25 November 2016

Free Windfall Allocations of NZETS Units to NZ Aluminium Smelters Ltd

In which I recapitulate what we have already gone over - the way the free allocation of emission units to New Zealand Aluminium Smelters Limited results in over-allocation of units.

In the very beginning, back on 7 October 2011, there was 150% Pure Subsidy which was also posted at Hot Topic as 120% Pure Subsidy.

In that post I argued that New Zealand Aluminium Smelters Limited, the operator of the Tiwai Point aluminium smelter, was being 'over-allocated' emission units under the New Zealand Emissions Trading Scheme. That the company was being given more free carbon credits than the carbon credits it was required to surrender for it's emissions. And therefore the company was not 'facing a carbon price' under the emissions trading scheme, but being subsidised.

The company was given an industrial allocation of 210,421 units for the six months from 1 July to 31 December 2010. I estimated that the smelter company was required to surrender between 143,000 and 172,000 emissions units for the six months to 31 December 2010. Therefore the estimated degree of over-allocation of units was between 120% and 147%.

Then, on 20 October 2011, there was 120% Pure Subsidy: Part 2 which was also cross-posted at Hot Topic.

In that post, I responded to feedback that the method of calculating the free allocation of units to emitting industries included extra units for the extra costs of generating electricity from fossil fuels under the emissions trading scheme. That was in addition to the stated aim of free allocation meeting 90% of a "trade exposed" emitter's direct emissions.

Let's just be very clear that this is conceptually a departure from the classic 'cap and trade' model of emissions trading. In strict cap and trade with a real cap on emissions, and with 'grand-parented' free allocation of the capped units to emitters, the energy companies would be allocated the energy sector's share of the cap. If an allocation process adds extra units for industries because of indirect or 'up-stream' carbon-intensive energy costs, then those industries are receiving an allocation that would have gone to the energy companies in the classic model.

I argued that it was a nonsense to for the free allocation of units to a smelter to include a compensation factor for upstream carbon-intensive electricity costs, when that smelter owed it's existence to a dedicated source of hydroelectric electricity generation from Lake Manapōuri.

Then on 2 November 2011, there was Nick Smith fails the smelter spin test.

On 23 April 2012 I reported that Helter smelter: NZ Aluminium Smelters wins the 2011 Roger Award.

On 9 September 2012, I wrote Power to the smelter? Rio Tinto Alcan NZ Ltd wants to pay less for electricity for the Tiwai Point aluminium smelter.

11 September 2012 Hot Topic Rio Tinto Alcan NZ plays godfather: nice aluminium smelter you got, be a shame if something happened to it

28 September 2016

Opening up the Ministry for the Environment data and webscrape the 2015 free allocation of emission units

Let's look at the latest data on the very generous free give-aways of emissions units to emitters made by the New Zealand Ministry for the Environment
N.B. Update on 10 December 2016. The allocation decisions have moved to the Environmental Protection Authority
.

The New Zealand Ministry for the Environment has up dated its web-page 2015 Industrial Allocation Decisions to show the final 2015 free allocation of emission units to emitters under the New Zealand Emissions Trading Scheme.

I looked at the 2010 to 2014 data in my post Opening up the data on emissions units in the NZ emissions trading scheme. So in this post I am will repeat my steps in web-scraping the freebie emissions unit data into a sensible open-data format.

The url of the webpage is http://www.mfe.govt.nz/climate-change/reducing-greenhouse-gas-emissions/new-zealand-emissions-trading-scheme/participatin-4

Go to Google and open a new Google sheet.

Following the tip from the School of Data Liberating HTML Data Tables, enter this text in cell A1 of the Google sheet.

=importHTML("","table",1)

Add the url of the Ministry for the Environment's free allocation web-page between the double speech marks so you have this exact text in cell A1.

=importHTML("http://www.mfe.govt.nz/climate-change/reducing-greenhouse-gas-emissions/new-zealand-emissions-trading-scheme/participatin-4","table",1)

That worked perfectly! We now have a Google sheet of the 2015 free unit allocation to NZ emissions trading scheme emitters.

