just kicked for touch (3.9).
Remember that the NZ ETS includes a $25 fixed price option for buying emissions units until 2012? This is limited to energy, transport and industry. This option would have acted as a maximum limit on unit prices, except for the fact that NZU prices were never more than $25 in 2010.
The report recommends keeping the fixed price option/price limit out to 2017 and increasing it by $5 each year (2013; $30, 2014; $35, 2015; $40, 2016; $45, 2017; $50).
I am very skeptical that actual NZ units prices will reach these levels. The Euro-zone debt crisis has just contributed to the recent collapse of the international carbon price. The international carbon price is the dominant driver of NZ unit prices. It is pure speculation that actual NZ prices will be any where near the proposed price ceiling.
Remember Nick Smith's two for one deal for 2010 to 2012? Where emitters can can emit two tonnes of greenhouse gases and surrender one emission unit? In other words it halved the emitters obligations to surrender units. The report recommends extending this to out to 2015. So 2013 would be the "three for two" deal, 2014 would be the "five for four" deal, before finally going to one tonne to one unit deal in 2015. So in carbon pricing we look to simplistic sales slogans. Only in New Zealand.
And I said there was a 'but' for agriculture. On entry in 2015, the report recommends that agriculture should be eligible for the two for one deal until 2016. Then three for two deal, the five for four deal, before finally going to one tonne to one unit in 2019. Oh I forgot to mention that from 2019 there would still be 90% allocation of free units declining at a linear rate of 1.3% each year.
Summary
I must admit I am completely underwhelmed by the report, its analysis and it's recommendations. I didn't think it was possible to further dilute the carbon price signal in the NZ ETS with more exemptions. I didn't think it was possible to make the NZ ETS sound even more like a bad used car parts advertisement. But I am wrong on both counts.
17 August 2011
Charting unexplained territory in the NZ ETS Report
So far, I have posted on the comprehensiveness of the NZ ETS vs the Australian Clean Energy Future ETS, the Kyoto chart junk in the Report on the New Zealand Emissions Trading Scheme, and the over-supply of the New Zealand Units in 2010.
This post mixes two of these ideas; searching out bad charts and looking again at the supply side of the NZ ETS market, how many New Zealand Units were allocated for free to emitters and businesses.
The Report on the New Zealand Emissions Trading Scheme provides in Figure 5 a pie chart of the number of New Zealand Units (NZUs) surrendered by emitters.
Although the pie chart is Kaiser Fung's least favourite type of chart, this pie chart isn't too bad. There are a manageable number of categories; only five; and no 3-D effects. The key point is clear from the pie chart, that about two-thirds of NZUs surrendered were purchased from foresters. Also the chart follows the Ministry for the Environment usual practice of providing the original data underneath so you can make your own chart.
I did a bar chart of the data, re-labelling the "Other" NZUs as "Free NZUs".
The free allocations of NZUs are shown in another pie chart, Figure 8.
The allocations to industry activities (the pie slices) are charted not as as numbers of NZUs as in Figure 5, but as proportions. The proportions are noted as percentages on each pie slice. There is no table of data accompanying the chart. This is clearly inconsistent with Figure 5. Why doesn't the pie chart show either the actual total number of NZUs allocated, or the number allocated by activity? The total number of NZUs allocated for free in 2010 is not disclosed anywhere else in the Report on the New Zealand Emissions Trading Scheme. There is another chart, Figure 11, that appears to show free NZU allocations to each industry sector.
Maybe these add up to the total "pie" in Figure 8. I added them up. 1.76 million NZUs given to industry, plus 6.9 million NZUs given to pre-1990 forest owners plus 0.69 million NZUs given to fishing quota holders, equals a total of 9.35 million NZUs.
However, the total number of NZUs allocated by free gifting between 1 July 2010 to 31 December 2011 is 12,776,026, according to the Ministry of Economic Development Chief Executives report. So there appears to be a gap of 3.4 million gifted NZUs, not disclosed in The Report on the NZ ETS.
