Fixing the NZ emissions trading scheme is just flogging a dead horse

I argue that trying to incrementally 'save' or 'fix' the NZ Emissions Trading Scheme will ensure it remains ineffective in reducing domestic emissions for decades. Politically, its just flogging the dead horse. We don't have time for a unending institutionalised cultural conflict over the 'fixing the NZETS' like the one we have had for 'fixing' the Resource Management Act.

Yes, following on from my last post I am still banging on about the latest review of the New Zealand Emissions Trading Scheme.

Elsewhere on the web I see that Brian Fallow, Generation Zero and Geoff Simmons are all accepting the “fix the NZETS” framing in their comments on the review. Geoff Simmons heads up his second post on the ETS review in two days How do we save the Emissions Trading Scheme?.

Brian Fallow starts his Herald column "Possible adjustments to the Emissions Trading Scheme aren’t much, but at least they’d be a start".

Geoff Simmons and Brian Fallow do a double act of analysis on the NZETS review. I totally respect both Geoff and Brian in their intentions and views and understanding of the NZETS, except that they are both accepting this inherently incremental "fix the NZETS" framing of the politics. Here's their discussion.

I think this framing, 'fixing the NZETS' is fundamentally wrong in it’s politics.

One key point from my last post was that this NZETS review has reversed the burden of proof. The allegedly temporary and allegedly transitional 'moderating features' are now the status quo or the default settings in the NZETS.

Policy analysis and assessment now has to be prepared and presented to show that each flawed 'moderating feature' of the NZETS won't harm business interests. Queue the technical report Economic impacts of removing NZ ETS transitional measures by New Zealand Institute of Economic Research.

We need to remember there are a lots of 'cost moderating' features (flaws) still in the NZETS: unlimited international linkage and importing of overseas units (which officials are trying to restore), overly generous free allocation of units, the hang-over of surplus units in the market, the lack of auctioning (well there is no point having an auction if there is a huge surplus of units).

And the ultimate flaw is that half of New Zealand's greenhouse gas emissions, those from pastoral agriculture, seem to have a permanent get-out-of jail card.

So we have an emissions trading scheme with multiple flaws. The politically selected burden of proof provides a high hurdle for change each time the hapless officials attempt to remove the flaws. All the lobbyists join in as they have all the dates in their calendars.

You need more convincing?. Let's look at one of Tim Groser’s last statements as Minister for Climate Change.

First Groser praises Labour for their shared consensus on having an emissions trading scheme.

We have an understanding that there are certain policy frameworks in New Zealand which take decades to put in place, and where you need a very high degree of consensus - particularly amongst the two major parties of Labour and National - on at least a structure of a policy response.

Labour have supped the kool-aid and bought into this framing. As shown by this statement to Forest and Bird during the 2014 election campaign.

Labour’s preferred means of pricing is to fix the the existing ETS. Using an ETS to price carbon is the only broad area of agreement in climate change policy, particularly particularly between the two largest parties (despite National’s lip service for an ETS). Labour would not throw that agreement away lightly to start again with a carbon tax.

In other words, Labour will flog the dead horse better than National. As I noted in 2014:

National and Labour in effect have the same policy narrative that explains the problem; 'THEY undermined the NZETS', and a narrative solution, 'WE will fix the NZETS'. This creates the on-going cycle of the 'horse is under performing' and the narrative solution (keep flogging the horse). But beneath the impenetrable detail and complexity of the arguments about fixing the NZETS, it will remain ineffective.

Groser saves his well-known invective for Russel Norman and the Greens and their carbon tax policy. And stretches a very long bow to equate that policy with the Rudd-Gillard-Rudd Australian Labor Prime Ministers' revolving door.

What I didn't appreciate was that Russel Norman - then leader of the Green Party - saying you want to throw the policy structure away and have a carbon tax... I can guarantee you what that would have done - it would have set us back on a cycle of internal political conflict, which would have repeated exactly the problem in Australia.

Groser concluded:

I do not believe there is anything fundamentally wrong with the emissions trading scheme'.

I rest my case that the best science-based and ethically based climate mitigation policy is the opposite of what Groser says!

I hope Geoff Simmons is ready to do another decade's worth of white board Fridays emissions trading for dummies.

A 'horse-flogging' process of 'fixing the NZETS' will last a very long time - if it ever concludes. It could just become a social and cultural institution like the never-ending debate over the Resource Management Act. In a previous post I used the metaphor of a flogging the dead horse after the snake swallows the elephant in the room to describe this possibility.

