19 April 2015

Is it ‘doing our fair share’ to use creative accounting to meet the 2020 climate change target?

Simon Johnson (aka MrFebruary) looks at how the National Government intends to use creative carbon accounting to ensure that New Zealand meets it’s 2020 climate change target (a five percent reduction) in spite of a projected trend of increasing emissions of greenhouse gases (GHG) to 2020.

On 10 April 2015, when he was releasing the latest inventory of greenhouse gases, the Minister for Climate Change Issues Tim Groser made this very confident statement about the NZ 2020 climate change target; “We’re well on track to meet our 2020 target"

That target is to reduce greenhouse gas emissions to five per cent below 1990 levels by 2020.

When this was announced in 2013 the ambition (-5%) of the target was criticised as useless, pathetic and inadequate.

The five percent reduction stands in stark contrast to the Ministry for the Environments projections of increasing emissions out to 2020. The Ministry estimates that the increase in gross (total) emissions in 2020 will be 29% above the 1990 baseline (from 60 to 77 million tonnes) and the increase in net emissions (gross less any increase in the stock of carbon stored in forests) to 2020 will be 130% (from 33 to 75 million tonnes). So why is Tim Groser so confident that the target will be achieved?

Simon Terry of the Sustainability Council has commented on the ‘kicking the can down the road’ features of the Government’s climate change policies: the mismatch between the emissions target and the predicted emissions, the absence of a credible plan or carbon budget approach and the deferring of liabilities into the future.

Taking Simon Terry’s work as a starting point, I am going to look at how the Government intends to apply the accounting rules for carbon credits to achieve the 2020 target in spite of the likely predicted increase in gross and net greenhouse gas emissions.

So how is NZ going to reduce emissions by five percent by 2020?

In December 2014, at the Lima, Peru, climate change conference, NZ climate ambassador Jo Tyndall was asked that specific question. Her answer was that NZ had four ways of achieving the 2020 target;

  1. through a combination of domestic emissions reductions,
  2. removal of carbon dioxide by forests,
  3. participation in international carbon markets and,
  4. recognising surplus achieved during the first commitment period of the Kyoto Protocol.

Domestic emissions reductions are unlikely. In 2013, Tim Groser told the Herald that his "strong advice" from officials was that the 2020 target could be met without any changes to settings of the NZ emissions trading scheme (ETS). The relevant Cabinet Paper for the 2020 target also states that the 2020 target can be met without changing policies or ETS costs. In other words, the NZ ETS will remain in its current induced coma, and stay ineffective in reducing domestic emissions.

NZ can’t meet the target by buying carbon credits from international carbon markets as access was blocked at the Doha meeting because we didn’t sign up to a formal Kyoto Protocol second commitment period target.

That leaves two ways of meeting the 2020 target; removal of carbon dioxide by forests, and recognising surplus units from the first commitment period of the Kyoto Protocol. I will look at the removal of carbon dioxide by forests next.

Forest carbon and Kyoto gross-net carbon accounting

By saying “removal of carbon dioxide by forests”, politicians and officials actually mean that carbon credits will be accounted for using the Kyoto Protocol’s gross-net forest carbon accounting rule. This sounds innocuous, if a bit sleep-inducing. It is in fact a method of creative accounting that NZ has already relied on to meet the 2008-2012 Kyoto first commitment period target.

The 'baseline’, 1990 emissions, is “gross” - the sum of all emissions without subtracting any “credit” for carbon absorbed into sinks such as growing forests and land use changes. The target (2008 to 2012) emissions are “net", as credits for carbon absorbed in growing forests are recognised and are subtracted from the gross emissions. This is called gross-net accounting. This makes the comparison between baseline and target inconsistent - it is not an “apples with apples” comparison.

I have blogged on this before but Professor Martin Manning, an IPCC author and formerly of the Climate Change Research Institute at Victoria University of Wellington, explained it better in 2012.

..achieving the Kyoto Protocol target can be quite misleading because it compares net emissions over the first commitment period, 2008 – 2012, with the gross emissions in 1990. If one compares the net emissions in 2012 with those for 1990, then the increase in NZ has actually been more than 100%.

The National Government intends to repeat this gross net accounting for the 2013 to 2020 target. As long as forest growth exceeds deforestation, this will allow both net and gross emissions to increase up to the quantity of carbon absorbed in forests that was ignored in the 1990 baseline.

The Climate Action Tracker website thinks the credit for carbon absorbed in forests could be up to 25 million tonnes CO2e a year and the ‘recognition’ (under Kyoto rules) of all the units would allow NZ gross emissions to increase up to 35% above the 1990 baseline.