Is this a big deal? I think it is. Dr Jan Wright, the Parliamentary Commissioner for the Environment, describes free allocation for what it is; a subsidy to industry
In her submission on the 2009 amendments to the NZ ETS, Jan Wright said;
To me presentation is an unsatisfactory level of disclosure of information. I am struggling to find an explanation for this other than to obscure the amount of subsidies funded via NZUs to emitters such as Comalco. I leave the last word to Jan Wright.
The NZ ETS Report disclosure does not meet this standard of transparency.
This post mixes two of these ideas; searching out bad charts and looking again at the supply side of the NZ ETS market, how many New Zealand Units were allocated for free to emitters and businesses.
The Report on the New Zealand Emissions Trading Scheme provides in Figure 5 a pie chart of the number of New Zealand Units (NZUs) surrendered by emitters.
Although the pie chart is Kaiser Fung's least favourite type of chart, this pie chart isn't too bad. There are a manageable number of categories; only five; and no 3-D effects. The key point is clear from the pie chart, that about two-thirds of NZUs surrendered were purchased from foresters. Also the chart follows the Ministry for the Environment usual practice of providing the original data underneath so you can make your own chart.
I did a bar chart of the data, re-labelling the "Other" NZUs as "Free NZUs".
The free allocations of NZUs are shown in another pie chart, Figure 8.
The allocations to industry activities (the pie slices) are charted not as as numbers of NZUs as in Figure 5, but as proportions. The proportions are noted as percentages on each pie slice. There is no table of data accompanying the chart. This is clearly inconsistent with Figure 5. Why doesn't the pie chart show either the actual total number of NZUs allocated, or the number allocated by activity? The total number of NZUs allocated for free in 2010 is not disclosed anywhere else in the Report on the New Zealand Emissions Trading Scheme. There is another chart, Figure 11, that appears to show free NZU allocations to each industry sector.
Maybe these add up to the total "pie" in Figure 8. I added them up. 1.76 million NZUs given to industry, plus 6.9 million NZUs given to pre-1990 forest owners plus 0.69 million NZUs given to fishing quota holders, equals a total of 9.35 million NZUs.
However, the total number of NZUs allocated by free gifting between 1 July 2010 to 31 December 2011 is 12,776,026, according to the Ministry of Economic Development Chief Executives report. So there appears to be a gap of 3.4 million gifted NZUs, not disclosed in The Report on the NZ ETS.
Is this a big deal? I think it is. Dr Jan Wright, the Parliamentary Commissioner for the Environment, describes free allocation for what it is; a subsidy to industry
In her submission on the 2009 amendments to the NZ ETS, Jan Wright said;
Allocation is costly. Each credit that is given away rather than kept or sold is a real dollar loss to the taxpayer. And there is another cost: it lessens the incentive to invest in low-carbon technology and emissions reductions. Generous and unlimited allocation that is promised to last a long time –whether or not it actually does - removes the push to transform to a low carbon-intensive economy.
To me presentation is an unsatisfactory level of disclosure of information. I am struggling to find an explanation for this other than to obscure the amount of subsidies funded via NZUs to emitters such as Comalco. I leave the last word to Jan Wright.
The principle of Parliamentary scrutiny in the Public Finance Act should also apply to allocation. Given the large taxpayer expense, the reason for allocating to a particular sector should be transparent.
The NZ ETS Report disclosure does not meet this standard of transparency.
13 August 2011
Geoff Bertram puts the Cap back in Cap and Trade
Speaking of the economist Geoff Bertram, as I was in the previous post, here he is on 10 June 2011 writing a letter to the Editor reminding the Wellington Fairfax-owned newspaper The Dominion Post that the New Zealand Emissions Trading Scheme (NZ ETS) does not have a cap so it's not a Cap and Trade emissions trading scheme.
Geoff Bertram is completely correct. Here is the chapter and verse on the absence of a cap in the NZ ETS.
Ministry for the Environment Fact Sheet 16 (2008) stated There is no cap on the emissions that occur within New Zealand. That was referring to Labour's Climate Change Response (Emissions Trading) Amendment Act 2008.
