Brother can you spare $3.10 for a tonne of carbon dioxide?

In which Robin Johnson's Economics Web Page laments the homelessness and begging now seen each day on Lambton Quay in Wellington. And a lament for both the downward spiral of the NZ Emissions Trading Scheme and the downward spiral of the New Zealand spot price for a tonne of carbon dioxide - now less than the cost of a flat white. Brother, can you spare $NZ3.10 for a tonne of carbon dioxide?

The other day I looked up the old Tin Pan Alley song "Brother can you spare a dime?" The experience of poverty and the Depression in America summed up in a popular song. The lyrics were written by Yip Harburg in 1931, and the music was composed by Jay Gorney. The version by Al Jolson is very well known, but I like this version by Charlie Palloy and his Orchestra.

I looked up "Brother can you spare a dime?" as I was thinking about homelessness and poverty in New Zealand. I am not the only one. Churchs, charities, politicians, experts and academics are also concerned about poverty in New Zealand.

I see homelessness and poverty every weekday in Wellington's main CBD thoroughfare, Lambton Quay. I walk along Lambton Quay looking forward to the first coffee of the day. I usually note how many people are begging. There are almost always a few people begging on Lambton Quay. 'Brother can you spare a dime' is alive and well even on Lambton Quay.

Except it's sad cardboard signs saying 'Homeless and need help'. Also its at least $3 to $4 for a coffee.

The other price thats less than the cost of a flat white is the spot price of carbon dioxide in NZ. The carbon trader OMF reports NZ spot prices each day at CommTrade Carbon. Guess what? On 17 October, the day Parliament's Finance and Expenditure Select Committee reported on the latest amendments to the NZETS, the last trade of a New Zealand Unit ('NZU', a tonne of carbon dioxide) was at $3.10.

OMF also display a chart. It shows the collapse of the international carbon price reflected in our own plucky little battler NZETS. It certainly looks pear-shaped.

As the political philosopher Simon Caney and economist Cameron Hepburn note with a little British understatement, when the demand for permits falls to the extent that the permit price approaches zero, it is difficult to conclude that an ETS is working to reduce emissions.

Can any sane person look at this chart and reach any other conclusion than the NZETS has completely failed as a carbon price policy incentivising reduction in GHG emissions?

OMF originally committed the chart sin of not starting the vertical (price) axis at $0. However, reality has intruded. As the New Zealand Unit (NZU) price has relentlessly declined towards $0, they keep having to move the bottom of their chart closer to zero. That would almost be a small bit of humour in a pretty sad story. If it wasn't the empirical evidence of the failure of the design of the NZETS as a policy to price greenhouse gas emissions.

If the $3.10/tonne NZU price is the death notice of the NZETS, the funeral must be the latest Finance and Expenditure Select Committee process to amend the NZETS. On 17 October 2012, this committee released its report Climate Change Response (Emissions Trading and Other Matters) Amendment Bill

This is the National Government's bill to further weaken the NZ Emissions Trading Scheme. You know, indefinitely delay the entry of agriculture, make the half-price "two-for-one" transition permanent.

If you can quickly recover your will to live after digesting page after page of bureaucratic and political policy denial and excuse-making, and the complete failure of the National Government majority to engage at all with the minority political parties or submitters or ENGOs or the Parliamentary Commissioner for the Environment, download and read the 117-page report.

Otherwise, just read Patrick Smellie's report "No restrictions on foreign-sourced carbon credits confirmed"

"The Climate Change Response (Emissions Trading and Other Matters) Bill was reported back to parliament by the finance and expenditure select committee with only technical amendments, and a decision that capping the use of foreign credits would compromise the emissions trading scheme principle of "least cost of compliance".
The policy has seen major emitters such as oil and electricity companies snap up some of the lowest cost carbon units available on global markets, where prices have slumped to as little as $2 a tonne.
New Zealand Units, issued by the government, continue to be worth slightly more, at around $3 a tonne, but well below the $25 a tonne maximum price put on carbon when the ETS was introduced in 2009."

Or just read the press release from WWF-New Zealand.

This is another nail in the coffin for New Zealand's credibility on climate change and suggests the government has no intention of trying to set this country's emissions on a downward path. Other parties in the UN climate talks will rightly see New Zealand's claims to be doing something to reduce emissions as all spin and no substance."

What a complete shambles! Why didn't we just have a no-exceptions carbon tax in the first place?

They used to tell me I was building a dream,
and so I followed the mob,
When there was earth to plow, or guns to bear,
I was always there right on the job.
They used to tell me I was building a dream,
with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it's done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it's done. Brother, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don't you remember, they called me Al; it was Al all the time.
Why don't you remember, I'm your pal? Buddy, can you spare a dime?