I have saved it as NZETS-2015-final-allocations-for-eligible-activities.

However, the data does not have a "tidy" structure, where each variable is a column and each observation is a row (Wickham, Hadley . "Tidy Data" Journal of Statistical Software [Online], Volume 59, Issue 10 (12 September 2014)).

The first column includes both industry names and types of industries classified by the type of emissions the industry produces. And lots of asterisks. A tidy format would have these attributes (or variables) as separate columns so that each company/emitter would have a row each.

I used a programme called Open Refine to data-wrangle the data into that format and to save it as a comma-separated values file which is this Google sheet NZETS-2015-final-allocations-for-eligible-activities. Its a bit fiddly using Open Refine, and I have not documented the steps. I won't describe how I did it. Yes, I know, from the point of view of reproducing the tidied data I should have done the tidying with a script or code. Next time I will.

As usual, the big emitters get the most emission units! Of 4.417 million units allocated to industries, 90% went to 11 large companies. New Zealand Steel Development Limited, of arbitrage profits fame, gets 1,067,501 free units. New Zealand Aluminium Smelters Limited gets 772,706 free units.

This is the updated free emission unit allocation data from 2010 to 2015.

I did a bit of data visualising with the 2015 data and created this pie-chart in R programming language.

The R script for that is:

Did I not get the End the Rainbow memo? So I picked a better colour scale from Colour Brewer.

The R script for this non-rainbow pie chart is:

27 September 2016

What are we waiting for? the fantasy of carbon neutral growth of aviation emissions

In this guest post, the 'stop flying' Wellington lawyer Tom Bennion writes about the International Civil Aviation Organization (ICAO) proposals for 'carbon-neutral' growth of greenhouse gas emissions from the fast-growing aviation industry.

New Zealand parents often tell their children not to eat too many sweets. Our primary schools spend a lot of time talking about suitable diets. We do this because we have the long term interests of our children at heart.

I find the contrast between that and how we currently approach climate change disheartening and distressing and especially when I consider all the families I know who are now taking flying holidays with their children.

This is a really uncomfortable topic. But we have to talk about it, and do so urgently.

We should, by now, all know the math. There isn't any personal activity we or our children can engage in that is even remotely close to air travel in terms of the sheer volume of greenhouse gas emissions it produces.

Google tells me that a Boeing 747 burns roughly 12 litres of aviation gas per kilometer. That is pretty good economy for carrying 500 people a short distance. But not if you are flying 18,819 km, the distance from Wellington to London and back. In that case, every person on the flight is responsible for consuming 450 litres of fuel. To put that in perspective, imagine if, instead of taking that trip, you revved up an average family car in your driveway to 100km/hr and at 6 litres per 100 kilometers you would need to leave it running for 75 hours or 3 days. Then repeat that for each family member that took the trip.

If you did that in your neighbourhood, you would be called a crass and thoughtless person, and people might wonder what sort of children you were raising.

In addition, these figures don't address the fact that the warming effect of aviation gas burned at altitude is around 2-3 times the impact when burned at sea level. So make that 6-9 days of car revving for each family member.

We also know that the emissions from our plane trips this year and this decade will continue to heat the planet for hundreds of years.

It isn't necessary to bang on about how bad things will get if we keep doing this. We already have an inkling from worldwide weather trends in the last 12 months. The thing to bear in mind is that the emissions we are contributing so hugely to through air travel are a severe threat to the future lives of our children, a much greater threat than a bad diet.

In the face of all of this, we have to accept, I think, that at the moment we are responding essentially with the instincts of small children:

  • We can see that we should stop this behaviour but wont because it would inconvenience us, be 'too hard' and 'everyone else is doing it'.
  • We don't like to talk about it. We mumble an excuse and move away if it comes up.
  • If we have to confront it, conversations quickly get tense as we get defensive about our reasons for keeping on with this clearly inappropriate behaviour.
  • We avoid mentioning the issue with our own children because we know they would instantly spot our hypocrisy.