Ministry for the Environment Emissions trading Bulletin No 12, INFO 441 (September 2009) states "The Bill (the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009) changes the allocation provisions of the existing (Climate Change Response Act 2002) from allocating a fixed pool of emissions to an uncapped approach to allocation. There is no longer an explicit limit on the number of New Zealand units (NZUs) that can be allocated to the industrial sector"
OPINION: I was sorry to see that The Dominion Post failed to do the most basic homework on how New Zealand's emissions trading scheme works.
In the box on A4 on Tuesday, the paper reported that "the Government sets a cap on how much carbon can be emitted for different sectors". Alas, our Government does no such thing.
The ETS is not a cap-and-trade scheme because it puts no cap on greenhouse gas emissions at either sectoral or national level. Because no cap exists, the scheme is basically a money-go-round, with emission units traded in a policy vacuum.
Roll on a proper carbon tax, with the money recycled to protecting household budgets and promoting renewables.
Supporters of serious climate- change policy just have to hope that the Australian Government will manage to push through its carbon tax without too many of the special-interest subsidies and exemptions that make New Zealand's ETS so wasteful and ineffective.
GEOFF BERTRAM
Climate Change Research Institute, Victoria University
Geoff Bertram is completely correct. Here is the chapter and verse on the absence of a cap in the NZ ETS.
Ministry for the Environment Fact Sheet 16 (2008) stated There is no cap on the emissions that occur within New Zealand. That was referring to Labour's Climate Change Response (Emissions Trading) Amendment Act 2008.
Ministry for the Environment Emissions trading Bulletin No 12, INFO 441 (September 2009) states "The Bill (the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009) changes the allocation provisions of the existing (Climate Change Response Act 2002) from allocating a fixed pool of emissions to an uncapped approach to allocation. There is no longer an explicit limit on the number of New Zealand units (NZUs) that can be allocated to the industrial sector"
10 August 2011
Report on the New Zealand Emissions Trading Scheme
Finally I have got past the chartjunk and I have read the Report on the New Zealand Emissions Trading Scheme that Minister for Climate Change Issues Nick Smith released on 1 August 2011.
Perhaps the first point to make is that the NZ ETS has now been though a complete compliance period, the six months from 1 July 2010 (when energy and industry entered) to 31 December 2010, where both buyers (emitters) and sellers (foresters) of emissions units were in the NZ ETS market. So we should be able to make some type assessment about how it is working.
The same underlying data, emissions units issued and surrendered in the 2010 compliance year, has already been available from the "central bank" for emissions units - the NZ Emissions Unit Register, run by the Ministry of Economic Development. The Climate Change Response Act requires certain information on emissions trading to be disclosed annually. The Ministry for the Environment's Report on the New Zealand Emissions Trading Scheme is really this same trading information with some, ugh, "100% Pure" photo shoot pictures, quite a few junk charts and several text-boxes.
The MfE report and Dr Smith's press release received varied media coverage. The best reporting, with no junk charts, is Brian Fallow in the Herald.
Dr Smith's narrative is that the NZ ETS is going well and Fairfax/Stuff repeated this angle, as did the National Business Review and even Reuters said the NZ ETS was working as intended. The Sydney Morning Herald said "performed to expectations."
In terms of raw numbers, there 96 mandatory "participants" (emitters) in the NZ ETS at 31 December 2010, of which 76 are in the energy sector. There were 1,216 voluntary participants, of which 1,206 were in the forestry sector; forestry having entered the NZ ETS from 1 January 2008 mainly in terms of sequestering carbon in forest carbon sinks. In the six months from 1 July to 31 December 2010, 12.8 million NZUs were gifted to participants by "free allocation"; 9.4 million NZUs were transferred to mostly to foresters for forest carbon sequestration and 8.3 million units were surrendered to the Government (Surrender means to obtain units equivalent to a participant's GHG emissions and to transfer them to the Government's account at the NZ Emission Units Register).
We may then ask "So what?" in response to these raw facts. Well, lets think how the NZ ETS performed according to the expectations of someone who has written a book on the NZ ETS - The Carbon Challenge: the economist Geoff Bertram. In the book, Bertram analysed the NZ ETS as a market for emission units/carbon credits and as a market it can be understood in terms of supply, demand and price.
