25 April 2016

Minister for Climate Change Paula Bennett denies climate cheating with dodgy Ukrainian carbon credits

In which Jack Tame conducts the toughest interview ever with a New Zealand Minister for Climate Change and Paula Bennett ends up denying that the Government cheated on it's climate change commitments.

Minister for Climate Change Paula Bennett has just been in New York signing the UN Paris Agreement. While in New York, Bennett was interviewed by TV One USA correspondent and general nice guy Jack Tame for Television NZ's Q + A news show. And we can read a full transcript.

I wonder if Paula Bennett thought she would get a soft jokey interview with that nice young man Jack Tame. She certainly didn't. Tame takes the interview 110% seriously. He does not smile. He delivers his questions and his interruptions through a taught stone-face. And his questions are good questions.

We perhaps need to remember about a year ago, Jack Tame stood in for Mike Hoskins on 'Mike's Minute' and gave us a month of refreshingly different short pieces to camera. In that month, Jack Tame talked about climate change. And he concluded with a minute titled climate tipping points. So Tame takes climate change and climate change policy seriously.

Tame gives Bennett a couple of minutes to gush enthusiastically about the signing of the Paris Agreement. Then he cuts straight to the Morgan Foundation's Climate Cheats report which alleges that the New Zealand Government was complicit in allowing dubious international carbon credits (Russian and Ukrainian and emission reduction units or 'ERUs') into the New Zealand Emissions Trading Scheme.

JACK

"I want to pivot quickly to the ETS. As you know, a report by the Morgan Foundation has concluded New Zealand, in their words, effectively 'cheated' its way to commitments made under Kyoto by trading in international carbon credits that were of dubious integrity at best. Do you accept that term? Cheating?"

PAULA

"I accept, actually, that there were dubious carbon credits last year when the Stockholm report came out. So, actually, the Morgan report's nothing new. So half of it is kind of right, you know? Yes, there were dubious credits. We found out. We're not using them now. We don't hold any of them. And we definitely won't again. And then, quite frankly, the other half of his report is factually incorrect."

Bennett's answer is mostly spin and I'll come back to that. But what happened next was that Jack Tame peppered her with about a half dozen really pertinent follow-up questions about the New Zealand Government's failure to stop the inflow of dodgy units.

  • "what part of 'Climate Cheats' report is factually incorrect?"
  • "we did continue trading on those credits for a long period when other countries abandoned them"
  • "but the government allowed that trading"
  • "So you don't accept that was cheating?"
  • "it wasn't in the spirit of the commitments made under Kyoto"
  • "but I think the question is how do we make up for that shortfall?"

Bennett eventually tries to 'flip' the questions onto a diversionary track; the undefined way forward with the Paris Agreement. Tame then flips her diversion back on her by implying she is being a hypocrite in grandstanding over the signing of the Paris Agreement when she knows that New Zealand has 124 million surplus emission units in the bank because of the influx of the dodgy Ukrainian units into the emissions trading scheme.

JACK

"But how do you come to New York and say, 'These are our commitments. Yeah, sure, the last time we had commitments, we reached them by purchasing credits of dubious quality when internationally, these things were slagged off.' Now you come here and say, 'Believe us this time. We're not gonna buy credits of dubious quality.'"

Bennett then hides behind a false statistic - that 80% of the units were okay. I have no idea where she gets that number from. And tries, again unsuccessfully, to move the interview on. Tame goes to the ethics of the matter in his next question and focuses on what would be the right thing to do.

JACK

"Would it not be a stronger thing for the government to come to New York and say, 'Yes, we've made a mistake. We're going to rectify this by either making up that shortfall in credits that were of dubious quality by purchasing extra ones, or making greater commitments in the future.' Wouldn't that be in the spirit of the Paris agreement and in the previous commitments under Kyoto?"

Bennett resorts finally to an old trick often used by Nick Smith and Tim Groser. She invokes the old canard that New Zealand is one of the few countries that has an emissions trading scheme! She then changes to some more waffle about what a big job it is. Which seems to be her preferred form of discourse. See for example her first speech as Minister for Climate Change to the National Blue-Greens.

I could keep going. Tame asks if she accepts that doing nothing will lead to 3 or 4 degrees Celsius of global warming. And if she accepts the New Zealand's targets match avoiding that. But you should really watch and read Jack Tame's interview for your self.

So I say "Bloody well done, Jack Tame! That's the best interview a New Zealand journalist has ever given a New Zealand Minister of Climate Change! Keep it up!"


Factcheck Appendix (wonky) on surplus emission units.

Now I will come back to this statement by Bennett.

"I accept, actually, that there were dubious carbon credits last year when the Stockholm report came out. So, actually, the Morgan report's nothing new. So half of it is kind of right, you know? Yes, there were dubious credits. We found out. We're not using them now. We don't hold any of them. And we definitely won't again. And then, quite frankly, the other half of his report is factually incorrect."