In addition, and maybe this is the worst of it, by taking them on a flying holiday with us, we implicate them in our bad behaviour.

In uncomfortable situations like this we are anxious for good news. Here it is. All the members of the International Civil Aviation Organisation (ICAO), that is, essentially all United Nation member states, five years ago adopted a goal of carbon neutral growth after 2020.

You may wonder how or why the ICAO picked on 2020 as a benchmark in the first place. I don't know. No one does. It has no bearing on reality, no bearing on trying to avoid dangerous climate change by keeping within the global average temperature rise within 1.5 of 2 degrees, and isn't intended to.

It's the best that can be politically extracted from 190 odd nation states who know that their home populations are acting like children and wont forgive them if they try to have a serious conversation about reducing airline emissions.

Here are some of the problems with the ICAO goal:

  • the ICAO has been promising action for ages. It got the mandate to work on reducing aviation greenhouse gases in the 1997 Kyoto Protocol.
  • The ICAO plan does not cover domestic aviation - that's about 30% of aviation emissions.
  • By 2020, annual emissions will be around 1000 megatonnes. And there is no plan to reduce them at all, just to hold the annual level to about 1000 megatonnes.
  • Even after making heroic assumptions about how much new aeroplane design developments can cut back on some emissions, the ICAO has calculated that it can only meet its target with offsets.

That's right, the emissions from our holiday flights in 2020 will be fine because someone else somewhere else (the details don't need to concern us) is going to promise to grow some trees and keep them growing until around 2400 or so. I don't think hubris really captures it. Its the sort of fantasy that only children could indulge in.

And lastly, and here is the real kicker, the ICAO isn't going to do pretty much any of this. It has just announced that it is about to reset the start date of the proposal so it wont be compulsory for any nations until 2027, and will allow for whole sectors of aviation to aggregate their emissions. So there will be lots of delay and massaging of numbers. We all know what happened with the fraudulent carbon credits under New Zealand's emissions trading scheme, and, with the fantasy thinking of offsets thrown in, I expect you can see where all of this is heading.

No surprises that the New Zealand Government has announced that its happy with the scheme, provided everyone else signs on with them of course.

This also means, obviously, that when your local airline tells you it supports the ICAO approach, has purchased some electric cars or is putting solar panels on the roof of the airport, or planting some trees for you to fly over in their planes, but has not yet switched its entire air fleet to bio-fuels or done something as blindingly obvious as stopping its air-points programme, you can just politely ignore them.

There is a technical term for this refusal to face reality. Its called cognitive dissonance. That is, juxtaposing two contradictory ideas and finding ways to manage the mental chasm between them. In this case its not just the contradiction between our personal carbon emissions from air travel and stated concern about climate change, its the fact that as parents we care for our kids while managing the secret knowledge that we risk literally shortening their lives and most certainly the lives of their own children.

I am selfish. My worry is that future children will look at our thousands of travel photos alongside the news headlines about record-setting heat, storms, floods etc, and wont just label us childish. Sociopaths is the terms we use for people with a sense of entitlement so strong that they would prefer mass death over personal discomfort and unease. But maybe they will just call us cowards. Then again, they might get inventive and call us child abusers.

I think we need to be uncomfortable for a little bit. We are adults. Adults can examine the situation rationally, and tell our kids that the hyper-mobile life of flying holidays we have been creating for ourselves and them is going to put us all in danger and has to go on hold. We all have a habitable planet to save right now.

So get out your air points statement. Explain to the kids you are donating all of them to forest planting. Tell them that holidays from now on will be a bit closer to home, and that overseas flights are special, rare things, that we will reserve for them when they are older, when they are adults and we have made sure the world is safe again.

22 September 2016

Is it in the spirit of the Paris Agreement to ratify it with more emissions and more creative accounting?

