Tim Groser shuts the stable door after the Mickey Mouse carbon credits have bolted

This week the Ministry for the Environment is consulting and seeking submissions on a proposal to ban some of the more 'Mickey Mouse' international carbon credits from the New Zealand Emissions Trading Scheme. Apparently this is because Climate Change Minister Tim Groser "wants to maintain the integrity of the ETS" (New Zealand Emissions Trading Scheme).

Thats really too much brazen and intentional cognitive dissonance from Groser, especially since he said that only five days after he indefinitely excluded agriculture from the ETS and only four days after he announced New Zealand would not sign up for a second Kyoto Protocol round of binding greenhouse gas cuts.

I apologise if you had an extreme reaction to the close conjunction of the terms "Tim Groser", "emissions trading scheme" and "integrity". So...sorry if you just expurgated your coffee/beer/tea over your laptop or punched out your PC monitor.

Okay, assuming you have cleaned up, I better give you the context for Groser's irony in claiming to be concerned about the integrity of an emissions trading scheme where emission units trade for less than $3 per tonne of carbon dioxide equivalent gas.

Here is the quote from Groser about the consultation.

"The Government has considered whether Emission Reduction Units (ERUs) from HFC-23 and N2O destruction projects, and Certified Emission Reduction Units (CERs) and ERUs from large-scale hydroelectricity projects should be ineligible in the ETS. There are legitimate questions about these types of international units and the Government wants to maintain the integrity of the ETS".

Whoop Dee Doo

This consultation is asking the wrong question. It is ignoring the "elephant in the room" for the NZETS, the rock-bottom price of the international emissions units. Fiddling and faffing about over the specific attributes of some subset of the allowable international units, when all the international units are under-priced and over-supplied, is just shutting the stable door after the horse has bolted.

We have already been through one futile cycle of banning a few dodgy international units with Groser's predecessor Nick Smith. And that didn't make the slightest bit of difference to the NZ price.

Just before Christmas 2011, Nick Smith authorised the Ministry for the Environment to ban certified emissions reduction units (CERs) from the UN Clean Development Mechanism projects destroying HFC-23 and N₂O from the NZETS. There is no doubt that the gas-destruction CER units did not represent real removal of greenhouse gases and that the awarding of CERs was incentivising the deliberate extra production of HFC-23 and N₂O.

According to Wikipedia at September 2012 about 418 million CERs had been issued for HFC-23 destruction and about 214 million CERs had been issued for N2O destruction. So in theory that took 632 million CER units out of the picture for the NZ market.

However, as of today there are 1,061,399,151 issued CERs. So with 60% of the CERS banned from the NZETS, there were still 429 million (1061m - 632m) that could still be imported to NZ.

In terms of influencing the carbon price in world's worst ETS and in the world's smallest and most open carbon market (where 2011 demand from emitters was 16 million units), it makes no difference whether quantity of available CERS is 429 million units, 1 billion units or 10 billion units. The international price will still set the domestic NZ price.

Another day, another potentially eyes-glazing-over carbon credit three letter acronym; the E.R.U. These Emissions Reduction Units, are units from UN Joint Implementation projects located in Kyoto Protocol Annex 1 countries. It's similar to the less-developed countries Clean Development Mechanism, except that Joint Implementation projects tend to be in the Former Soviet Union countries.

As of today about 250 million units have been issued. About 80 million ERUs (or 32 percent) are for HFC-23 and N2O destruction. So if these gas ERUs were banned from the NZETS, there would still be 172 million under-priced ERUs able to satiate New Zealand's demand for international units.

The number of CERs issued to large hydroelectricity projects CERS at 1 November was 108 million, or 10% of the 1.061 billion CERs total. Again, this proposed ban would make no real difference to the international over-supply or to the NZ price.

Submissions can be made until 5.00pm this Friday 30 November 2012 and can be can be emailed to climatechange@mfe.govt.nz or posted to Ministry for the Environment, PO Box 10362, Wellington 6143.

I have not drafted my submission but it will roughly say: the proposal is slamming the stable door after the horse has bolted, and that it ignores the 'elephant in the room' - the flawed design of the NZETS which imports the collapsed international carbon price into the New Zealand carbon price. And conclude that NZ should move to a all-sectors no-exceptions no-offsets carbon tax ASAP.

The outcome of the consultation will of course be to adopt the partial ban.

New York Times on the 100% Pure NZ Myth

If you read nothing else online today, read this feature in the New York Times.

