Catherine Leining wants to see a broader scope and longer timing for the NZ ETS review. This is one consultation that is important

Catherine Leining wants to see a broader scope and longer timing for the NZ ETS review. This is one consultation that is important

By Catherine Leining*

Public consultation is underway on the government’s 2015/2016 review of the New Zealand Emissions Trading Scheme. The first stage of submissions (due 19 February) focuses on whether non-forestry sectors should face the full unit obligation per tonne (compared to 50% under current rules) and invites comments on the scope of the review. The second (due 30 April) focuses on how the government should manage unit supply, emission prices and exposure to emission costs and invites comments on other issues.

Ministry for the Environment officials have been blunt about the system’s impact to date: “Research for this evaluation, and evidence from the interviews, found no sector other than forestry made emissions reductions over the Kyoto Protocol Commitment Period One (2008-12) (CP1) that were directly caused by NZ ETS obligations.” On the basis of participants' purchases of Kyoto units and some improvement in net forestry emissions, officials concluded that the system has delivered on its two-fold purpose to assist New Zealand in meeting its international climate change obligations and reducing net emissions below business-as-usual levels.

In this case, we are hitting the target but missing the point. Limiting temperature rises below 2 degrees C requires a transition to net zero global emissions by the end of the century, with peaking of global emissions in the near term. So far under the NZ ETS, the short-term emission price has been too low and the long-term emission price too uncertain to support the strategic decarbonisation of New Zealand’s economy.  Both gross and net emissions are projected to rise significantly through 2030 under current settings.

The government’s review would benefit from inviting stakeholder input on five “A’s” essential to reforming the NZ ETS: Ambition, Architecture, Alignment, Acceptance and Agriculture.

Ambition

Strategically, the first step in ETS design is deciding how quickly to decarbonise the domestic economy and establishing a credible long-term trajectory for reducing emissions in capped sectors with acceptable emission prices and system costs. This trajectory should be set in the context of possible sectoral emission reduction pathways which are informed by technical and economic mitigation potential and aligned with other development objectives. Aiming for corridors for ETS emissions and emission prices, with upper and lower boundaries, could guide cap setting and price adjustment by future governments as circumstances change while providing a basic level of certainty for ETS participants and investors.

In the context of rising domestic emissions and being nested within the Kyoto emission cap with access to international credits, New Zealand skipped this step initially during NZ ETS design.  It would serve us to go back and set intended corridors for domestic emissions and emission prices under the NZ ETS with the goal of decarbonising New Zealand’s economy, and translate this into an ETS cap as enabled (but not yet applied) under the 2012 NZ ETS amendments.  

Architecture

An effective ETS architecture will be required to deliver increasingly ambitious mitigation outcomes. A key decision for the government is whether the NZ ETS will operate in the future as a domestic price maker or an international price taker. The NZ ETS was fundamentally conceived as an internationally linked system where the domestic price was set by the Kyoto market, but it was compelled to delink as of June 2015 because the government did not take a Kyoto CP2 target. The government’s consultation document appears predicated on the assumption that it will be feasible and desirable for the NZ ETS to re-link to the international carbon market in the 2020s.  Other jurisdictions with an ETS have chosen to engineer a domestic price with limited or no exposure to international prices. Our future options are open.

Having agreed on the objectives and drivers of domestic carbon prices, the government can then consider whether there are grounds to justify different effective prices for different sectors. In the initial design, all sectors in the NZ ETS were to face the full price of emissions at the margin in order to make efficient investment decisions under growing global carbon constraints. In 2009 (and reinforced in 2012), the government halved the unit obligation for non-forestry sectors with the goal of sheltering them from the full international price in a time of recession. Today’s context necessitates a new architecture for managing unit supply and emission prices in tandem, complemented by strategic allocation and use of auction revenue to manage the distribution of costs. Any decision to apply a partial unit obligation to some sectors should be taken in the context of those other considerations.

Given the large surplus of banked units and the likelihood of other cost containment measures (such as a price cap and free allocation for emissions-intensive, trade-exposed producers), there is a strong case for moving directly into a full unit obligation for all sectors with reasonable advance notice, rather than phasing in a full obligation gradually. This is reinforced by NZIER’s modelling, which shows that switching from a partial to a full unit obligation at $25 per tonne would shave GDP growth by only 0.1% in 2020, equivalent to eight hours’ worth of GDP.

Alignment

The NZ ETS should be aligned strategically in two ways: with other domestic policies and with opportunities for international cooperation on mitigation.  First, it would be useful for the government to engage with stakeholders on how the NZ ETS price signal could interact with other sectoral policies and regulations to achieve desired sector outcomes. The NZ ETS price signal by itself may not be sufficient to drive rapid step changes in low-emission technology and infrastructure in key sectors. 