Phil O'Reilly of Business New Zealand says Hands off our Emitters Trading Scheme handouts

Business New Zealand the eponymous lobby group is putting a proverbial head above the parapet and expressing a view on the New Zealand Emissions Trading Scheme (the NZETS). Robin Johnson's Economics Web Page argues that the NZETS gives us the "Eyes Glaze Over" syndrome as it is a flogged dead horse. The NZETS is toothless by design. In both respects, Business NZ has got the NZETS exactly how they want it.

Phil O'Reilly, the CEO of business lobby group Business NZ, has just written an opinion piece in the New Zealand Herald on the New Zealand Emissions Trading Scheme (the NZETS).

Okay, I think I can guess what you are thinking.

"Oh no, an article about the NZETS...just the mention of it sucks the life out of me. I bet it has attracted a whole lot of crackpot denier comments. It's so complex and full of jargon I don't really know what to think about it. I find the whole subject just a turn-off. My Eyes are Glazing Over.

Yes. This is the entirely natural MEGO response. You need to fight it! Most mentions of the NZETS descend into flogging the dead horse in order for the snake to swallow the elephant in the room.

We need to realise that this ETS-inertia politically assists the parties who gain from the current NZETS. That is of course, the big emitter business members of Business NZ. So, obtain a coffee or other stimulant and return. I can help you through this. I have waded through Phil O'Reilly's NZETS musings so you don't have to.

Turning to Phil O'Reilly's article, at first reading it seems a confusing mix of criticism of the NZETS and also some praise.

The criticisms; NZETS policies are uncertain, there has been lost of tinkering and amending - this is bad for investors and even low carbon investors.

"We need to stop the politicking, get the settings fixed, and just let the ETS get on with it its job."

The praise:

"The framework is fundamentally sound and capable of allowing a stronger price signal to flow through once the international carbon market revives...Major design changes at this point are unnecessary since higher carbon prices are almost certainly on the horizon, especially if Europe recovers."

What on earth is Phil O'Reilly on about? I can't decide which is further from reality; that the NZETS has a sound framework, or that the European economies are about to recover!

However, facts and internal consistency just don't matter in a business op-ed about the NZETS. A bit of criticism is a useful dog whistle to the fringe of climate change deniers. Sure enough, they pop up in the comments section including New Zealand's favourite energy expert Bryan Leyland. The wingnuts perform the function of making Phil O'Reilly look centrist and therefore reasonable.

And, according to the flogging the dead horse theory, it doesn't matter what you say about the NZETS, the mere mention of it induces ennui. So the more yada yada yada, the better.

But! Let me focus on the bottom-line meta-message from Phil O'Reilly. It is "Hand offs the generous free allocation of emissions units to emitters" as indicated in this quote.

"The allocation of free units allowed under the ETS is not a subsidy but a necessary protection against an uneven playing field."

Business NZ have a history of lobbying very effectively against having an effective carbon price. In particular, for the NZETS, they have lobbied very hard and successfully for generous free allocation of emissions units to big emitters. Its useful to look back at the history of this.

In 2005 Business NZ opposed the proposed carbon tax

They succeeded in getting the tax withdrawn. Clearly, the carbon tax didn't have enough exemptions.

In 2006, Business NZ started "a project to develop a framework for emissions trading". Partners were Business NZ members (and big emitters) Genesis Energy, Mighty River Power, Contact Energy, BlueSkope Steel, Solid Energy, Comalco (now Rio Tinto Alcan NZ), Fletcher Building and Fonterra.

Why were they doing this? Phil O'Reilly said "It's important that the system doesn't harm business competitiveness, and hopefully it can actually enhance competitiveness." One part of the project was to "evaluate and make recommendations on emission credit allocation schemes for different sectors".

In other words, by 2006 Business NZ had already evolved what was to be a highly successful tactic; over-emphasize the competitiveness risks to the big emitters and lobby for generous free allocations of emissions units to the big emitters.

In September 2007, Helen Clark's Labour-led Government released its draft NZETS Framework. In this framework, the free allocation of units to eligible industrial emitters was to be equal to 90 per cent of 2005 emissions plus some units for electricity consumption up to 2012, then decreasing annually on a linear basis so allocation ended in 2025, with no allocation to new industries.

In April 2008, Business NZ said the proposed NZETS allocations did not sufficiently protect the competitiveness of businesses. They catastrophically predicted that the NZETS would would cause 28% to 32% contractions of sheep and wool farming, dairy farming and processing and metals production, causing the loss of 52,000 jobs.

By 2008 business journalist Rod Oram was describing their approach thus.

"Business New Zealand says it supports an emissions trading scheme. But it's now clear it means one that transfers most of the costs to consumers and taxpayers."

Business NZ were not even trying to deny this. Passing the cost of the Kyoto Protocol onto taxpayers had been an explicit policy since 2007 when Phil O'Reilly said:

"The government needs to meet the 2012 liability itself rather than multiply its cost many times by passing on to businesses."