"We are not using them. We don't hold any of them" (the dodgy international units)

How many units are we talking about? According to the Kyoto Protocol 'True-Up' Report, of December 2015, New Zealand cancelled 373 million units to comply with the Kyoto Protocol. The numbers and types of units cancelled were: 97 million imported dodgy ERUs, 16 million imported Certified Emission Reduction units ("CERs") , 81 million removal units ("RMUs") and 179 million Assigned Amount Units ("AAUs"). The surplus units kept by the Government, after the cancelling, were 124 million AAUs.

Back in 2014, the Greenhouse Gas Inventory ignored the dodgy imported units completely and showed that New Zealand would comply with the Kyoto Protocol and have a small surplus of only 8 million units (which would be AAUs).

The 97 million dodgy imported ERUs, 16 million imported CERs, and 10 million RMUs ended up in the Government's accounts as emitters imported them and gave them ('surrendered' them) to the Government to meet their NZ emissions trading scheme obligations.

Every unit imported and surrendered enabled the Government's 'Kyoto position' to grow significantly from the 8 million unit surplus as noted in 2014 above, to the December 2015 surplus of 124 million Assigned Amount Units.

The Government had a little flexibility in which units could be kept as a surplus. There was a limit on ERUs, a prohibition on having surplus RMUs and no limits on surplus AAUs. So the Government preferentially cancelled all the ERUs, all the CERs and all the RMUs and kept (as surplus) as many AAUs as possible.

So every dodgy Ukrainian ERU that entered the NZ emissions trading scheme allowed the New Zealand Government to have an extra 'credible' AAU in the number of surplus units carried forward. To use an analogy, the Kyoto cancellation process allowed the Government to 'launder' the dodgy international units into a 'credible' currency, the Assigned Amount Units.

The Ministry for the Environment's 2020 position report shows that the Government intends to use 123.7 million surplus units from Kyoto's Commitment Period 1 to plug the gap as expected emissions will be above the 2020 emission target.

So back to Bennett's statement on the dodgy units "we are not holding them". That is spin and semantics. The Government is holding an extra large surplus of 'credible' AAUs ONLY because millions of ERUs were cancelled.

And the statement "We are not using them". That is double spin. Firstly, the Government used the dodgy units to comply with the Kyoto Protocol. And secondly, the Government is using the surplus of AAUs, which it has in such large numbers only because of the dodgy units, to claim compliance with the 2020 target even while emissions increase. That is just grossly unethical.

21 April 2016

Did New Zealand Steel make windfall arbitrage profits from the New Zealand emissions trading scheme?

The Godfather In the wake of the Morgan Foundations hard-hitting report "Climate Cheats", Simon Johnson (aka Mr February) asks if New Zealand Steel received millions of emission units for free under the New Zealand Emissions Trading Scheme industrial allocation provisions and yet still bought millions of the dubious international Russian units (ERUs) to make windfall arbitrage profits.

The Morgan Foundation's latest report "Climate Cheats" has been sizzling across the various media in the last four days.

The language of the report is refreshingly non-neutral and unashamedly emotive. It is in equal parts compelling and condemning.

Carbon credit scheme a farce, reported the Herald. Climate change cheating, said Radio New Zealand. Dodgy deals, climate swindle, climate fraudsters, junk carbon scam, said report author Geoff Simmons.

As a consequence, "Climate Cheats" is an easy and engaging read - no mean feat given the topic - that is also thoroughly well-researched. It really is a 'high integrity' credit to it's authors (if you pardon the pun).

In this post I want to look specifically at one particular type of corporate conduct - arbitrage profiteering - covered in "Climate Cheats".

Geoff Simmons, on page 28, describes arbitrage like this:

"Meanwhile polluters in New Zealand benefited through a collapse in the price of emissions, while some even creamed off profits by exploiting the price difference between different types of carbon credits."

How does an emitting company make an arbitrage profit in an emissions trading scheme? I think a data-driven worked example might be informative.

I will look at New Zealand Steel because their CEO was recently whining to Radio NZ that the NZ emissions trading scheme review would lead to higher carbon costs which would make the business less viable.

The data. I need to have the following:

Let me sum that up in a table.

New Zealand Steel free unit allocation, greenhouse gas emissions,
and NZETS surrender liability and ERUs
Year20102011201220132014
Units allocated494,704989,3041,003,7301,029,3521,073,489
GHG emissions (t)1,646,8901,736,2501,718,9301,747,500N/a
Estimate of units to surrender411,722868,125868,125873,750N/a
Allocation less surrenders82,982121,179135,605155,602 N/a
Allocation/Liability (per cent)120%114%116%118%N/a
Emission Reduction Units owned at 31 December0001,022,5271,001,714

Let's visualise that dense data into a bar chart.