Second, to help in meeting its 2030 emission reduction target, New Zealand faces a strong incentive to align the NZ ETS with international expectations for credibility and ambition, both to facilitate linking to other ETS and to position New Zealand as a better partner for other forms of cooperation on mitigation.  Linking ETS requires harmonisation of key design features affecting unit supply, environmental integrity and price control.  The government's NZ ETS design decisions should preserve options to link. From political and practical standpoints, neither a partial unit obligation nor a weak or absent cap will be appealing to prospective linking partners.

Acceptance

Providing greater certainty over future mitigation policy is a critical enabler of investment in decarbonisation. New Zealand would benefit from both improved and new processes to secure cross-party and public support for ambitious emission reduction pathways and a rising emission price as part of a broader low-carbon development strategy.

Agriculture

In this year’s review, the government will explicitly not address the inclusion of biological emissions from agriculture in the NZ ETS. In 2012, Cabinet agreed to exclude biological emissions from agriculture indefinitely, subject to review in 2015. The government stipulates that its 2012 criteria for inclusion have not been met: “there are technologies available to reduce these emissions; and international competitors are taking sufficient action on their emissions in general.” In the absence of market-ready breakthrough technologies for livestock methane, there is still considerable potential for efficiency improvements, using available technologies and practices, which could be incentivised by an emission price. Nitrous oxide emissions could be considered separately from methane emissions. This issue continues to merit discussion, whether within the scope of this review or in a separate process.

Summary

For the potential environmental, economic and social benefits of the NZ ETS to be realised, changes are needed.

These relate not just to its architecture but also to its underlying objectives and its relationship with other policies and the evolving international carbon market.

Broadening the scope and timing of the review would help both the government and the New Zealand public to make the most of this consultation opportunity.


Catherine Leining is a Policy Fellow at Motu Economic and Public Policy Research. This article also appeared on the blog New Zealand’s Low-Emission Future.” The views expressed are her own.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

17 Comments

Comment Filter

Highlight new comments in the last hr(s).

In 1991, a delegation from New Zealand was instrumental in ensuring the first IPPC Rio convention always referred to net rather than gross emissions.

The very significant CO2 uptake of forestry, farm and crop land was a disproportionate share of New Zealand’s productive outputs vs industrialised countries. This would need to be recognised in any future emission calculations.

This was accepted and formed the basis of the now universally recognised carbon credits – reinforced by recent statements from the COP-21 ex Paris.

Despite this earlier commitment - New Zealand subsequently and very unwisely chose gross agricultural emissions as the basis of emission measurement rather than the scientifically accurate net emissions.

This was agreed to by then Minister Nick Smith - not on any scientific basis but " by agreement between the parties ".

Calculating agriculture net emissions was seen as too difficult and formed a much smaller share of total emissions for virtually all other countries vs New Zealand.

On a net basis – as calculated for biofuels – New Zealand’s agricultural emissions are roughly half the published figures. If this was not the case, biofuels could not be generating the zero net emissions they are credited with.

A maize crop that is processed to make biofuel is universally recognised as leaving near zero net emissions. Yet that exact same crop when fed to livestock is denied the CO2 absorption credit that is allowed in the biofuel case.

Agricultural emissions world wide can be roughly halved for certain at no cost simply by measuring them correctly.

It makes no sense whatsoever to include agriculture in the ETS given the grossly inaccurate basis of measurement used today.

ETS was only ever intended as a money-making scam, and has never had anything to do with addressing the fundamental driver of climate change, which is emission of CO2 as a consequence of burning fossil fuels, manufacturing cement and producing metals from ores etc.

The complete and utter failure to deal with burgeoning emissions over the past two decades has resulted in atmospheric CO2 rising from well under 360ppm to well over 400ppm; even more alarming is the fact that the rate of increase has been increasing.

https://www.co2.earth/co2-acceleration

The global failure to address the root cause of Climate Change has resulted in Climate Change morphing into Abrupt Climate Change or to be more accurate, Abrupt Planetary Meltdown.

it is still too early to say whether the Arctic Sea will be ice-free in September of this year because unexpected things do happen. However, after several days of ice actually melting when it 'should be' forming, the latest data indicate that although ice is forming, it is unlikely to recover to anything approaching normal, i.e. ice cover is currently more than 2 standard deviations below the 1981-to-2010 average and there are only a few weeks of cold weather left.

http://nsidc.org/arcticseaicenews/charctic-interactive-sea-ice-graph/

After March 21st the Arctic region will be getting more daytime than nighttime. An ice-free Arctic takes us into a new phase of Severe Planetary Overheating because there mitigation will no ice to reflect heat and no latent heat of phase change mitigation.