Is the New Zealand Government's plan to ratify the Paris Agreement in 2016 consistent with a two degrees Celsius (2C) carbon budget? Now also posted at Hot Topic

Since the December 2015 Paris Agreement, the British climate scientist Kevin Anderson has given a couple of talks with the title Beyond Dangerous Climate Change: Does Paris Lock-out 2 Degrees?

Anderson's message is that although the Paris Agreement was a diplomatic triumph, it relies on speculative utopian technological fixes (bio-energy carbon capture and storage) in the future in order to reconcile the now extremely limited carbon budgets consistent with the desired 2C (and 1.5C) temperature limits with business-as-usual economics and politics. In other words, the Paris Agreement locks out the 2C target.

Why do I mention that? Because I want to run a 'Kevin Anderson' ruler over the New Zealand Government's recently announced ratification of the Paris Agreement. To conduct a bare assessment of New Zealand's emissions taking account that it is the cumulative emissions that determine warming. I want to ask the question 'does the New Zealand ratification also lock out any policies for emissions reductions consistent with a fair share of a 2 degrees Celsius carbon budget?'

To set the context, I'll set out some of the mechanics of what ratification of the Paris Agreement will require in New Zealand. Then in true Kevin Anderson style there will be a look at projected emissions and some graphs.

As we know, last month, on 17 August 2016, Minister for Climate Change Issues Paula Bennett announced that New Zealand would ratify the Paris Agreement this year.

Bennett's announcement represented a change in position as in April she had told Fairfax's Tracy Watkins that she was not rushing to ratify the agreement in the next couple of months

A cabinet paper from Paula Bennett "Paris Climate Change Agreement - Report back to Cabinet and Approval for Signature" has been on the Ministry for the Environment website since April 2016.

We also know from the Ministry of Foreign Affairs and Trade (MFAT) that ratification of the Paris Agreement will involve:

"..presenting the agreement and a national interest analysis to Parliament for examination by a select committee, after which the select committee tables a report in the House. After this, legislation may be passed and then New Zealand may ratify the Agreement".

The "Paris Agreement National Interest Analysis" was very briefly open for submissions on the New Zealand Parliament website until 2 September 2016.

The Ministry of the Environment has a Paris Agreement webpage. This confirms that once Parliament agrees to ratification (and enacts legislation), the Government will deposit the ‘instrument of ratification’ with the UN Secretary General before the next international UNFCCC climate change meeting in Morocco (COP22) in November 2016.

Therefore, some stepping stones are apparent. There will be a Parliamentary Select Committee considering the National Interest Analysis and submissions. That Parliamentary process has its shadow process, the Ministry for the Environment driven, and therefore more Government-controlled, review of the New Zealand Emissions Trading Scheme. Some amending legislation will probably be presented as the outcome of both processes.

A crucial point will of course be the detail of this amending legislation.

Paula Bennett has stated that the Government has "absolutely no intention of changing our target" (the New Zealand 2030 climate change target), and that the required 'Paris' legislation will be nothing major. Therefore, as she stated to Radio New Zealand, the New Zealand Emissions Trading Scheme will only need to be tweaked to meet the commitments under the Paris Agreement.

So the amendments will be to the Climate Change Response Act 2002 which is the statute that incorporates the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol into New Zealand law. The UNFCCC is included as the first schedule to the act and the Kyoto Protocol is included as the second schedule.

The amendments will probably affect the provisions describing the operation of the New Zealand Emissions Trading Scheme (which has been under review all of 2016). Perhaps the Paris Agreement will be incorporated as a further schedule.

The current highly conditional New Zealand INDC (Intended National Determined Contribution), otherwise known as the 2030 climate change target, will become a NDC National Determined Contribution. Professor Ralph Sims notes that the NDCs "will need to be based largely on domestic mitigation actions" but "they are not legally binding".

Ralph Sims, who was writing back in February, was hopeful that the New Zealand NDC would be strengthened to be more ambitious, given that the sum of the 2015 INDCs "collectively would lead to an untenable 2.7 – 3 degrees Celsius future, rather than restrict global warming below the internationally agreed 2 degrees Celsius above pre-industrial levels" He seemed to have some hope that the then yet-to-be published Royal Society climate mitigation report would contribute to that.