New Zealand’s Green Tourism Push Clashes With Realities

Mike Joy and Eugenie Sage are quoted on water quality problems

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According to new research, New Zealand is, per capita, 18th worst out of 189 nations when it came to preserving its natural surroundings.

"Dr. Joy said that for a country purporting to be so pure, New Zealand seemed to be failing by many international environmental benchmarks."

Last month, the New Zealand Ministry for the Environment released a survey showing that more than half of the country’s freshwater recreational sites were unsafe to swim in. Fecal contamination of waterways, caused largely by dairy farming — the source of 13.9 billion New Zealand dollars, or $10 billion, in annual exports, nearly a quarter of New Zealand’s total — was widespread.

How a public relations practitioner sees the New Zealand Emissions Trading Scheme

How would a Public Relations professional explain the Government's last amendments to the New Zealand Emissions Trading Scheme?

Mark Blackham of BlacklandPR enlightens us.

ETS tweaks for easier business

The Government has kept up a steady spate of changes to ease the costs of doing business in New Zealand. This week it made the previously announced changes to the Emissions Trading Scheme.

The law change delays the introduction of some industries into the regime and gives agriculture an indefinite reprieve from entry.

These changes were its response to the ETS Review last year. The changes are a reminder that long-term persistent lobbying of Government pays dividends.

Let me just highlight that last bit.

The changes are a reminder that long-term persistent lobbying of Government pays dividends.

Says it all, doesn't it?

Will the last business lobbyist to leave please turn out the light at the end of the tunnel to an effective NZ emissions trading scheme?

In this post Mr February channels his inner General Westmoreland and his Vietnam flashbacks to look at National's latest change to the New Zealand Emissions Trading Scheme (NZETS). Parliament has just (8 November) passed amendments that indefinitely defer any greenhouse gas obligations for agriculture and indefinitely discount obligations to industries.This is a 'last helicopters off the Saigon hotel roof' point in the sad history of the always-doomed-to-fail New Zealand Emissions Trading Scheme.

According to cultural folklore the humiliating end of American engagement in the Vietnam war was foreshadowed by graffiti;

Will the last person out of the tunnel please turn out the light?

Or, alternatively

Would the last Marine to leave Vietnam please turn out the light at the end of the tunnel?

This was in frank contrast to the early (with hindsight, unjustified) optimism of General Westmoreland, who had said in 1968 that he could see the light at the end of the tunnel of the war in Vietnam.

So why am I writing about graffiti from a war that ended 37 years ago? Well, to make a 'bonkers' analogy with the New Zealand Emissions Trading Scheme, of course! Getting the NZETS established was of course more or less a civil war, and when the Labour Government in its final days in office in late 2008 finally coalesced a coalition of compromise to pass the Climate Change Response (Emissions Trading) Amendment Act 2008, it seemed there was 'light at the end of the tunnel' in terms of reducing GHG emissions.

However, with the adoption last night (8 November) of National's latest emitter-inspired fiddle; the Climate Change Response (Emissions Trading and Other Matters) Amendment Act, I believe we can now just be honest with ourselves and see the latest amendments to the NZETS as the last helicopter off the hotel roof and the last act of the NZ emissions trading approach, which was futile from the beginning.

I have posted before about the Climate Change Response (Emissions Trading and Other Matters) Amendment Bill, noting that the amendments will;

1. indefinitely exclude emissions from pastoral agriculture from the NZETS, instead of including them from 2015, which was already a delay from 2013.
2. extend indefinitely the discount to industries, the 'surrender one unit for two tonnes' of emissions (half price!) that was to end this year (“maintain the 1-for-2 surrender obligation after 2012, without specifying an end date in legislation”)
3. extend indefinitely the price cap, (“maintain the $25-a-unit fixed price option after 2012, without specifying an end date in legislation”)

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And I have previously posted that the worst aspect of the NZETS is not the corporate welfare in the form of excessive free allocation to industries.

For me the worst aspect of the NZETS is it's absolute exposure to the international carbon markets which has the effect of knee-capping the NZ carbon price down to the rock-bottom international carbon price. Today (9 November), the highest offer for a NZU for a tonne of CO2-e is $2.55 (See today's price chart from OMF Ltd).

So I concluded I agree with Jeanette Fitzsimons that the NZETS is so bad at reducing GHG emissions, it no longer matters what amendments are made to it.