As pointed out just a few hours ago, NZ is committed to raising the atmospheric CO2 level as quickly as possible:
':
'VERY STRONG SET
The data was released today for the volume of ready-mixed concrete poured in the December 2015 quarter and it was strong all round. It was especially strong for Auckland where an all-time high was reported. In previous years Q4 is not a quarter where we see a rise from Q3, but this year it was a dramatic jump. There was also a strong rise for Wellington. For Christchurch it was a more normal pull-back, but it is still at an historically high level. Nationally, more than 1 million m3 were poured, the highest quarterly level ever. In 2015 that totals almost 3.9 mln m3, also a handsome all-time record.'

I don't have time to discuss the petrol/diesel powered machinery involved in logging, transport and distribution of fertilisers, operation of the dairy industry etc. or the surge in motorised transport and tourism.

Let's just say the gulf between the official narrative and reality gets wider by the day.

With respect to:

'Limiting temperature rises below 2 degrees C requires a transition to net zero global emissions by the end of the century, with peaking of global emissions in the near term.'

I'm afraid this us just utter nonsense. We are already at around 1.2oC temperature rise, and getting hotter by the day: January 2016 was the hottest ever by a huge margin. The interaction of self-reinforcing and mutually reinforcing feedbacks could well see the 2oC target broken through by 2030. We will certainly break through 450ppm by 2030 unless the global economic system collapses in the near future (a distinct possibility).

As for making submissions, well we already know that is a complete waste of our time because everything was decided months ago, if not years ago, and nothing any member of the public or acknowledged expert says will make a scrap of difference.

As James Hansen, at one time acknowledged as the greatest expert on climate, said of the COP21 meeting: "Its fraud."

No I think it was intended as a moral sop and a money making scam. So on the "left" it made them feel good about doing nothing and to get it accepted the 'right" was allowed to make money hand over fist.

Oh for goodness sake you exhale CO2 in every breath afewknowthetruth and afewwoudn'tknowthetruthifithitthem........what about measures of herbage and other plant life and their uptake requirements and why are they not included....some regions where no plant has grown are now showing signs of activity......the only abrupt planetary meltdown is the one where people realise they have been led up the garden path.

"As for making submissions, well we already know that is a complete waste of our time because everything was decided months ago, if not years ago, and nothing any member of the public or acknowledged expert says will make a scrap of difference." So sadly true that.

nz ETS is a sick joke - thanks to the junk credits nz gorged itself on. Fraudulent credits from Russia and Ukraine achieving zero emmission reductions and trading at a few cents each -banned in USA and Europe. Net effect is NZ's emissions have risen by about 30% since 1990 and Kyoto and polluters can keep polluting with no incentive to reduce.

Whats worse is the National governments sham consultation and pretending ETS actually achieved something. The NZ ETS has been a failure...except to provide a figleaf to the government. Take away the fig leaf and you'll need a microscope to see anything worthwhile John Key and his band of pretenders have achieved.
How about a new approach we could acknowledge global warming/climate change is the BIGGEST issue facing future New Zealanders....so we need to take immediate action to limit this. Pricing carbon at NZ$30/tonne and having a domestic ETS market would provide immediate benefit. Unfortunately with National this is unlikely to happen, "Leadership" is not in John Key's lexicon.

Having reread this article might I add that the writer appears to have BS for brains. The current ETS is a total failure and needs to be acknowledged as such...then NZ can replace it with something of substance and value. Seriously Catherine Lining are you paid to ignore the blindingly obvious...future generations depend on our getting this right...if the scientists are right hundreds of millions of people may not survive 4 degree temperature increases, 50% of the worlds species are at risk of extinction etc.
Other than that some good points in her article.

Every day that passes makes extinction of the human species by 2040 more likely.

Note that the update for the Arctic ice cover shows a return to melting after a couple of days of freezing.

http://nsidc.org/arcticseaicenews/charctic-interactive-sea-ice-graph/

With only about 20 days left of the normal ice formation season left, the prospect of entering the melt season with anything other than a record low ice cover look increasingly remote.

The repercussions of an ice-free Arctic are more than dire..

No ETS is going to make a scrap of difference to the Planetary Meltdown, and it can be argued that ETS schemes (scams) actually make the situation worse -which is exactly what we have come to expect from politicians and bureaucrats with respect to all aspects of life.

'Nobody' cares.