So does that mean the Government will actually do something to reduce domestic emissions? Perhaps toughen up the emissions trading scheme, so that it uses only New Zealand units and has a fixed cap (as in 'cap and trade'), and auctioning units instead of free generous allocation of units to industry? No, of course not!

The National Interest Analysis continues on paragraph 104 on page 30:

"We have assumed that New Zealand will be able to purchase sufficient international emissions reductions in the 2020s".

So instead of domestic emissions reductions, we are betting the farm on the magic of the market, more speculative emissions trading, open access to and availability of international emission units from international carbon markets. However, this is no sure thing. Table 5 on page 15 states (my emphasis):

"The (Paris) Agreement provides for a centralised market mechanism and also allows other approaches to be developed by Parties. When and how the centralised market mechanism will be operationalised is unclear, and it may not provide a timely and sufficient supply of emission reductions to be economically practical for New Zealand’s use.".

So no pressure, New Zealand! The analysis then lists the many steps/obstacles on and in the way of New Zealand having access to functioning international carbon markets.

"This means that New Zealand will likely need to build future international markets from the bottom up in cooperation with other willing participants. New Zealand must: find willing trading partners, develop standards (including working with others) to ensure international carbon markets can function effectively (eg, on environmental integrity and unit registries), ensure that its trading activities are consistent with any future accounting requirements".

Paragraph 64 on page 19 of the Paris Agreement National Interest Analysis then states:

"New Zealand’s first nationally determined contribution (i.e. the 2030 target) was developed on the basis that New Zealand will achieve the 2030 target through a combination of domestic emission reductions, forestry growth and participation in international carbon markets."

Where have we heard that before? Back when I looked at the creative accounting for the 2020 emissions reduction target.

Surely, if the Government says it intends to adopt a mix of policies, one of which is domestic emission reductions, then some domestic emission reductions will actually happen?

Well perhaps we could look for the reductions in domestic emissions in the Ministry for the Environment's projections of future emissions "with measures" and "without measures" out to 2030. These are in the report New Zealand’s Second Biennial Report under the United Nations Framework Convention on Climate Change released in December 2015. This is the report where the only substantive differences between the with and without energy sector projections were the closure of the Huntly Thermal Power Station which then got reversed. Thus cancelling the projected decline.

At the time of their release in late December 2015, Radio New Zealand reported the complete inconsistency with the freshly-signed Paris Agreement; Emissions set to far outstrip Paris target. And they quoted an expert.

"Suzi Kerr, a senior fellow at economic research institute Motu, said the projections were completely incompatible with the target New Zealand took to the Paris climate change talks"

Here is a chart of these incompatible projected emissions from 2013 to 2030 by sector. The emissions for all sectors are all expected to increase. For the land-use, land-use change and forests (LULUCF) sector, the net carbon absorbed (or sequestered) is displayed as negative emissions and is projected to decline.

Here is another chart of the projected gross emissions (without LULUCF) and the LULUCF carbon sequestration (shown as negative emissions). The LULUCF 'credits' are subtracted from the gross emissions to get net emissions (the red line and dots) which is the real measure of what gets into the atmosphere. Note that the forestry sequestration is declining towards zero through the 2020s, but is still a net 'sink' of emissions.

However, wasn't there meant to be a 'wall of wood' in the 2020s? Of wholescale harvesting or land-use change of the 1990s pine forests that would tip the net carbon sequestration from the forests into being a net source of deforestation emissions in the 2020s.

Paul Young of the Morgan Foundation has looked at the issue and has concluded that the Government is pushing to change the rules used for accounting for forest carbon.

"They intend to switch to an 'averaging' approach, which will completely remove the planting and harvest cycle once a plantation forest reaches maturity. This change actually seems sensible; the problem is that we are changing the rules halfway through the game, in a way that directly favours us. If we had used the proposed rules from the beginning, New Zealand would receive far fewer forestry credits up to 2020"

We can look at this issue by comparing the current (December 2015) projections for the forests/LULUCF sector with the previous projections that were in the 2013 Sixth National Communication.