That is why I think that the light at the end of the NZETS tunnel was always going to be eventually turned out. The final bit of the Vietnam analogy is who was going to turn out the light. I give that role to the professional big emitter's lobby groups, led by Business New Zealand and its astro-turf subsidiary the Greenhouse Policy Coalition.

Nicky Hager in his Bruce Jesson lecture, describes how lobbyists such as Business NZ and the Greenhouse Gas Coalition have manipulated the under-resourced media to give prominence to ideas pushed by their clients;

"...the public spaces are cluttered with paid spokespeople and commercial agendas" whose technique is to establish "usefully biased ideas" by creating “some common lines that become the ‘mantra’” and then, 'keep repeating it endlessly' " so that "the angle, timing and quotes (in the media), do not come from journalists’ observations or journalists’ questions, but from the calculated efforts of PR and marketing people", and, as a consequence, the political debate is dominated by "endless hectoring from the business lobby groups"

The media 'mantra' pushed by the lobbyists is that if the NZETS establishes an effective carbon price on emitters, then jobs and exports and GDP will be lost (See GPCNZ 2008 and Business NZ 2012). Over the years of the debate over the NZETS, we have been endlessly hectored by business lobbyists that business trade competitiveness will be affected by the NZETS. Ministers Nick Smith and Tim Groser have long ago joined in and 'costs on businesses' is now routinely given as the reason for the lack of any real bite in the NZETS.

The endless hectoring that the "NZETS will affect exports and jobs" has been so successful that the big emitters wound up the the Greenhouse Policy Coalition back in March 2012. I guess they had a helicopter to catch, after they turned out that light in the tunnel.

Why no prosecution of the Pike River Coal Ltd Directors?

I was not going to comment on the Report of the Royal Commission on the Pike River Coal Mine Disaster but I here I go.

Duncan Garner of TV3 describes the Pike River Coal disaster as corporate, Government and departmental manslaughter

John Armstrong of the Herald says the Royal Comission gave the Department of Labour (the former department responsible for employment health and safety a right royal bollocking.

Fairfax says the report is a damning indictment and that cost cutting trumped health and safety.

The Royal Commission concludes that the board of directors completely failed in their governance role over the Pike River Coal Mine Limited. The Commission rejected Board Chair John Dow's testimony that "no safety concerns were reported to me". I can't argue with that.

So why didn't the Department of Labour 'lay an information' (thats the term in most NZ legislation for 'indict') for a prosecution against the Directors when they filed the informations against Peter Whittal, Pike River Coal Limited (in receivership) and the subcontracting drilling company?

The Health Safety and Employment Act 1992 defines the unsafe workplace offences in Section 49 and Section 50.

The HS & E Act offences are criminal offences as a prison sentence is one of the possible consequences of conviction under Section 49(3)(a).

The two sections state explicitly that 'any person' can be prosecuted. 'Any person' includes directors of companies. Like the Resource Management Act, the offences are 'strict liability'; intention does not have to be proven. Lack of reasonable action to prevent reasonably foreseeable accidents makes the directors worth prosecuting.

However, it's too late now to prosecute the directors. There is a statutory time limit for laying informations/prosecuting in Section 54B and it's six months from the date of the event. That is now a long time ago.

So John "See no evil hear no evil" Dow and his fellow directors are off the hook from any criminal prosecution under the Health Safety and Employment Act.

So that is another major failure of the Department of Labour that has not been reported on in the media flurry so far.

New James Hansen talk from 10 October

Here is a new talk by James Hansen on climate change and tipping points. It has been uploaded by Cornell University.

Dr. James Hansen of NASA's Goddard Institute addresses 75 international union leaders about the urgency of the climate crisis. The presentation was given in NYC on 10/10/12, and was part of the Energy Emergency, Energy Transition round table convened by Cornell University's Global Labor Institute (GLI), a program of the Worker Institute at Cornell, and the Rosa Luxemburg Foundation.

And when I awoke I was alone the exporter had flown Norwegian Wood isn't it good

Norwegian Wood and newsprint transnational Norske Skog Tasman (NZ) Ltd 'exports itself'. Mr February looks at the flight of another manufacturer and CO₂ emitter and exporter as it lays off staff and reduces production. Wasn't the very generous free allocation of units in the NZETS meant to keep exporters like Norske Skog Tasman in New Zealand? Or have we just removed the price signal from exporters for no valid reason and stuffed the NZETS?