Surplus Kyoto units from first Commitment Period 2008 - 2012

Jo Tyndall’s final method of achieving the 2020 target is to recognise surplus units from the first commitment period of the Kyoto Protocol. According to the latest Ministry for the Environment’s net position statement for the Kyoto Protocol, NZ will finish the first commitment period (2008-2012) with a surplus of 90.8 million units.

Even though NZ has no formal 2013-2020 Kyoto ‘commitment’, NZ intends to ‘carry over’ millions of these surplus Kyoto units to the 2013-2020 period in accordance with the Kyoto Protocol rules.

The carry-over rules are of course complicated, but I calculate that NZ will be able to ‘carry over’ almost all of them - 86 million units of the various types of units (see final paragraph - Appendix ‘Carry-over’ of Kyoto first period units).

What’s wrong with having a surplus of units? An effective emissions trading scheme with a real cap would never have surplus units. Units would be scarce and realistically priced. A surplus of units is of itself evidence of a failed implementation of cap and trade frameworks such as Kyoto and the EU ETS.

A surplus of units is one consequence of emissions trading with no cap, unlimited access to international carbon markets and over-allocation of units to industry and a rock-bottom unit price. Which is exactly what we have had with the NZ ETS.

We need to remind ourselves why NZ has a surplus of units for the Kyoto Protocol first period. Although net and gross emissions increased, NZ gained surplus units by using the gross-net forest carbon accounting rule and allowing the nearly unlimited import of low-priced international units with dubious integrity which were surrendered by ETS participants to match their emissions.

According to Climate Analytics, internationally, the Kyoto first commitment period ended with 14 billion surplus units; enough to allow all the signatory countries to “comply” with their 2020 targets without restricting business as usual emissions growth.

And this is exactly what the Government intends to do.

Each Kyoto unit carried forward will be counted towards NZ’s 2020 target and will allow an additional tonne of domestic GHG emissions above the 1990 baseline.

Similarly, each carbon credit recognised for carbon absorbed in forests between 2013 and 20120 will be counted towards NZ’s 2020 target and will allow an additional tonne of domestic GHG emissions above the 1990 baseline.

Conclusion

Our politicians and bureaucrats could have focused on policies to reduce domestic emissions to meet the 2020 target. Achieving the 2020 target won’t be an outcome of policies to reduce emissions. Like fixing the emissions trading system. It will be an outcome of the accounting rules chosen for the carbon credits the Government can hold. That’s called creative accounting.

Appendix “Carry-over” of Kyoto first period units

The Kyoto Protocol has “carry-over” rules for unused units at the end of the 2008 - 2012 first commitment period. Some surplus units may be 'carried over’ to the second commitment period and then be used to comply with a country’s official commitment. Although NZ has not taken up a Kyoto second period commitment, NZ none the less intends to mimic the application of Kyoto rules designed to carry over surplus units from CP1 to CP2.

NZ will have a surplus of 91million units after transferring 378 million units to a cancellation account for the 378 million tonnes of emissions between 2008 and 2012.

There are limits on which and how many units can be “carried over”. All assigned amount units (AAUs) can be carried over; forest removal units (RMUs) cannot be carried over, carry-over of Certified Emission Reduction units(CERS) and Emission Reduction Units(ERUs) are limited to 2.5% of NZ’s initial assigned amount or 7.7 million each. See the UNFCCC Reference Manual

The Government will probably prefer to retire units that cannot be carried over in order to maximise the number it may carry forward.

On that basis, all 72 million RMUs will be cancelled, 37.3 millions CERs and 37.3 million ERUs will be cancelled, leaving 7.7 million each of CERs and ERUs carried forward. Then 231.4 AAUs need to be cancelled to make up to 378 million units.

The total carried over will be 86 million units composed of 7.7 million CERs, 7.7 million ERUs and 70.6 AAUs.

16 March 2015

Does the NZ Emissions Trading Scheme affect retail petrol prices?

Of course, my title asks the wrong question. The more policy relevant question is "How much does the NZ Emissions Trading Scheme affect retail petrol prices?

The Ministry of Business Innovation & Employment has a page on weekly oil price monitoring and some week by week data on petrol prices. I made a R chart from that data.
Click on the image for a decent sized graphic.

The NZETS component of the NZ retail price of petrol pretty much just hugs the zero point on the vertical axis.

A note lower down the web page states "The costs associated with the ETS are provided by Hale & Twomey based on the prevailing carbon price from the New Zealand Carbon Market". So we need to note that this data is an estimate.