The first conclusion I draw from the chart is that from 2010 to 2014 New Zealand Steel's free allocation of emission units (the purple bars) materially exceeded their estimated liability to surrender units (the mid-pink bars) to match actual emissions.

The surplus units were not needed to compensate for increased energy costs caused by the NZETS as the NZETS did not cause any energy costs to increase. The free unit allocation was and is simply a transfer of wealth to New Zealand Steel in the form of a tradable right or voucher (the NZU emission unit) that is highly liquid.

The second conclusion is that although New Zealand Steel never needed to buy any extra emissions units to surrender under the NZETS, New Zealand Steel still owned about a million Emission Reduction Units at the end of both 2013 and 2014

So if New Zealand Steel always had more than enough free units to meet it's obligation to surrender units under the NZETS, why would it also buy international units? There is only one plausible answer. It is to make an arbitrage profit.

Why am I so sure New Zealand Steel carried out arbitrage trades with its NZUs and surrendered cheap dubious ERUs rather than the free gifted NZUs for 2013 and 2014? It's the maths.

Data from the Emissions Unit Register, NZEUR Holding & Transaction Summary, which I have summed into a Google sheet, tells us that for 2013 the total numbers of NZUs surrendered by all emitters was 732,667 and 576,470 NZUs were surrendered for 2014.

If New Zealand Steel had used its free NZUs to meet its 2013 unit surrender obligation, the number of NZUs would have to be roughly consistent with my estimate of half of it's emissions or 873,750 units. All NZETS emitters collectively surrendered fewer units (732,667) for 2013! It is mathematically impossible for New Zealand Steel to have met those surrender obligations with NZUs. It must have used ERUs.

Here is a hypothetical example of what New Zealand Steel might have done.

According to a Carbon Forest Services webpage that tracks emission unit prices, on 11 October 2013, New Zealand units (NZUs) had a market price of $4.20 each and the Russian or Ukrainian Emission Reduction Units (ERUs) had a market price of 35 cents each. One NZU was worth 12 times as much as an ERU.

If New Zealand Steel had purchased 1 million ERUs on 11 October 2013 at 35 cents each or $350,000, it could then surrender 873,750 of them to the Government to match it's 2013 emissions.

Based on that 'if', New Zealand Steel would then be in a position to sell all the 1,029,352 New Zealand units of the 2013 allocation at $4.20 each for a possible value of $4,323,278. The hypothetical profit would be $3,973,278.

Alternatively New Zealand Steel would keep the 1,029,352 NZUs and wait for their price to appreciate. In that case, the hypothetical but unrealised profit would be greater than $3,973,278.

That is just one possibility based on NZU and ERU prices on one date. I suggest you browse over to the Carbon Forest Services emission unit price chart and hover over it to see the differences between ERU and NZU prices from early 2013 to 2015.

Even when NZUs hit a historic low price of $1.60 in February 2013, they were still 9 times more valuable than ERUs. Choose your own combination of price difference and possible profit from buying ERUs and selling NZUs.

My final piece of evidence is Bluescope Steel Australia's 2015 concise annual financial report which includes New Zealand Steel's finances.

Note 6 Other Income says that in 2015 Carbon Permit income was $AUD 4.4 million. Footnote (a) says that the income is from the NZETS as the Australian Carbon Pricing scheme was abolished in July 2014.

Note 7 on page 63 says that 'Direct carbon emission expense' was a credit of $AUD 1 million.

Footnote (d) page 64 says that the current year carbon emission credit was due to the carbon 'true-up' of the Port Kembla steelworks.

So Bluescope Steel Australia made a carbon profit both sides of the Tasman! New Zealand Steel made $AUD 4.4 million out of the NZETS. So much for facing a carbon price at the margin!

Conclusion

New Zealand Steel really have achieved the ultimate emission trading scheme "two-for".

New Zealand Steel received a free allocation of emission units that is greater than the number needed to surrender for emissions. The availability of the cheaper imported Russian and Ukrainian international units highlighted by "Climate Cheats" gave New Zealand Steel the opportunity to make windfall arbitrage profits. New Zealand Steel did not pay a carbon price at the margin. New Zealand Steel probably made windfall arbitrage profits.

It seems that the more free units you give a company, the more it abuses the privilege of having an emissions trading scheme. "Climate Cheats" gives us an excellent history of the deeply unethical way the National-led Government has managed the New Zealand Emissions Trading Scheme. The whole scheme is now so morally compromised it has no valid ethical basis to continue. Where I differ from the Morgan Foundation is what to do about it. They want to fix it. I think it should be abandoned.