It seems very obvious that the Ministry for the Environment have used a very different definition of sequestered forest carbon in 2015 from the definition used in 2013. By my calculation they have found an extra 248 million tonnes of carbon in the decade from 2020 to 2030. That change in accounting treatment has changed the 'sign' of the signal. A decade of net deforestation has changed into a decade of net storage. That is inspite of the fact that the wall of wood of harvesting is still expected in the 2020s.

Paul Young is also still concerned the the Government has not ruled out using the surplus emissions units to comply with the 2030 target. Its not mentioned in either the Cabinet paper or the National Interest Analysis, so I asked Minister Bennett's office that question and I am waiting for a response.

Time for a conclusion. Is the New Zealand ratification of the Paris Agreement going to help or hinder the agreement's ambitious goals?

The ratification reveals that New Zealand will be doing what it's always done under the UNFCCC. New Zealand's greenhouse gas emissions are expected to rise and our policy response is more creative accounting and forest fudging. Our speculative utopian techno-fix is emissions trading. The New Zealand Government simply has no policies for reducing domestic emissions, let alone in a way consistent with a fair share of a 2 degrees Celsius carbon budget.

11 September 2016

The Ministry for the Environment's disavowed orphan carbon budget

Did you know that the Ministry for the Environment prepared a 'two degrees' carbon budget in 2014?

The relevant report "Potential long-term pathways to a low carbon economy for New Zealand", Wellington, Ministry for the Environment, August 2014, is not available from the Ministry's web page. However, I requested it from the Ministry via the 'For Your Information' website.

Incredibly, Idiot Savant had a blog post about it up at No Right Turn on Friday titled Climate change: No path to lower emissions under National before I had even updated the status of my Official Information Act request on FYI.

The paper explicitly sets out to explore a New Zealand carbon dioxide budget consistent with limiting eventual global warming to two degrees Celsius, using the contraction and convergence method.

Presumably because of that aim, the paper appears to have been completely disavowed by the Ministry for the Environment. The cover letter replying to my request at FYI states that the report is neither formal advice to the Government nor is it Ministry policy. The report has a header stating that it is 'sensitive' and 'Not Government or Ministry policy'. There is an italicised inserted 'Note' saying that Treasury does not agree that contraction and convergence is an appropriate measure of a 'fair share'.

The guts of the report are three carbon budgets (a 10th percentile, a median and a 90th percentile) based on applying contraction and convergence to one of the IPCC two degrees-consistent carbon budgets. Oddly, the working calculations and the actual budget amounts are omitted. I guess I can just make another request for them. The budgets are only presented in this graph.

28 August 2016

Moro bars and triple dips Geoff Simmons fact checks Paula Bennett's claim that the surplus units are clean

Geoff Simmons tells us a good story about dodgy uncle Trev, fake bank notes and real moro bars while he fact-checks Paula Bennett on the integrity of the surplus emission units. It's a real triple-dip!

The Morgan Foundation's Geoff Simmons has done a whiteboard Friday video on Minister for Climate Change Issues Paula Bennett's claim that the surplus emission units are not tainted by the 97 million fake Russian and Ukrainian emission reduction units that the Climate Cheats report of April 2016 showed had been handed to the Government under the NZ emissions trading scheme.

Geoff explains the issue very well and has the numbers right. More than that, I think Geoff should get the Joe Romm language intelligence award for using a great metaphor for New Zealand's use of the 'hot air' Ukrainian and Russian emission reduction units.

Dodgy uncle Trev's fake twenty dollar note.

Your dodgy uncle Trev gives you a twenty dollar note. It looks like a ordinary twenty dollar note, but knowing uncle Trev, you have your doubts. Anyway, you use the dodgy note to buy a moro bar at a dairy and get back seventeen dollars change in valid notes. The dairy owner now has a fake twenty dollar note in the till. You have eaten the real moro bar. You still have seventeen real dollars. You could buy more moro bars.