Over the four and a half years of the NZETS, the estimated NZETS component has ranged from a maximum of 2.4 cents per litre from late 2010 to June 2011 to a minimum of half a cent from July 2013 to December 2014.

As far back as 2007, the Labour Government predicted that petrol prices may rise up to 4 cents a litre possibly based on carbon price of $25 per tonne. From memory, the early 2011 price for a NZ unit was about $21 a tonne.

Wikimedia Commons has the R script I wrote for the chart (except it's a .svg file, not a .png).

10 September 2014

Labour's climate change policy - Something borrowed something blue something old not much new

As I was saying in my previous post Labour do have a seven page climate change policy that is at first look pretty comprehensive.

Labour will

  • begin the transition to a low carbon clean energy economy
  • set ambitious greenhouse gas reduction targets and plans to achieve them
  • set up an independent climate change commission
  • will implement a comprehensive risk assessment framework in order to develop a comprehensive climate change response plan
  • establish a carbon budget process
  • achieve 90% renewable electricity generation target by 2025
  • reduce per capita domestic transport emissions 50% by 2040 from a base year of 2007
  • ensure that there is no retail carbon price gouging of consumers
  • manage the transition to ensure social justice particularly with respect to low income families
  • restore the carbon price to the NZETS (NZ Emissions Trading Scheme)
  • require emitters to cover at least half their emissions with NZ issued Units (not the cheap international 'hot air' units).
  • bring agriculture into the NZETS from 1 January 2016
  • give agriculture a free allocation of NZ units equal to 90% of 2007 production

Something borrowed

This really does appear to be a great list of policies. Interestingly, some of these policies have been borrowed from a variety of people.

The carbon budget idea is borrowed from the Sustainability Council back in 2011 and in 2012 and from Generation Zero's "Big Ask" Report of July 2014.

The independent climate commission idea is also borrowed from the Sustainability Council in 2012 and from Generation Zero's "Big Ask" Report of July 2014.

The comprehensive risk assessment framework and climate change response plan is borrowed from the Wise Group.

The policy requiring ETS emitters to use at least 50% NZ units is borrowed from the long-suffering carbon forest industry who in 2012 asked for limits on the amount of ultra cheap 'hot air' imported units that emitters can use to meet their ETS obligations.

Labour's policy also has a swipe at National for ignoring the foresters request to do something about the catastrophic decline in the NZ carbon price.

"Also, National sat on its hands as an influx of cheap, imported, international emission units collapsed the price of NZUs.

So, Labour's fix for the price collapse is to;

"..restrict international units by requiring at least 50% of all units surrendered to meet obligations under the ETS to be NZUs (on an ongoing basis).

The problem with this measure is that it won't work. It won't stop the cheap dumpster diver international units holding down the NZ unit price. If its compulsory for 50% of units surrendered to be NZ units, then thats the same as permitting 50% to be cheap international units. So the international units will still drag down the NZ unit price.

I have argued in a previous post that allowing use of international units was a fundamental flaw in the design of the NZETS (along with the lack of a cap). Previous partial restrictions on international units have not had any impact on prices.

The ironic thing about the Labour policy swipe at National "sitting on its hands", given that their 50% restriction fix won't work, is that that the unlimited importing of international units into the NZETS was hardwired into the original design of the NZETS in the Labour government's 2007 Framework for a New Zealand Emissions Trading Scheme document. In other words, it was originally Labour's idea that the NZETS be so open to international units that they set the NZ carbon price.

The only way to set a "real" carbon price in the NZETS is to ban the use of all international units and manage the supply of NZ units and assigned amount units so that the carbon price is sufficient to incentivise changes in behaviour. If Labour won't do that, then their position is closer to Tim Groser's view that the international price should set the NZ price than to the views of the environmental NGOs and foresters who want an effective carbon price.

Something old

The rest of Labour's policy to "fix" the emissions trading scheme is to largely return it to the 2008 version Labour originally enacted.

Labour's "something old" policies on the ETS are to:

  • strengthen the ETS by bringing agriculture in on 1 January 2016
  • base the amount of free emissions units allocated to agriculture on 90 per cent of its 2005 emissions
  • continue with free allocations for carbon-intensive industries exposed to export competition, such as steel and aluminium.

This means that Labour will continue gifting excessive amounts of carbon credits to major polluters like Tiwai Point smelter owner Rio Tinto Alcan NZ and Norske Skog Tasman. The base for allocation will change from past production intensity to historic 2005 production levels - which may end up being pre-Global Financial Crisis peaks.