15 April 2016

New Zealand Steel and the unethical two-for-one - free emission units and arbitrage profits from cheap Russian units

The Godfather In this post there is still a gratuitous image of Marlon Brandon as the Godfather but the post is about one of NZ's biggest companies; New Zealand Steel. They just opposed the possible ending of the supposedly temporary "two-tonnes-for-one-unit" deal. That's a bit rich when their idea of the ideal "two-for" is to receive millions of emission units for free under the New Zealand Emissions Trading Scheme industrial allocation provisions and yet buy millions of the dubious international Russian units (ERUs) and make windfall arbitrage profits.

Well, back on 17 March we had New Zealand Steel whining to Radio NZ that the NZ emissions trading scheme review would lead to higher carbon costs which would make their business less viable

Chief Executive Andrew Garey told Radio New Zealand

"the removal of the 2 for 1 provison for big carbon dioxide emitters will undermine the viability of the business"

What is this two for one deal? On page 12 of the NZETS review discussion document, it states;

"The one-for-two surrender obligation allows participants from the liquid fossil fuels, industrial processes, stationary energy and waste sectors to surrender one unit for every two tonnes of emissions (ie, a 50 per cent surrender obligation)."

However, Garey has his facts wrong in assuming the loss of the two-for-one deal will increase his NZETS liability. On page 13 of the NZETS review discussion document, it states;

"It should be noted that if the one-for-two surrender obligation is removed, the amount of free allocation provided to emissions-intensive and trade-exposed activities will automatically be increased to correspond with the increased surrender obligation."

So New Zealand Steel will have to surrender twice as many units. But its free allocation of units will double. One bit of corporate welfare in the NZETS is removed and another takes its place! Talk about the NZETS as an insurance policy for big emitters that protects them from any incentive to reduce emissions!

I could respond by saying I sympathise with Mr Garey. I mean, really, who does understand the NZETS? However in his interview with Radio NZ he goes on to indicate that if the NZETS is toughened up, then his parent company, Bluescope Steel, may just decide to close the Glenbrook Steel Mill. Nice steel mill you got. Shame if something happens to it. That is just typical arrogant big business behaviour. So I have no sympathy for Mr Garey.

There are some obvious questions to try to answer with actual emission unit data from the New Zealand Emission Unit Register, which records legal title for all valid carbon credits/emissions units in the New Zealand. How many units were NZ Steel given for free under the industry allocation plans? What were NZ Steel's NZETS-liable greenhouse gas emissions from processing steel from iron sands? Were they allocated more units than they had to surrender? Did they also make arbitrage trades in any of the dubious Russian or Ukrainian emission units?

We know that New Zealand Steel has been receiving free allocations of emission units as the allocations are listed on the Ministry for the Environment's web page Industrial allocation decisions.

Another MfE web page Eligible industrial activities tells us the formula for the unit allocation is (LA × ∑ (PDCT × AB)) ÷ 2.

The level of assistance (LA) for New Zealand Steel is 90%. There are four products (PDCT) each with it's own allocative baseline (AB). The products and allocative baselines are 3.2613 units for each tonne of iron or steel, 0.119 units for each tonne of cast carbon steel, 0.28 units for each tonne of vanadium-bearing steel and 0.163 units for each tonne of flat hot-rolled carbon steel.

That page is just repeating what is in Regulation 23 and the Schedule Prescribed emissions intensity and allocative baselines of the Climate Change (Eligible Industrial Activities) Regulations 2010.

I have already compiled a Google sheet of all units allocated to emitters from 2010 to 2014. It was compiled from the year by year Industrial allocation decisions

We add a 'filter' to the Google sheet on the top row of the column headers and set the filter on the 'Applicants.Name' column header to 'NZ Steel'.

This tells us that New Zealand Steel Development Limited (account holder NZ-1903) received these free NZ units.

2010 494,704
2011 989,304
2012 1,003,730
2013 1,029,352
2014 1,073,489

Or a total of 4,590,579 units over the five years. NZ Steel received more units than any other industry. More than smelter operator NZ Aluminium Smelters Limited. I know this as back in 2012 I made a pie chart of the 2011 free unit allocation data. That showed that of the 3.472 million units allocated to industry in 2011, 90% went to thirteen NZ companies. Here is that pie chart.

Now I want data on the greenhouse gas emissions from processing steel from iron sands. The New Zealand's Greenhouse Gas Inventory 1990–2013 reports the greenhouse gas emissions from steel production from iron sands in tonnes of CO2-e. New Zealand Steel is the only iron sands processor so these are New Zealand Steel's emissions. The emissions are;

2010 1,646,890
2011 1,736,250
2012 1,718,930
2013 1,747,500

(There is no total for 2014 as we won't see the next greenhouse gas inventory for the 2014 year until later this year)

I want to compare the number of emissions surrendered with the number of units given as free allocation. Ideally, I would have the number of units actually surrendered by New Zeland Steel each year. In a transparent system we would know that, would we not? Unfortunately, the NZETS is not transparent and the units surrendered are not available to the public.