The supply of NZUs into the market for the six months from 1 July to 31 December 2010 was 22.2 million NZUs, made up of NZUs gifted to companies by "free allocation"; 12.8 million NZUs, and NZUs transferred for forest carbon removals; 9.4 million NZUs.
The demand from the market participants (the emitters) is the 8.3 million units surrendered in 2010. The NZ Emissions Unit Register report tells us that the 2010 year GHG emissions were 33.4 million tonnes and the NZ ETS-liable emissions from 1 July 2010 were roughly half that at 16.3 million tonnes. Remember Nick Smith's 1-for-2 deal to surrender 1 unit for 2 tonnes of GHGs? That explains why only 8.3 million units were surrendered, when 16 million tonnes of GHGs were reported.
For me the critical issue here is that supply (22.2 million units) exceeded demand (8.3 million) by 13.9 million units (or by 267%). There were 13.9 million units left over after emitters satisfied their 2010 NZ ETS surrender obligations.
As we know from basic economics, when supply exceeds demand, the price drops. The MfE report and Dr Smith's press release make no mention of the NZ ETS carbon price. However, the reliable Westpac carbon update provided this chart which shows the declining price of NZUs in 2010-2011.
The excess 2010 units have no expiry date and will carry forward to 2011. In 2011 and 2012, as well as starting with excess units, the 2010 template will be repeated for 12 months not six. More units will be allocated for free to industrial emitters and more units will be given to pre-1990 foresters as compensation, and to post-1989 foresters for carbon sequestration. The 1-for-2 deal carries on as well to 2013. These features are embedded into the structure of the NZ ETS and will ensure that for the rest of the Kyoto Protocol commitment period to 2012 that the NZ ETS market will be over-allocated with NZUs which will trade at a discount to other internationally marketable Kyoto emissions units.
Geoff Bertram and Simon Terry made a number of predictions in The Carbon Challenge. Here's one.
"In the New Zealand scheme, arbitrage between the NZU and the Kyoto currencies sets a ceiling on the carbon price, with no quantity limit. Local emissions volumes will change only insofar as the price of the Kyoto currencies constitutes an incentive to change behaviour; and NZUs will be used to cover liable emissions only insofar as they are a cheaper alternative to Kyoto currency units" (p 58).
My conclusion is that, contrary to Dr Smith's narrative, the MfE report on the NZ ETS is completely consistent with Geoff Bertram's prediction that the NZUs would be over-allocated, would be priced at a discount to international units and as a consequence the NZ ETS will not provide a sufficient price incentive to reduce GHG emissions.
Perhaps the first point to make is that the NZ ETS has now been though a complete compliance period, the six months from 1 July 2010 (when energy and industry entered) to 31 December 2010, where both buyers (emitters) and sellers (foresters) of emissions units were in the NZ ETS market. So we should be able to make some type assessment about how it is working.
The same underlying data, emissions units issued and surrendered in the 2010 compliance year, has already been available from the "central bank" for emissions units - the NZ Emissions Unit Register, run by the Ministry of Economic Development. The Climate Change Response Act requires certain information on emissions trading to be disclosed annually. The Ministry for the Environment's Report on the New Zealand Emissions Trading Scheme is really this same trading information with some, ugh, "100% Pure" photo shoot pictures, quite a few junk charts and several text-boxes.
The MfE report and Dr Smith's press release received varied media coverage. The best reporting, with no junk charts, is Brian Fallow in the Herald.
Dr Smith's narrative is that the NZ ETS is going well and Fairfax/Stuff repeated this angle, as did the National Business Review and even Reuters said the NZ ETS was working as intended. The Sydney Morning Herald said "performed to expectations."
In terms of raw numbers, there 96 mandatory "participants" (emitters) in the NZ ETS at 31 December 2010, of which 76 are in the energy sector. There were 1,216 voluntary participants, of which 1,206 were in the forestry sector; forestry having entered the NZ ETS from 1 January 2008 mainly in terms of sequestering carbon in forest carbon sinks. In the six months from 1 July to 31 December 2010, 12.8 million NZUs were gifted to participants by "free allocation"; 9.4 million NZUs were transferred to mostly to foresters for forest carbon sequestration and 8.3 million units were surrendered to the Government (Surrender means to obtain units equivalent to a participant's GHG emissions and to transfer them to the Government's account at the NZ Emission Units Register).