Obviously the fake twenty dollar note represents the emission reduction units. Replace uncle Trev with the Ukrainian and Russian joint implementation projects and the carbon brokers.

The purchase of the moro bar stands in for the emitters surrendering the 'el-cheapo' emission reduction units to the Government under the emissions trading scheme. And also for the Government then using the 'el-cheapo' emission reduction units that it holds to comply the Kyoto Protocol 2008 to 2012 target.

The seventeen real dollars (and the moro bar) are the legally valid 'surplus' assigned amount units that the Government is now 'using' to meet both the 2020 and (some of) the 2030 emissions reduction targets. The Government has, in effect, used the post Kyoto unit surrender mechanism to 'launder' the dubious emission reduction units from the emissions trading scheme into valid surplus assigned amount units held in Government accounts.

Arguably, Bennett's intentions are ethically worse than the fake-note-moro-bar metaphor. Bennett is going for a "triple dip" of using surplus/dodgy units to 'comply' with three different emissions targets in spite of the upward trend in New Zealand's GHG emissions.

Dip 1: the Kyoto Protocol 2008 - 2012 target

Dip 2: the UNFCCC 'minus 5%' 2013 - 2020 target

Dip 3: the Paris Agreement 2020 - 2030 target.

You can verify for yourself that the Government intends to do some creative accounting with the surplus units so that they allow greenhouse gas emissions to increase out to 2020 while the Government can claim that New Zealand is 'meeting' it's "minus 5%" emission reduction target. Just go to Latest update on New Zealand's 2020 net position on the Ministry for the Environment's website.

That webpage states explicitly that New Zealand will have 85.7 million emission units surplus to use out to 2030 after using some to meet the 2020 target. Here is a screenshot.

Further down the page is this barchart that shows that New Zealand's gross emissions from 2013 to 2020 are expected to be 655.9 million tonnes and that the baseline is 509.8 million tonnes. I have somewhat crudely marked the increase in emissions on the left hand bar.

I fully agree with Geoff Simmon's conclusion. It's simply unethical to make a monetary gain from fake currency. Just as you should wipe the moro bar crumbs off your shirt and give the dairy owner back the seventeen dollars (or a real twenty) in place of the fake note, Paula Bennett and the Government should cancel the surplus units instead of explicitly using them to meet targets while emission volumes increase. And we should never ever let ourselves be in the position of having an uncapped internationally linked emissions trading scheme that permits creative accounting as our main climate change policy.

15 August 2016

Morgan Foundation's Climate Cheats II: Who’s the Real Cheat Here? The Dozen Dirty - Now thats a title!

Geoff Simmons and the Morgan Foundation have done it again! They have just released a sequel to 'Climate Cheats', the fantastically-named 'Who’s the Real Cheat Here? Climate Cheats II: The Dozen Dirty Businesses'. Simon Johnson breathlessly reviews Climate Cheats II and concludes that while it's about time we had some transparency over Government and corporate shenanigans with emissions trading, we mustn't forget that these are symptoms of the root problem - the uncapped design of the New Zealand emissions trading scheme.

Shock Newsflash Horror! The Morgan Foundation and Geoff "Wild-Shirt" Simmons have done it again! They have just released another tell-all critique of corporate emissions trading shenanigans! A sequel in the franchise they started in April 2016 with the report Climate Cheats. As we know, 'Cheats I' outlined this sad course of events:

  • the 'flood' of low-cost and low-integrity Russian and Ukrainian emissions reduction units into the NZ emission unit market
  • which then crashed the domestic emission unit price
  • which allowed NZ emitters to meet emissions trading obligations for next to nothing
  • which allowed the Government to own surplus (but dodgy) units
  • which meant Paula Bennett could claim 'form over substance' compliance with climate charge targets out to 2020
  • not withstanding the real increases in both gross and net NZ emissions of greenhouse gases.