In 2013, I asked the Environmental Protection Authority (EPA) under the Official Information Act for the numbers of units surrendered by New Zealand Steel and some other companies. The EPA refused my request on the grounds that the Climate Change Response Act trumped the Official Information Act. In May 2014, after a delay of a year, the Ombudsmens Office agreed with the EPA. So much for transparency.

So I have to estimate the unit surrender obligation. I keep in mind the two-for-one deal. So my annual estimate of the number of units New Zealand Steel is required to surrender under the NZETS is half of the actual emissions (one unit covers two tonnes). Also NZETS surrender obligations started on 1 July 2010. So 2010 was a half year for free allocation and unit surrenders. So I take half of the 2010 actual emissions.

My data now looks like this

                            2010      2011      2012      2013      2014
Greenhouse gas emissions     823,445 1,736,250 1,718,930 1,747,500        NA
NZETS surrender  obligations 411,722   868,125   859,465   873,750        NA
Free allocations of units    494,704   989,304 1,003,730 1,029,352 1,073,489

Lets make a chart. I think a bar chart will be a suitable choice. The colour scheme is lightest pink for actual emissions, mid-pink for my estimate of the units surrendered (emissions x 50%) and purple for the free allocation of units. The purple bars (free units) are noticeably larger than the surrender estimates. It appears that New Zealand Steel are consistently being allocated more free units than they need to surrender to match their direct emissions.

In summary, in the years 2010 to 2103, the actual number of units given to New Zealand Steel exceeded the estimated number to be surrendered by 82,982, 121,179, 144,265 and 155,602.

Does the free allocation of units include compensation for any other carbon-intensive energy inputs I have not taken into account? In principle, yes, as the original September 2007 Framework for a New Zealand Emissions Trading Scheme document makes this statement about free allocation to emitters;

"indirect emissions associated with the consumption of electricity, as well as direct emissions from stationary energy and direct emissions from non-energy industrial processes will be included in the concept of emissions from industrial producers".

Also the NZ Aluminium Smelter free allocation included an undisclosed quantum of units for the fictional coal content of electricity inherent in their energy supply from Lake Manapouri. Yes, I know that last sentence seems to make no sense at all. You really need to read the linked blog post!

The Heavy Industry Energy Demand Update Report (by Covec, Feb 2009) provides estimates of the carbon dioxide emissions from each energy input (except electricity) used by New Zealand Steel.

The Covec report estimates that in 2008 the coal emissions were 1,615,100 tonnes (93%), the natural gas emissions were 106,200 tonnes (6%), the coke emissions were 18,100 tonnes (1%) and the diesel emissions were 3,800 tonnes (0.22%). Adding up to 1,743,200 tonnes of direct emissions. Covec don't calculate the emissions content of the 426 GWh of grid electricity used in 2008.

The estimated natural gas emissions at about 100,000 tonnes per annum almost adds up to the 'surplus' allocated units which are between 120 thousand to 155 thousand tonnes annually. So its arguably plausible that part of the free allocation of units is to compensate New Zealand Steel for the increase in the cost of natural gas caused by the NZETS.

Except that there is no evidence that the price of natural gas or electricity or coal has increased because of the NZETS. And we have known that since 2011.

Covec's 2011 report 'Impacts of the NZ ETS: Actual vs Expected Effects' prepared for the 2011 ETS Review Panel could not find any increases in electricity, natural gas or coal prices caused by the NZETS.

Officials supporting the 2012 Finance and Expenditure Select Committee queried the five major electricity generating companies about NZETS costs flowing through into wholesale electricity prices. Their reply was;

"costs being passed through directly from the NZETS are not visible or distinguishable due to the wholesale market pricing mechanism and these costs are not directly passed through due to competition factors".

As the New Zealand Emissions Trading Scheme evaluation report 2016 states on page 38;

The prices of emission units have been too low to affect business costs either for participants or those who receive costs passed down from participants.

So from 2010 to 2014 New Zealand Steel consistently received a free allocation of emission units that materially exceeded their estimated liability to surrender units to match actual emissions. The surplus units were not needed to compensate for increased energy costs caused by the NZETS as the NZETS did not cause any energy costs to increase. The free unit allocation was and is simply a transfer of wealth to New Zealand Steel in the form of a tradable right or voucher (unit) that is highly liquid.

So New Zealand Steel, the emitter receiving the most free units in the NZETS, has faced no NZETS-related carbon price at the margin or in any sense. Instead of acting as a carbon price at the margin, the free unit industrial allocation regime in conjunction with the lack of energy cost pass-through has acted as an insurance policy or hedge contract - protecting New Zealand Steel from the carbon price!