CC directly is not likely to cause us to go extinct by 2040, 2140, yes as we'll be at 4DegC+ (if not 6). What is more likely is fighting over diminishing resources as the planet cannot support 7billion ppl, in fact probably not 2billion will do us over by 2040.

ETS is a joke.

"nobody cares" a few do but frankly its probably 2~3% of the ppl, I mean the entire Green party with only 10% of the vote doesnt appear to get peak oil and its effects so those that do are a subset at best.

Don't forget that we are observing non-linear processes that reinforce themselves and reinforce each other, and generate what approximates to an exponential curve, i.e. it gets progressively steeper.

The other important aspect that so few people seem to understand it that when certain thresholds are reached the entire system suddenly shifts to a new, completely different phase. Humans are altering composition of the atmosphere and oceans at a rate far exceeding anything recorded in the past 600 million years, and in doing so are generating an extinction event that will surpass the Permian Extinction Event (in which 90% of species disappeared).

That is why the meltdown of the Artic sea ice is so important: no sea ice there allows much greater absorption of incoming heat (by a huge factor), and none of it will be consumed in the phase change from solid to liquid, so it will manifest as rapidly increasing temperatures. Bearing in mind that water vapour is also a greenhouse gas (though not a primary driver) this will compound the warming. Not only that, of course, but also higher temperatures will accelerate the meltdown of the ice on Greenland, thereby adding yet another huge positive feedback.

The next few months will clarify the Arctic situation (predicament).

I entirely agree with respect to population. Anything over a 1 billion humans is unsustainable, particularly with current energy-guzzling arrangements.

' I mean the entire Green party with only 10% of the vote doesnt appear to get peak oil and its effects so those that do are a subset at best'

The Green Party is a sick joke Fitzsimon highlighted peak oil for a while back in the early 2000s, but now that she is gone and peak oil is in the rearview mirror the Green Party is a business-as-usual party.

Well this is your opinion, but really we have to rely on sound peer reviewed science and not guesses. "the Green Party is a business-as-usual party." very much agree, I dont think I'll renew my membership this year supporting yet another party that only sees BAU isnt me. Interestingly in my on going discussions with green MPs they all repeatedly fail to reply to any comment or query I make on peak oil, no one answers the elephant in the room, the pattern is telling.

btw 2016 January data,

http://www.bloomberg.com/news/features/2016-02-17/global-warming-crushes....

I have been saying for a while that we are witnessing unprecedented planetary meltdown, and now it is finally going mainstream:

'Scientists are floored by what’s happening in the Arctic right now'

https://www.washingtonpost.com/news/energy-environment/wp/2016/02/18/sci...

'Impacts of Arctic warming are usually considered in isolation, and that’s a mistake, he says. “It’s unraveling, every piece of it is unraveling, they’re all in lockstep together,” Pomerance says. “What tends to happen is, everybody nationally reports on the latest piece of news, which is about one system. You hear about the sea ice absent the temperature trend. So you really have to think of it as a whole.”

Indeed, impacts of Arctic warming include the melting of major Arctic glaciers and Greenland (containing the potential for up to 7 meters of sea level rise if it were to melt entirely), the thawing of carbon rich permafrost (which could add to the burden of atmospheric greenhouse gas emissions) and signs of worsening wildfires across the boreal forests of Alaska, to name a few.'

Not hundreds of millions but Billions.

The way I read the article isnt that is exactly what she is saying?. ie it needs a major overhaul?

Always hilarious to see these comments. Long on speculation and prophecies of complete global desolation, short on reason and the balance of probabilities based on historical data.
No predictions from me, but some observations. This only works if you look through a pinhole.The earth has been through this before without us and will likely endure long past our demise like all other species which went before us. Regionally, some areas currently sparsely tenanted by humans, will likely be more liveable and productive as they warm. Peaks and troughs in CO2 and temp over many millennium have been just that, there can be no constant rise, no closed system works that way, they always reverse.
A great way to accumulate wealth is to convince lots of people a life threatening (but not really) problem exists that only you can fix, for a price. The trick is just to not be around when they discover you can't fix it, simple.

So do you think it is hilarious that we are witnessing unprecedented meltdown, and are on track for the Earth to become largely or completely uninhabitable in a few decades?

https://www.washingtonpost.com/news/energy-environment/wp/2016/02/18/sci...

A simple yes or no will do.

I don't play your game, nor do I seek to alter your perception, you are welcome to it. Not surprised you ignored all the points, misread and distorted in an attempt to validate your speculation of imminent apocalypse, very much par for the course. The source of amusement are those such as yourself, so deeply mired in the thrall of those who have built their wealth playing to your fears.