Weighing in at a thankfully concise 16 pages, the wonderfully named 'Who’s the Real Cheat Here? Climate Cheats II: The Dozen Dirty Businesses' starts with a simple question. Which companies had the most dodgy Russian and Ukrainian emission units? Well, here they are.

Simmons and co then note that Minister Bennett has refused requests to cancel the surplus dodgy units the Government holds, giving the excuse she is 'seeking advice' (That would seem to be a perpetually applicable excuse!). So they ask 'who owned and used dodgy emission reduction units?' The dirty dozen corporates, of course.

The report then discusses three types of liability (physical, liability and transition) that may fall on companies who used the emission reduction units. To paraphrase, Simmons is thinking 'did they really think this would never come back and bite them?' And he is making the point that if Government is failing to act ethically, then why don't we shine a spotlight on our corporate citizens and ask them to shoulder some of the responsibility for the dodgy unit fiasco?

Simmons assigns highest culpability to New Zealand Steel and Fonterra. Because they are emitters who received generous free allocations of NZ units but who also owned dodgy emission reduction units. Referencing a blogger (meaning me!), the report notes New Zealand Steel booked $4.4 million Australian dollars of profit from emissions trading that is probably from arbitrage trading of their free NZ units while also owning dodgy units.

Five forestry companies are on the dozen list. Some sympathy is due to some of them as the unit price crash devalued their allocations of units. But none is due to any foresters who carried out 'forest re-registration arbitrage' in the ETS. This was exiting and re-entering the same forest in and out of the ETS several times. For each ETS 'exit', the forester would 'square-up' the refund of carbon liabilities with emission reduction units costing several cents each. For each 're-entry' to the ETS, the forester would be given an allocation of free NZ emissions units worth a few dollars each. The result being instant no-effort windfall profits. The Government took far too long to clamp down on this practice.

Finally, energy companies get their turn in the spotlight. BP, Chevron, Z Energy, Contact Energy and Genesis Energy all owned and used some dodgy international units. Did these companies price their products to NZ customers on the basis of the higher NZ unit prices or the lower dodgy unit price? The Morgan Foundation approached the energy companies for comment which is in an appendix. All give worthy statements saying they followed the rules and of course they put customers first. However, Mobil shows up the fine words of the others. Mobil never owned any dodgy international units and managed to supply fuel just as competitively as the others.

Climate Cheats II concludes by suggesting that the companies who owned dodgy international units and lowered their costs (as well as those who made windfall profits) have two options to put things right.

  1. They could voluntarily cancel NZ units to match the dodgy units used
  2. They could alternatively pressure Paula Bennett to cancel the surplus units the Government holds.

With NZ emission unit prices now hovering between $17 and $18 per tonne, the latter option will hurt much less than the former.

In summary, it's hard not to like a Morgan Foundation report that references me! But leaving that bias/good taste aside, Climate Cheats II is a concise readable summary of the abject state of New Zealand's emissions targets and trading policies and practices. As Kevin Anderson would say, we need to see clearly where our rose-tinted spectacles have brought us. Climate Cheats II mostly does that.

However, if anything, the report, by focusing on the top dozen owners of the dodgy international units, underplays the pervasiveness of the ownership and use of those international units. Most entities with emissions trading accounts owned some dodgy units. In 2013, more than 400 entities (out of 496 account holders) owned some share of the almost 35 million emission reduction units in private hands. You can check this with this Google sheet of Kyoto Units obtained from the Emission Unit Register at the EPA.

Finally, I have one concern which is perhaps more about how 'Climate Cheats II' will be received rather than what message it has. It seemed to me that the media response to initial splash of 'Climate Cheats I' (they loved the emotive framing - 'fraud!' - 'cheating!') really missed the fundamental point that I think both reports support, and that other assessments of the ETS support, that an emissions trading scheme that has no cap on emissions, that earns no revenue and that isn't economy-wide, is an excuse and rationalisation for doing nothing and not an effective mitigation policy at all.