This is the embodiment of fundamentally flawed design in the NZETS and it is symptomatic of the National Government's unethical approach of rewriting the NZETS to suit the whims of big business. It's also symptomatic of the earlier big business campaign to pressure the Labour Government to drop a carbon tax and move to the inherently less transparent NZETS.

You would think that this case study into New Zealand Steel could not get worse. However, it does get worse. From 2013 to 2015 New Zealand Steel engaged in arbitrage profiteering using the most dubious international emission units, the Emission Reduction Units.

To see if New Zealand Steel has owned any Emission Reduction Units, we go to another Google sheet Kyoto Unit Holdings by Account 2008 - 2014 which compiles data from the EPA Emission Unit Register. We add a 'filter' to the Google sheet on the top row for 'NZ Steel Limited' on the 'Account.Holder' column of the Google sheet.

We find that New Zealand Steel Limited did own some Emission Reduction Units.

2013 1,022,527
2014 1,001,714

I have amended the bar chart and added the Emission Reduction Units owned by New Zealand Steel as extra orange bars. It is interesting to note that the number of ERUs is fairly close to the number of free NZUs. Both were more or less 1 million for 2013 and 2014.

We have fairly persuasive evidence that New Zealand Steel was consistently allocated more free units than it needed to surrender for its actual emissions. Therefore New Zealand Steel never needed to buy any extra emissions units to surrender under the NZETS. Yet New Zealand Steel owned about a million Emission Reduction Units at the end of both 2013 and 2014

So if New Zealand Steel always had more than enough free units to meet it's obligation to surrender units under the NZETS, why would it also buy international units? There is only one plausible answer. It is to make an arbitrage profit.

Why am I so sure New Zealand Steel carried out arbitrage trades with its NZUs and surrendered cheap dubious ERUs rather than the free gifted NZUs for 2013 and 2014? It's the maths.

Data from the Emissions Unit Register, NZEUR Holding & Transaction Summary, which I have summed into another Google sheet, tells us that the total numbers of NZUs surrendered by all emitters were 732,667 in 2013 and 576,470 in 2014.

As those numbers (for the whole of the NZETS) are less than New Zealand Steel's estimated surrender obligations, it is mathematically impossible for New Zealand Steel to have met those surrender obligations without having used ERUs.

Here is a hypothetical example of what New Zealand Steel might have done.

According to a Carbon Forest Services webpage that tracks emission unit prices, on 11 October 2013, New Zealand units (NZUs) (the same type of units allocated to New Zealand Steel) had a market price of $4.20 each. On the same day the Russian or Ukrainian Emission Reduction Units had a market price of 35 cents each. One NZU was worth 12 times as much as an ERU.

If New Zealand Steel had purchased 1 million ERUs on 11 October 2013 at 35 cents each or $350,000, it could then surrender 873,750 of them to the Government to match it's 2013 emissions. Based on that 'if', New Zealand Steel would then be in a position to sell all the 1,029,352 New Zealand units of the 2013 allocation at $4.20 each for a possible value of $4,323,278. The hypothetical profit would be $3,973,278.

That is just one possibility based on NZU and ERU prices on one date. I suggest you browse over to the Carbon Forest Services New Zealand Unit & Emission Reduction unit chart and hover over the chart to see the differences between ERU and NZU prices from early 2013 to 2015. Even when NZUs hit a historic low price of $1.60 in February 2013, they were still 9 times more valuable than ERUs. Choose your own combination of price difference and possible profit from buying ERUs and selling NZUs.

It's not just me saying that this is unethical profiteering. Here are statements from forest consultant Ollie Belton, Herald Economics Editor Brian Fallow and Green MP Kennedy Graham.

Carbon forest consultant Ollie Belton said this;

"..trade exposed industries that were gifted up to 90% of their surrender obligations were able to meet all their obligations with the super cheap ERUs and bank the gifted NZUs. Since 2012, NZUs have had much higher market value than ERUs, generally more than five times as high, hence the arbitrage opportunity. Never have polluters had it so good. They have made hundreds of millions in arbitrage profits."

Brian Fallow of the Herald described the arbitrage trades as corporate welfare.

"This is where the corporate welfare comes in. The ETS is designed to ensure that large emissions-intensive trade-exposed operations like the Tiwai Point smelter or the Glenbrook steel mill are only exposed to a carbon price at the margin - and a pretty narrow margin at that...But the collapse in international carbon prices has presented the smokestack sector with an arbitrage opportunity too.
They have been able to hoard their NZUs, in the expectation they will be more valuable in the future, and meet their obligations in the meantime with cheap imported Kyoto units instead".
.

Kennedy Graham placed it on the record at Parliament that he regarded the arbitrage trades as morally reprehensible.