We may then ask "So what?" in response to these raw facts. Well, lets think how the NZ ETS performed according to the expectations of someone who has written a book on the NZ ETS - The Carbon Challenge: the economist Geoff Bertram. In the book, Bertram analysed the NZ ETS as a market for emission units/carbon credits and as a market it can be understood in terms of supply, demand and price.
The supply of NZUs into the market for the six months from 1 July to 31 December 2010 was 22.2 million NZUs, made up of NZUs gifted to companies by "free allocation"; 12.8 million NZUs, and NZUs transferred for forest carbon removals; 9.4 million NZUs.
The demand from the market participants (the emitters) is the 8.3 million units surrendered in 2010. The NZ Emissions Unit Register report tells us that the 2010 year GHG emissions were 33.4 million tonnes and the NZ ETS-liable emissions from 1 July 2010 were roughly half that at 16.3 million tonnes. Remember Nick Smith's 1-for-2 deal to surrender 1 unit for 2 tonnes of GHGs? That explains why only 8.3 million units were surrendered, when 16 million tonnes of GHGs were reported.
For me the critical issue here is that supply (22.2 million units) exceeded demand (8.3 million) by 13.9 million units (or by 267%). There were 13.9 million units left over after emitters satisfied their 2010 NZ ETS surrender obligations.
As we know from basic economics, when supply exceeds demand, the price drops. The MfE report and Dr Smith's press release make no mention of the NZ ETS carbon price. However, the reliable Westpac carbon update provided this chart which shows the declining price of NZUs in 2010-2011.
The excess 2010 units have no expiry date and will carry forward to 2011. In 2011 and 2012, as well as starting with excess units, the 2010 template will be repeated for 12 months not six. More units will be allocated for free to industrial emitters and more units will be given to pre-1990 foresters as compensation, and to post-1989 foresters for carbon sequestration. The 1-for-2 deal carries on as well to 2013. These features are embedded into the structure of the NZ ETS and will ensure that for the rest of the Kyoto Protocol commitment period to 2012 that the NZ ETS market will be over-allocated with NZUs which will trade at a discount to other internationally marketable Kyoto emissions units.
Geoff Bertram and Simon Terry made a number of predictions in The Carbon Challenge. Here's one.
"In the New Zealand scheme, arbitrage between the NZU and the Kyoto currencies sets a ceiling on the carbon price, with no quantity limit. Local emissions volumes will change only insofar as the price of the Kyoto currencies constitutes an incentive to change behaviour; and NZUs will be used to cover liable emissions only insofar as they are a cheaper alternative to Kyoto currency units" (p 58).
My conclusion is that, contrary to Dr Smith's narrative, the MfE report on the NZ ETS is completely consistent with Geoff Bertram's prediction that the NZUs would be over-allocated, would be priced at a discount to international units and as a consequence the NZ ETS will not provide a sufficient price incentive to reduce GHG emissions.
09 August 2011
How to chart the NZ Kyoto Protocol commitment
The post about Dr Nick Smith's junk chart has been on Hot Topic NZ, the Oil Drum Oz and NZ and hat-tipped on No Right Turn
Okay, so what would a good chart of New Zealand's greenhouse gas emissions and New Zealand's compliance with the Kyoto Protocol look like?
We mulled over that issue last year when we wrote a how to book on carbon forests.
I came up with this chart as a first draft.
Clunky and black and white. Add colour.
Paul Kennett said "hmmmm" and asked me for the data and he came up with this.
Not surprisingly, Paul's version appeared in the published version of The Carbon Forest (available now at the Kennett Bros!)
Okay, so what would a good chart of New Zealand's greenhouse gas emissions and New Zealand's compliance with the Kyoto Protocol look like?
We mulled over that issue last year when we wrote a how to book on carbon forests.
I came up with this chart as a first draft.
Clunky and black and white. Add colour.
Paul Kennett said "hmmmm" and asked me for the data and he came up with this.
Not surprisingly, Paul's version appeared in the published version of The Carbon Forest (available now at the Kennett Bros!)
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