The other week Gareth tweeted about a good article in the Herald by Chris Barton.

Chris Barton reported that the Norwegian-owned newsprint-maker and transnational Norske Skog Tasman NZ had joined the ranks of export businesses like Rio Tinto Alcan NZ/NZ Aluminium Smelters who are exporting jobs off shore.

Norske Skog is shutting down one of two newsprint machines at the Tasman Mill, in Kawerau, due to lowered demand for newsprint.

At the same time Norske Skog is building a new $A84 million plant in Tasmania with some substantial help from the Australian Federal government (A$28 million grant) and State government (A$13 million loan).

Chris Barton noted some strong questions asked of the Government such as "what is being done for jobs"? And strong criticisms of the Government's naive "market will take care of everything" approach.

Chris Barton mentioned the NZ emissions trading scheme (NZETS) only briefly in passing, as he noted the rock-bottom NZ carbon price and the poor despairing carbon foresters.

So that prompted me to look at how Norske Skog Tasman NZ fits into the NZETS. What are the greenhouse gas emissions of the Norske Skog Tasman pulp mill? Is Norske Skog Tasman regulated by the NZETS? Have they ended up with a large free allocation of emission units (like NZ Aluminium Smelters Ltd) ostensibly to protect their international competitiveness and to keep the jobs in NZ?

Norske Skog Tasman uses geothermal steam from the Kawerau geothermal field for heating and electricity generation in its newsprint mill. Geothermal steam naturally contains carbon dioxide and methane which are released when the heat energy is transformed.

The use of geothermal steam for energy is covered by the NZETS as an energy sector emission. So Norske Skog Tasman must report its greenhouse gas emissions and obtain and surrender emissions units.

There is a specific emissions factor in the Climate Change (Stationary Energy and Industrial Processes) Regulations 2009 for Kauwerau's geothermal steam. The factor is 0.0275 tonnes CO2-2 per tonne of geothermal steam used.

Norske Skog Tasman's production of newsprint is included as an emissions-intensive trade-exposed activity eligible for a free allocation of 0.4911 emission units per tonne of uncoated newsprint, at the highest level of assistance; 90%.

So far, so much like NZ Aluminum Smelters/Rio Tinto Alcan NZ.

Let's start with a 'back of envelope' calculation of the units Norske Skog Tasman should surrender (the NZETS gross carbon price).

According to the Kawerau Geothermal Field Background Study, Mighty River Power supplies 285 tonnes of geothermal steam per hour to Norske Skog Tasman, who on-sell 26 tonnes to Carter Holt Harvey Wood Products. So net use is 259 tonnes per hour.

Assuming 24/7 production, the annual use is 259 * 24 * 365 = 2,268,840 tonnes of steam per annum. And 2,268,840 * 0.0275 = 62,393.1 tonnes CO2-e. So in a typical year, Norske Skog Tasman should be surrendering very roughly about 62,000 emission units under the NZETS.

How many free emission units were allocated to Norske Skog Tasman? In both 2010 and 2011, Norske Skog Tasman received the fifth largest free allocation of units (after the Smelter, NZ Steel, Methanex and Fletcher Concrete). In 2010, Norske Skog Tasman received 122,826 New Zealand Units (NZUs) for the six-month 2010 NZETS compliance period. In 2011 Norske Skog Tasman received 237,752 NZUs.

Assuming 24/7 production in 2011, Norske Skog Tasman was allocated 381% more units than it needed to surrender (237752/62393.1 * 100 = 381.0550). Thats a way more excessive free allocation than NZ Aluminium Smelters!

However, I might not have the right numbers. My calculation may be wrong. Why don't I ask the Environmental Protection Authority under the Official Information Act for the exact number of units surrendered by Norske Skog Tasman. Watch this space.

Alternatively lets look at Norske Skog Tasman's annual financial statements (PDF) for the 2011 calendar year.

Note 24 helpfully records that Norske Skog Tasman received 119,646 units in 2010 and 241,825 units in 2011. They surrendered only 10,754 units and sold 160,000 units, and had 190,717 units left at 31 December 2011.

The accounts show that in 2011 Norske Skog Tasman was allocated 22 times more units than it needed (241,825/10,754 = 22.49). The units allocated to protect jobs and export competitiveness, were not 90% of units surrendered. They were not 100% of units surrendered. The units allocated exceeded the units surrendered by a factor of 22!.