"Emission-intensive, trade-exposed entities, which include aluminium, iron, steel, cement, whey, wood, and paper, are free to bank profits from the emissions trading scheme — cash for pollution. They receive free allocations of New Zealand Units as compensation for any energy price rises brought about by the emissions trading scheme...
These industries are also required to surrender units to clear liabilities. This is dependent on calculations based on their emissions profile. They can surrender New Zealand Units or Kyoto Units, such as emission reduction units and certified emission reduction units. These overseas units are valued between 10c and 40c.
They are engaging in the arbitrage by receiving free New Zealand Units from the Government, then selling them at market prices of $3 to $4, then buying cheaper overseas units such as the certified emission reduction units and emission reduction units for anything from 10c to 40c to surrender back to the Government.
They bank the profit. In some cases, this is in addition to existing tax-paid subsidies running into the tens of millions of dollars. Let me acknowledge that these activities are entirely legally, but they are morally reprehensible and they reflect Government stupidity and cynicism of the highest order".

Conclusion

New Zealand Steel really have achieved the ultimate emission trading scheme "two-fer". The NZETS's free allocation regime over allocates them more emission units than they need to surrender for their emissions and the availability of the imported international units gave them the opportunity to make windfall arbitrage profits. So instead of a carbon price there were unearned windfall profits.

I agree completely with Ollie Belton, Brian Fallow and Kennedy Graham that such arbitrage profiteering is morally reprehensible corporate welfare. Yes, the polluters have never had it so good. It seems that the more free units you give a company, the more it abuses the privilege of having an emissions trading scheme. This is just one example of how deeply unethical conduct in New Zealand Emissions Trading Scheme has been. The whole scheme is now so morally tainted it has no valid ethical basis to continue. The New Zealand Emissions Trading Scheme should be simply abandoned.

09 April 2016

Opening up the data on emissions units in the NZ emissions trading scheme

The Godfather In this post I include a gratuitous image of Marlon Brandon as the Godfather because all this wonky open data stuff I have been doing lately might be a bit boring. But I do eventually get around to a worked example of how to find out how many free units were given to NZ Aluminium Smelters Ltd.

Following on from the post about the data on internationally-sourced emission units that have been imported into New Zealand, I have uploaded more two data files to Google Sheets. They are in comma separated values (CSV) format.

The first sheet is NZETS-2010-2014-final-allocations-for-eligible-activities-csv which is five years of data on the free allocation (gifting) of New Zealand Units (NZUs) to emitting industries under the New Zealand emissions trading scheme (or NZETS).

This file combines into one sheet the numbers of allocated units (which are recorded in separate 'by year' tables) from the 'Industrial allocation decisions' pages on the Ministry for the Environment's climate change website.

The second sheet is Kyoto Unit Holdings by Account 2008 - 2014 which is seven years worth of data listing all account holders in the Emission Unit Register who held a balance of Kyoto Protocol emission units at 31 December of each year. This sheet combines all the seven year by year sheets linked to on the post about Kyoto emission units

The Kypto units are the Assigned Amount Units (AAUs), the Emission Reduction Units (which are otherwise known as the the dubious Russian or Ukrainian emission units), the Removal Units (RMUs) and the Certified Emission Reduction units (CERs). Oddly, there is no requirement for the Emission Unit Register to disclose the year end balances of NZUs held by account holders.

How do we use this data? We need a worked example.

Let's assume we are interested in New Zealand Aluminium Smelters Limited, the operator of the Tiwai Point aluminium smelter. I mean, who isn't interested in the Godfather of the NZ emissions trading scheme?

All we have to do with our Google sheet is apply a filter to the top row, the column headings, select the third or 'C' column 'Activity', and then open a drop down dialogue box and then hit 'clear selection' then select 'Aluminium smelting'.

That tells us that New Zealand Aluminium Smelters Limited were given the following emission units

2010 210,421
2011 437,681
2012 301,244
2013 1,524,172
2014 755,987

In other words, NZ Aluminium Smelters were given millions of NZ emission units for free from 2010 to 2014. A total of 3,229,505 to be exact. A bar plot of the annual allocations looks like this.

So what happened in 2013? NZ Aluminium Smelters free allocation increased by a factor of five. Maybe that can wait for another post.

Here is the R script for the bar chart.

nzal <- matrix(c(210421,437681,301244,1524172,755987), nrow = 1, ncol=5, byrow=TRUE, 
+ dimnames = list(c("row1"), c("2010", "2011", "2012","2013","2014")))

png("Smelter-2010-2014-560by420-v1.png", bg="white", width=560, height=420,pointsize = 14)

par(mar=c(4, 4, 4, 1)+0.1)

barplot(nzal/10^6,las=1), title(cex.main=1.4,main="NZETS Units Allocated to NZ Aluminium Smelters Ltd",
+ ylab="NZ Units (millions)")

mtext(side=1,line=2.5,cex=1,expression(paste("Source: EPA NZ Emission Unit Register")))

dev.off()

28 March 2016

Kevin Anderson on Irelands agriculture a lesson for New Zealand as well

While recently in Ireland Kevin Anderson also gave an interview to John Gibbons of the Irish website called Think or Swim.