Forestry lecturer Euan Mason points out that once agriculture is in the ETS with 90% free allocation, they too will be able to take advantage of the price differences in the ETS, just like the carbon intensive industries have. They will be able to surrender half of their free NZ units back to the government, with the other half of their obligation satisfied by buying 11c international units. They can then sell their remaining NZ units for say $4.00 each. They then pocket the arbitrage difference between the prices of the units.

It's important to remember that Labour's original NZETS wasn't particularly well designed or effective. As Jeanette Fitzsimons said in the documentary "Hot Air", the Greens only unwillingly voted for it as it was "the only game in town", a first step and better than nothing.

In 2009, economist Geoff Bertram gave one of those Victoria University Institute of Policy Studies talks about the Labour and National emissions trading schemes. After about 30 minutes of carbon supply and demand curves, some one asked Geoff to sum up in plain language. Geoff Bertram's reply is the only part of the lecture I can remember to the letter. He explained that both schemes were patchwork quilts of exemptions and loopholes and delays. Both schemes lacked caps on emissions. Both schemes introduced unnecessary NZ units whose pricing would be at the whim of the international markets. He concluded:

"Well the Labour ETS is a dog, and the National ETS is a complete dog"

Something blue

Are you surprised that I am saying that Labour's climate change policy includes "something blue', as in from the National Party? I am surprised as well. Any climate change policy in common with National would seem almost to be logically impossible given that National's list of policies does not even include a climate change policy.

This statement from the the third page is what I mean.

"Labour is committed to achieving a lasting consensus among New Zealand’s main political parties on an ETS. We have consistently tried to work with the National Party to reach common ground. But we aren’t prepared to compromise our fundamental principles to do so.

Labour also gave a similar answer to Forest and Bird in their "Polling the Pollies 2014" report. Forest and Bird asked why Labour wasn't supporting the Green's 'carbon tax cut' policy.

"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."

Reading these statements removes any doubts I may have had about being too hard on Labour's climate change policy. Ultimately Labour are just borrowing the headline ideas of the NGOs to make their policy appear effective. The truth is that in terms of how they intend to price carbon via an ETS, they would rather be "something blue", closer to National than to the Greens. This is just raw political expedience masquerading as high principle. A compromise being justified on the grounds we can't let the perfect be the enemy of the good.

In an enigmatically named post I wrote three years ago for the 2011 election, The snake swallows the elephant in the room and then flogs a dead horse, I suggested that climate change politics and particularly the NZETS could potentially descend into a politically institutionalised ritual of "flogging the dead horse".

My fears appear to have been realised. 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 underperforming' and the narrative’ solution (keep flogging the horse). But beneath the impenetratable detail and complexity of the arguments about fixing the NZETS, it will remain ineffective.

In summary, it is not enough for Labour's climate change policy to borrow some good policies from the NGO's when the fundamental problems of the NZETS are not addressed. It needs a cap on emissions. The number of units or carbon credits or permits must be limited to the cap. It needs to exclude all international units. There should be no free allocation of units. It should apply to all sectors. All the ducks must be in a row. All the cogs must turn in the same direction. Returning the NZETS settings to the 2008 design doesn't achieve this. Seeking a 'flog the dead horse' consensus with National also doesn't achieve this. Isn't climate change important enough to warrant policies better than something old, something blue, something borrowed and not much new?

06 September 2014

Labour's climate change and energy policies - labelling oil and gas developments as 'transitional' does not make them carbon neutral

The New Zealand Labour Party announced their climate change policy on 24 August; the Sunday before last Sunday.

At first glance, it sounds refreshingly like a policy that takes anthropogenic global warming seriously.

A Labour Government will put in place a comprehensive climate change strategy focusing on both mitigation and adaptation, establish an independent Climate Commission and implement carbon budgeting, says Labour Climate Change spokesperson Moana Mackey.
"This is about future-proofing our economy. Making the transition to a low-carbon clean technology economy is not a 'nice to have' as the current Government would have us believe. It is a transition we must make and the sooner we begin, the easier that transition will be."

How did the media respond? Well they ignored it. I haven't seen any reporting of Labour's climate change policy in the Herald, or Stuff/Fairfax, or Radio NZ or TV1 or TV3. I only stumbled onto it via Scoop a week after the release.

Like the 2011 election, the issue of climate change has been notable for it's absense (the snake swallowing the elephant in the room).

However, some of climate change focused NGOs responded positively to Labour's policy. Simon Terry at the Sustainability Council said a carbon budget was the single most important reform. Generation Zero and the Iwi Leaders Group and forest owners welcomed the policy. The mainstream media of course also ignored these NGO views.