Applying the maths of our carbon budgets, Kevin Anderson's analysis and the Paris Agreement, we just don’t have enough time for a never-ending institutionalised horse flogging debate over the NZ emissions trading scheme. The political goal must be to remove the social licence of the NZETS, to de-legitimize it in the eyes of the public and then to scrap it so a simple carbon tax can be adopted instead.

How fast over the cliff? tinkering with the train-wreck NZ Emissions Trading Scheme

I look at at the Government's latest token consultation about more tinkering with the train-wreck New Zealand Emissions Trading Scheme. We are still driving fast towards a cliff but the argument has moved from which gear to air-con versus heater. The Government has kindly given us the opportunity to make a submission about how hot or cold we should be as we go over the emissions cliff.

Back in September 2012, when Tim Groser and the National Government last watered down the New Zealand Emissions Trading Scheme (NZETS), I wrote a post that used an excellent metaphor for amending the NZETS, arguing about which gear to drive in while driving a car fast towards a cliff.

All credit should go to former Greens co-leader Jeanette Fitzsimons who had absolutely nailed her answer to questions from TVNZ about the relevance of amendments to the NZETS.

"Look, its like we are in a very fast car, we are heading towards a cliff, which is getting really close, and we are arguing whether to change from fifth to fourth gear".

Now we roll forward and there is another review of the woeful NZETS.

For all that has happened in the last three years, such as the Doha COP meeting, the Poland COP meeting, NZ opting out of a binding second Kyoto commitment, NZ being excluded from the international carbon markets, the 2020 target and 2030 target and the recent Paris Agreement, the fast-car-over-the-cliff metaphor still nails the state of the NZETS; that it is so far from being an effective emissions mitigation policy that 'reviews' are merely futile tinkering in the face of the impending threat of climate change. Especially when the scope of the review deliberately excludes the option of including agriculture in the NZETS.

The first stage of the review is a perfect example of futile tinkering. It is very narrowly focused on just two of the many 'cost-moderating' measures inserted in the NZETS in 2009 and extended in 2012.

1. Should we end the two tonnes-for-one unit deal, so that energy and industry emitters have to surrender one unit for every tonne of GHG emissions, rather than one unit for two tonne of emissions?
2. Should we adjust the existing $25 price cap or fixed price surrender option?

Submissions on these two issues close at 5pm on 19 February 2016. Submissions can be made online, by emailing nzetsreview@mfe.govt.nz or writing to the Ministry for the Environment, PO Box 10362, Wellington 6143.

The role of these 'cost-moderating' features is discussed in Jessika Luth Richter's masters thesis Institutional Feasibility the end or the means in emissions trading Evaluating the New Zealand Emissions Trading Scheme (106 pages, 1.8MB pdf) with the University of Lund. Richter makes several interesting observations (No really! The thesis is worth a read if you are a ETS wonk). In some ways the political influences on the NZETS design were typical of the international experience (page 60): "allocation is nearly always contentious, often free, and often heavily influenced by lobbying".

In other ways, the NZETS experience of these 'cost-moderating' features is unique to New Zealand. During the 2007 design stage, Treasury and the Ministry for the Environment assembled a complete smorgasbord of possible 'cost-moderating' features (free allocation, access to international markets, safety-valve price caps, two-for-one obligations). As these measures all had the same function (reducing cost and therefore price impacts), they felt only some were necessary in the 2008 NZETS. However, the 2009 amendments added all the cost-reducing measures into the NZETS. As Richter notes with understatement

"Additional moderating design features in the NZ ETS are also mentioned in literature and have been used in other schemes; however New Zealand is unique in the range of these features all incorporated into one ETS."

In other words, the whole kitchen sink of 'moderating features' was jammed into the NZETS in 2009. The National Government just helped Big Business New Zealand eat the whole smorgasbord.

Let's get back to the review discussion document. It describes the two-for-one deal as follows:

The one-for-two surrender obligation allows participants from the liquid fossil fuels, industrial processes, stationary energy and waste sectors to surrender one unit for every two tonnes of emissions (ie, a 50 per cent surrender obligation). This means that these participants do not face a full obligation for their emissions. As a result, the effective carbon price they pay is half the unit price. For example, with a New Zealand Unit (NZU) price of $7, these emitters pay an effective carbon price of $3.50 for each tonne of emissions, with a maximum effective carbon price set at $12.50 due to the $25 fixed price surrender option (page 12).

What to do with the two-for-one deal. This is just a no-brainer. Of course, the two-for-one deal should just end! It was meant to end in 2012, and the 2012 extension was flagged at the time as being temporary and ending in 2015. So why are we even consulting about this non-issue? Surely the policy default is that any well-designed transitional measure should simply end on the date specified in the original decision? Of course, from the point of view of political economy, such things as policy defaults and burdens of proof can be influenced by political interests.