The interview was recorded on Vimeo and is not on You Tube.

I am highlighting the first six minutes, because Anderson provides some direct answers to questions about giving agriculture special treatment such as leaving the sector out of emissions reduction policy. I would say that John Gibbons the interviewer is running domestic Irish narratives past Anderson. These narratives of inaction ("we are efficient", "we are too small", "the world needs food") are exactly the same in New Zealand. And Anderson's answers are just as relevant to New Zealand as Ireland.

These quotes start with the time in the interview and then the speaker.

2:11 John Gibbons. "Many politicians in Ireland, for example for the agricultural sector, would feel that we are a small country and we are recovering from the recession, so climate change is something we can deal with in 20 years time".

2:28 Kevin Anderson. "It completely misunderstands the science. It is the emissions that we put in the atmosphere now that matter. What really matters from the science perspective for temperature is the total quantity of carbon dioxide we put in the atmosphere; the carbon budget".

3:22 Kevin Anderson. "Ireland is a small part of the problem. Every part of the world is a small part of the problem. We hear that from every sector, the aviation sector says that, shipping says that, UK says this...You can divide the 100% of all emissions into any small numbers you want to. Using that as an argument is very false and very misleading".

3:58 John Gibbons. "A large portion of our emissions are attributable to the agriculture sector and under Food Harvest 2020 and Foodwise 2025 the Irish Government is undertaking a really large scale expansion of our ruminant-based agriculture. Their argument is that we can do it more efficiently than for example than the Brazilians who are clearing rainforest for beef and dairy. Is that a reasonable argument?"

4:30 Kevin Anderson. "From a climate change perspective it is clearly is not a reasonable argument. I am sure that any one who is making that argument is aware of the science, You cannot hold those arguments and keep to the commitments signed up for in Paris. The climate does not care about efficiency it only cares about absolute levels of emissions".

5:28 Kevin Anderson. "If we are really concerned about feeding the world then you would measure greenhouse gases in terms of nutrition or calories. What units of carbon dioxide per useful calorie do you produce? You would almost certainly have to move away from types of agriculture you have now that have innately high emission to other forms of agriculture that have much lower emissions of greenhouse gases per unit of output."

Kevin Anderson interviewed by John Gibbons on 16 March 2016 on Vimeo.

N.B. Yes Ireland really does have agricultural policies called Food Harvest 2020 and Foodwise 2025 and yes these are all about expanding production just like the New Zealand Government's Business Growth Agenda.

25 March 2016

Kevin Anderson climate change - triumph and tragedy in Paris talk in Ireland

Kevin Anderson has just been in Ireland where he gave a talk with the title Climate change triumph and tragedy in Paris

Anderson was hosted by the Climate Change and Environmental Sciences Committee of the Academy, and Future Earth Ireland and the Environmental Protection Agency. The venue was the Academy House, Dawson Street, Dublin on Thursday March 10 at 6pm.

The talk was recorded and has been uploaded to You Tube where it has had 258 viewings.

Speaking of the numbers of viewers, Anderson's recent talk at the London School of Economics is also now on You Tube, where it has had 10,242 viewers!

14 March 2016

Google sheets of owners of the Russian and Ukrainian sourced emissions reduction units used in the NZETS

The New Zealand Emission Unit Register, which records legal title for all valid carbon credits/emissions units in the New Zealand Emissions Trading Scheme, can be searched.

One possible search gives a list of account holders and the volume of Kyoto Protocol emission units the account holder owned at the end of the calendar year. This search shows the types of Kyoto units held, the two commonest types being the Emission Reduction Units (ERUs) and the Certified Emission Reduction units (CERs).

What interests me is who owned these units? Who imported them? As Brian Fallow pointed out, the cheaper units collapsed the price of all units in 2011 and 2012

The imported units were not only too cheap and too plentiful. Most of them it appears were fraudulently issued.

In two scathing blog posts last December, No Right Turn traced the serial numbers of some Emission Reduction Units and Certified Emission Reduction units that New Zealand had "retired" to comply with the Kyoto Protocol, back to fraudulent projects in the Ukraine and Russia.

I have taken the annual lists of unit holders from the html tables on the Emissions Unit Register's website and uploaded them to Google Sheets. Here they are from 2008 to 2014. At some stage I will do some analysis. In the meantime, feel free to download them.

Kyoto Unit Holdings by Account 2008.

Kyoto Unit Holdings by Account 2009

Kyoto Unit Holdings by Account 2010

Kyoto Unit Holdings by Account 2011

Kyoto Unit Holdings by Account 2012

Kyoto Unit Holdings by Account 2013

Kyoto Unit Holdings by Account 2014