However, before I get into the detail of Labour's climate change policy (a topic for another post), it's important to ask "are the dots connected with Labour's energy policy?" Unfortunately, the dots are not connected and the energy policy is 180 degrees contrary to the concept of a carbon budget.

Let's look first at the sixth paragraph of Labour's energy policy.

"It is internationally agreed that the average global temperature increase must be kept below 2 degrees Celsius if the worst effects of climate change are to be avoided. That means two-thirds of currently identified fossil fuel reserves cannot be consumed before 2050, in the absence of widely-deployed (and still unproven) carbon capture and storage technology."

This is fantastic, isn't it? Labour get it! They have read up on the Meinhausen et al Two Degrees Nature paper, the Carbon Tracker Unburnable Carbon Report, Bill McKibbin's Do the Math and the IPCC's Sixth Assessment Report.

They understand that the carbon in existing fossil fuel reserves will when consumed produce significantly more carbon dioxide than the quantity compatible with keeping average global warming to two degrees.

If only that were so. The next sentence tells us that Labour don't get climate change.

"This does not mean that New Zealand should stop developing its own petroleum resources in a world still heavily dependent on oil. But this will be in the context of transitioning to renewable energy, which New Zealand and the rest of the world needs rapidly to do."

This is inconsistent and nonsense. This is pure spin. Someone else somewhere else must keep their fossil fuel reserves in the ground to avoid dangerous climate change. But not New Zealand. Under a Labour-led government, the private sector will develop New Zealand's oil and gas reserves and invest in oil and gas infrastructure, with say a 40 or 50 year life span, over which they will expect to get a market return. Thats most of the years until 2100. The very time frame that the IPCC low emissions pathways say we need to reduce greenhouse gas emissions by 70%.

What is Labour thinking here? Where does Labour think the carbon dioxide from NZ's new hydrocarbon reserves will end up? Is Labour saying that only the world hydrocarbon reserves contain carbon and New Zealand's hydrocarbon reserves don't? Or maybe if you label the NZ hydrocarbons as "transition" fuels there are fewer carbon atoms? Again this is nonsense.

I can only guess that Labour, in stating that their policy is in "the context of transitioning to renewable energy", are arguing that oil and gas are now "transition fuels" to renewable energy supplies. Again this is nonsense. Are Labour now agreeing with Nick Smith?

I am not the only person to note the inherent contradiction in Labour's policy. Bryan Walker has already noted that the intellectual hollowness is plain in Labour's policy. Walker said;

"Political parties and governments which support expanded exploration and development of fossil resources either do not understand the severity of the scientific message or are so consumed by the prospects of economic wealth that they are determined not to heed it."

Ditto Forest and Bird's Kevin Hackwell;

"If Labour is taking climate change seriously it would realise that its fossil fuels policy is at odds with the party's overarching policy statements on sustainability and climate change."

Labour really need to be challenged on this. It's as if Labour has set a compass bearing for the destination and then headed off in the exact opposite direction. If there isn't an understanding of the limited carbon budget in both your energy policy and your climate change policy, then it's pretty much a 'fail' before even looking at the detail of the climate change policy.

29 May 2014

The integrity of the NZETS lies somewhere in an unmarked grave

According to Brian Fallow writing in the NZ Herald its a bit too late for Minister for Climate Change Tim Groser to be trying to save the integrity of the NZETS because it lies somewhere in an unmarked grave.

23 May 2014

Bill McKibben - opening up space for change on the scale that physics requires

Bill McKibben has followed up his Maths of global warming with a great new article in Rolling Stone titled  A Call to Arms: An Invitation to Demand Action on Climate Change.

McKibben and 350.org.nz are planning a huge demonstration in New York to coincide with the September meeting of the United Nations.

McKibben on Barack Obama.

Sure, he's imposed new mileage standards for cars, but he's also opened vast swaths of territory to oil drilling and coal mining, which will take us past Saudi Arabia and Russia as the world's biggest petro producer.

McKibben on deniers and delayers.

In a rational world, no one would need to march. In a rational world, policymakers would have heeded scientists when they first sounded the alarm 25 years ago. But in this world, reason, having won the argument, has so far lost the fight. The fossil-fuel industry, by virtue of being perhaps the richest enterprise in human history, has been able to delay effective action, almost to the point where it's too late.

McKibben on the message from the scientists

"What exactly don't you understand about what we've been telling you for a quarter-century?"

26 March 2014

James Hansen at the US Building Solutions Conference

On 29 January 2014, James Hansen gave the John H. Chafee Memorial Lecture at the Building Climate Solutions Conference. His talk title was "Minimizing Irreversible Impacts of Human-Made Climate Change". 


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