So we can view the Ministry for the Environment's decision to have a consultation over the end of a transitional measure (such as the two-for-one deal) as changing the burden of proof. Instead of the transitional measures (of which there are many in the NZETS) simply expiring, a process must be held to arrive at that decision. This involves policy assessment and consultation. The proposed decision to end the two-for-one deal changes in character from that of an automatic expiry, to a "yes/no" decision where the default is the status quo of indefinite extension. And so the burden of proof now falls on the advocates of change (to a tighter ETS) and is removed from the advocates of the status quo who want an eternal transition.

The discussion document even expands the unnecessary scope of the decision by presenting three options (page 13); maintain the 2-for-1 deal indefinitely, or extend the term then review it, or scrap it and make emitters pay for each tonne of greenhouse gases. The document at least states the real world implication of keeping the 2-for-1 deal indefinitely: NZ unit prices would remain less than $NZ12.50 per unit, i.e. half of the price cap of $NZD25.

The discussion document describes the the second issue about the $25 price cap/fixed price option as follows:

The $25 fixed price surrender option allows businesses to surrender an NZU by paying the Government $25 per unit. It was established as a transition measure in 2009 to protect firms and the economy from price spikes or excessive costs. It acts to cap the maximum carbon price in the NZ ETS, and in combination with the one-for-two surrender obligation, it currently ensures that the maximum effective carbon price any non-forestry participant will face is $12.50 per tonne (page 14).

Again it is a no-brainer that this price cap should be removed. It was always obvious that it in the long term it would cap NZ unit prices at $12.50 per tonne. However, to the best of my recollection, this is the first time the Ministry for the Environment has explicitly said so. The existence of the price cap in itself indicates a lack of real commitment to an emissions trading approach. If the Government was that concerned about upward volatility in emission unit prices, they should have implemented a carbon tax instead.

Rather than discouraging me, writing this post has made me more determined to make a submission. Perhaps even two, as the trustees of carbon forest project I am involved in, also want to make a submission. Both submissions will probably use the expression "no brainer" several times.

To end this post I give you this cultural mash-up by American performance artist Vin Diesel which blends car crashes, train wrecks, cliffs and even a bit of Butch Cassidy and the Sundance Kid.

Kevin Anderson returns to the London School of Economics

Kevin Anderson has just given a talk at the London School of Economics (LSE) about climate change and the Paris Agreement. Audio download 44.3MB mp3

For me this this is almost a case of the wheel turning a full circle. I first got to really know about climate chnage from listening to Anderson's 2011 LSE talk Going Beyond Dangerous Climate Change: Exploring the void between rhetoric and reality in reducing carbon emissions. I would also recommend that podcast too.

LSE describes the event which took place last week on 4 February 2016 like this.

Speaker(s): Professor Kevin Anderson

Chair: Professor Tim Dyson

Recorded on 4 February 2016 at Old Theatre, Old Building

Despite high-level statements to the contrary, there is little to no chance of maintaining the global mean surface temperature increase at or below 2 degrees Celsius. Moreover, the impacts associated with 2°C have been revised upward sufficiently so that 2°C now more appropriately represents the threshold between 'dangerous' and 'extremely dangerous' climate change.

Kevin Anderson will address the endemic bias prevalent amongst many of those building emission scenarios to underplay the scale of the 2°C challenge. In several respects, the modeling community is actually self-censoring its research to conform to the dominant political and economic paradigm. However, even a slim chance of 'keeping below' a 2°C rise now demands a revolution in how we consume and produce energy. Such a rapid and deep transition will have profound implications for the framing of society, and is far removed from the rhetoric of green growth that increasingly dominates the climate change agenda.

Kevin Anderson (@KevinClimate) is Professor of Energy and Climate Change at the University of Manchester.

I am really looking forward to listening to the podcast. Audio download 44.3MB mp3

COP 21 Kevin Anderson shocks Bloomberg with net zero carbon message by 2050

More COP21 media coverage. Kevin Anderson does a five minute interview emphasizing the need for carbon dioxide emissions to drop to zero by 2050 with the slightly incredulous Bloomberg Business channel hosts. I don't think rapid and radical decarbonization of the economy is really part of their world view!

COP 21 and the path to controlling climate change.

Kevin Anderson on the Copenhagen Accord 2 degrees C budgets and COP21 Paris

I am still pondering the Paris Agreement made at the UNFCCC COP21 meeting in December. Here is the Tyndall Centre's Kevin Anderson giving his views to Marc Hudson, on 25 November 2015.

Courtesy of You Tube and Manchester Climate Monthly.

Kevin Anderson on Intended national contributions

Courtesy of Manchester Climate Monthly on 23 November 2015.