New Zeleand’s Carbon Challenge

Empty rhetoric. That’s the verdict on the recently established New Zealand Emissions Trading Scheme (ETS) from Geoff Bertram and Simon Terry in their searching book The Carbon Challenge: New Zealand’s Emissions Trading Scheme. It is something of a cautionary tale for others contemplating such schemes.

They present a picture of governmental processes captured by powerful groups pursuing their own interests at the expense of the rest of the community. Large industry and agriculture have won for themselves exemptions and delays of such an order as to make significant emissions reduction impossible in the first commitment period (CP1) of the Kyoto Protocol. At the same time the costs have been loaded disproportionately on to households and small industry. Those responsible for 30% of emissions will carry 90% of the cost. Agriculture with 49% of emissions will pay 3% of the costs.

New Zealand has an unusual emissions profile in that almost half of the country’s total emissions come from livestock farming. It is a common complaint of farmers that there is little they can do about the emissions resulting from their farming activity. The authors of the book don’t accept this. In fact they claim agriculture offers by far the biggest set of low-cost abatement opportunities. There are a number of options that are not only commercially available but profitable to undertake.

They instance means for reducing nitrous oxide emissions – nitrification inhibitors, stand-off pads, new grasses, supplementary maize feed, improved soil drainage. Selective breeding offers the possibility in due course of some reduction of methane as does the supplementary feeding of various plant matter. The processing of casual effluent from milking sheds through bio-digesters cuts both carbon dioxide and methane. Improved carbon storage in soils through pasture management appears possible as does sequestration through biochar burial.

In the longer run the ETS exemption is against farmers’ own best interests. It is shielding them from likely winds of change in world markets. The authors instance large companies in other countries seeking low-emissions milk, as Cadbury is doing in the UK, and point to the likelihood that New Zealand will surrender first-mover advantage to such countries if we continue with our present dogged denial.

There is self-defeat for large industry, also, in the favoured position they have gained for themselves. The ETS opens the possibility of production subsidies for high-emission industries by focusing on the intensity rather than the overall quantity of emissions. This could actually lead to the situation where a highly polluting industry centered around exploiting lignite coal for fertiliser would be entitled to subsidy because they reach a satisfactory level of intensity in their energy use.

By this provision New Zealand could provide a welcoming environment for industries wanting to relocate from other Annex I countries, via ‘carbon leakage’ from those economies. Such production subsidies will invite tariff retaliation from other countries and could shut New Zealand exports out of key markets.

New Zealand will emerge from CP1 with a level of emissions considerably higher than the 1990 benchmark to which we are expected to have returned. The possibility exists of plantation forests providing an considerable offset to the country’s emissions. This is the subject of close investigation in the book, which warns that if this path is followed there will be a reckoning when the trees are cut down. Potentially enormous deferred costs could be faced by the next generation when the final accounting is made.

Indeed, the costs may be so high as to raise questions about the country’s ability to meet them. This prospect may see the plantation forest offsetting practice being disallowed in successor arrangements after CP1. Permanent forests are a different matter, and the authors see these as a real key to balancing the country’s future carbon budgets. They lament the uncertainties the forestry sector faces by comparison with the government response to demands from large industrial operations.

The ETS is highly complex and often difficult to follow. I can well understand the authors’ claim that it’s a reasonable guess that no more than a handful of MPs understood the detail of what they were voting on. I often found myself struggling to get a proper hold on the ramifications of the various processes the book explores, even though the authors have been exemplary in the patience and thoroughness of their explanations.

It is the exhaustive care they bring to their task which makes the reader respectful of the summary statements which emerge from time to time in the course of their discussion, such as this one:

“The ETS has not been designed to promote economically efficient abatement. It has been designed firstly to protect and promote the position of vested interests that are unwilling to shoulder asset write-downs required to recognise a price on carbon, and secondly to transfer the costs of this to future generations.”

However there are countervailing forces at work against the formidable clout wielded by agricultural and other major emitter lobbies. The authors nominate three domestic factors which could upset the current political equilibrium. One is the possibility that the lack of trust in the forestry regulatory regime may deter new planting in general and permanent afforestation in particular; this would increase pressure for reform of the ETS.

The second is that sections of the population and the economy will become more concerned about climate change and the lack of any effective action at home to reduce emissions. The third is that the recognition of the size of the carbon debt we are passing to future generations by using plantation forest credits to cover excess emissions may become a moral issue.

They also point to international factors which will put our ETS under pressure. One is the pressure New Zealand will come under if international emissions targets move towards being set more on a per capita basis. It would be very risky for us to go forward with gross emissions far above any we could hope to defend in a global commons debate. Another is the risk of border taxes and other adjustments we could well face from other governments and from private-sector firms if our climate change policy is shown to be incapable of matching the climate change objectives it espouses.

An ETS must set an appropriate cap on emissions. If it shies away from the present costs of serious action it only lays up far greater future costs as the result of doing nothing now. That is the basic warning of the book. New Zealand is part of the developed world and will not be able to escape its fair share of responsibilities as we appear set on trying to do.

Article by Bryan Walker, appearing courtesy Celsias.