I can still here an echo of voice saying "You have left out the electricity allocation factor! You are wrong wrong wrong!" Well, yes, the industrial free allocation factor of 0.49 units per tonne of newsprint allegedly includes compensation for NZETS-related electricity price increases our manufacturing emitter is subject to. This rationale and the factor of 0.49 units per tonne were approved in this Cabinet paper. However, the cabinet paper provides no explanation of how the factor of 0.49 units per tonne of newsprint was calculated.

The electricity allocation factor has also been the subject of a consulation process and there is an emitters contact group for it as well.

However I think the idea that manufacturing emitters need compensation for NZETS-related electricity price increases is a smoke-screen. Norske Skog Tasman has not had its electricity price increased by the NZETS.

According to the Kawerau Geothermal Field Background Study (PDF), Norske Skog Tasman and Mighty River Power (MRP) have "..a power purchase agreement whereby NST (Norske Skog Tasman) contracted to take a majority of MRPs generation. Due to the fact that MRPs plant is grid tied, this is effectively a financial agreement offering NST price certainty and MRP a customer contracted to take the majority of supply."

The Tasman Mill is not just a plant connected to the grid. It was built to use geothermal power, just as Tiwai Point Smelter was built to use Lake Manapouri's hydro power. The Tasman Mill is joined at the hip to the Kawerau geothermal field. The newest Mighty River Kawerau geothermal generation plant was built on the Tasman Mill site. Norske Skog is buying geothermal steam from Mighty River Power and paying MRP as if it was electricity via a financial derivative contract.

To conclude the free allocation part of the analysis; in the example of Norske Skog Tasman, the NZETS free unit allocations are not just a discount of the full NZETS carbon price, the allocations are a transfer of substantial corporate welfare. The units allocated exceed the units they have to surrender by an estimated factor of 22.

And in terms of protecting the international competitiveness of Norske Skog Tasman and keeping jobs in New Zealand, the free allocations have not made the slightest difference. Thats in spite of National Party scaremongering back in 2008 that the NZETS would cause the mill to close. And Catherine Beard of Business New Zealand (formerly boss of the Greenhouse Policy Coalition) still scaremongering in October 2012 that any real cap in the NZETS will cause more job losses Talk about slamming the stable door after the horse has bolted.

Lets look at the real factors affecting whether a commodity manufacturer stays in New Zealand.

If you are a transnational like Norske Skog, you always have the choice of playing off more than one jurisdiction. The country with the smaller economy, like New Zealand, can't match the money of a larger economy like Australia. If Norske Skog had not purchased the Tasman Mill from Fletcher Challenge in 2000, this 'regulatory arbitrage' would not be possible.

Corporate aquisitions that seemed a good idea before the Global Financial Crisis, look much more risky after the Global Financial Crisis. Norske Skog paid $NZ5 billion for Fletcher Challenge's paper and pulp assets. In 2011, Norske Skog was faced with falling international demand and prices and it was considering selling some assets to avoid default on its debt.

Incidentally, Rio Tinto Alcan shares most of these international commodity trader issues; the over-priced debt-funded purchase of Alcan and Comalco by Rio Tinto before the GFC, the Rio Tinto's plan to sell Pacific Aluminium (including NZ Aluminium Smelters Ltd), the low demand for aluminium from the stagnant economies of the Eurozone and the USA and the price and supply competition from Chinese smelters in the huge and growing Chinese market.

Imagine a fictional conversation between John Key and the CEO of Norske Skog.

"So, Yon, you don't mind if I call you Yon? For the Tasman Mill, you kiwis are all online, the demand for newsprint is down. You give me quarter of million of these NZ units that are worth $NZ3 each. No other ETS accepts them. Thats pretty low quality carbon credit, Yon. Now, Yulia Gillard, she gives us $A28 million for new plant at the Boyer mill in Tasmania. Can you match that, Yon? Can you?"

That is the bottom-line, isn't it? New Zealand could never have matched $A28 million, either as a direct grant, or through manipulation of the NZETS free allocation provisions.

To me, the Norske Skog Tasman job losses are a good demonstration of how futile it was to have an NZETS designed mainly to completely avoid any carbon price on transnational exporters. The carbon price has not just been reduced or discounted to Norske Skog, the sign has been reversed so that its an off-balance sheet transfer of corporate welfare to them in the form of emission units. Such transfers are no doubt sought by local managers who are rent-seeking, but they will be irrelevant to the international commodity trade movements that will ultimately determine whether these transnationals stay or go.