Labour stuck with 90% of 2005 emissions for free allocation and the 2025 end-year in the Climate Change Response (Emissions Trading) Amendment Act 2008 which became law in September 2008. Business New Zealand spat the dummy at not getting its way. Phil O'Reilly described the NZETS as "deficient","a risk to our economy" and an "example of poor law-making".

In 2009, the new National Government reviewed the NZETS, and then adopted amendments to it in November.

New Zealand Herald economics editor Brian Fallow noted that the large industrial emitters had got three big wins: a price cap of $25 a tonne to 2012; allocation of free units based on an intensity basis; a more gradual phase-out of free allocations at 1.3 per cent a year not 8.5 per cent.

Phil O'Reilly of course agreed and said "the Government had listened to business concerns about potential economic damage by providing for a more measured transition into a full trading scheme, while still placing a price on carbon."

In February 2010, Business NZ submitted on the development of Industrial Allocation Regulations in their by now time-honoured way, of emphasising free allocation to emitters:

"In the absence of other jurisdictions having emissions trading or carbon taxes, officials need to err on the side of generosity when developing the specific detail around the allocation of free units."

Fast forward to April 2011 and in Business NZ's submission to the David Caygill review of the NZETS they recommended that the $25 price cap and the 1:2 part obligation (which were due to end in 2012) be kept for ten years and that the start of phase out of free allocation be delayed until 2018.

In November 2011, when the David Caygill review announced it was recommending slower implementation of the NZETS, Business NZ said the slowdown was welcome but not enough.

In April 2012, the Government announced its intention to keep the $25 price cap until at least 2015 and to have a slower phase out of the 1:2 part obligation to 2012. In other words, they met Business NZ almost halfway.

I think its clear from this review that Business NZ has always taken a tough negotiators position on the NZETS free allocations. They work out what they can reasonably expect, then they always ask for more concessions above that. Then they complain vigourously when they don't get everything they want.

Hence their op-eds seem confusing, contradictory and act as honeytraps for crackpots. But it doesn't matter, as any discussion of the NZETS is enwrapped in a veil of flogging the dead horse.

The ETS in NZETS really does stand for "Emitters Trading Scheme"

Climate change in the NZ election - Elephants swallowed by a snake and flogging a dead horse

A snake swallows the elephant in the room and then flogs a dead horse - The politics of climate change in the 2011 New Zealand Election campaign

Robin Johnson's Economics Web Page posts some thoughts on the politics of climate change in the campaign for the New Zealand general election.
So whats happening with climate change in the campaign for the New Zealand general election on 26 November 2011?

I was originally thinking about writing a wonkish post comparing climate change policies between NZ's political parties. e.g. see Interest.co.nz. You know the sort of thing

Which parties have policies that reflect the seriousness of the impacts the science predicts? Who has got the science wrong? Which politicians are all talk and no action? What are the minute details of the each party's NZ ETS policies. Such as delays to sector entry dates, partial price obligations and varying free unit allocation regimes... MEGO, anyone? (My Eyes Glaze Over....)

Then I thought, No! I am looking through the wrong end of the telescope.

You know what really strikes me about climate change in the election?

It's the absence.

It is as if climate change is nearly completely absent from the campaign. When climate change does pop up, it's portrayed in simplistic soundbites.

NZ Climate Change Minister Nick Smith says anthropogenic climate change is real and complex and 'wicked'. But promises more moderating, balancing and delaying of the NZ ETS. The NZ Labour party says anthropogenic climate change is real and we will fiddle with some NZ ETS details for agriculture slightly earlier than National as farmers don't vote for us anyway. The NZ Greens say anthropogenic climate change is real and we have a detailed wonk-friendly exposition on our website, but for this election we are running with "jobs, kids, rivers". oh no..... MEGO....

What's happened is that climate change, the 'elephant in the room', has been swallowed up whole by the 'snake in the room' -- politics. Along with all other serious political issues.

This snake is the real theme of the election. Commentator Russell Brown calls it the politics of absence. Brown says "cultivated political absence...shapes the almost unprecedented popularity of John Key". Prime Minister John Key's political success is because of this successful strategy of "de-politicising" himself. Key's politics-free radio chat show was the perfect example.

The NZ media have largely just played along with the politics of absence. The election is discussed as a poll-driven horse race. Or a rugby game "of two halves" with "kicking for touch". Who looked confident? Who had the best sound bites? Who mispronounced his/her New Zild the least or most. Restructure or "reeshrukcha"?

The NZ media have trivialised and objectified political debate. I give this example. The most discussed electoral contest in 2011 appears to be Auckland Central which the Herald calls "the battle of the babes" as the candidates, Jacinda Ardern and Nikki Kaye, are both relatively young women, whose shared Herald columns are called "Broadsides". Do I need to say more?

After the snake has swallowed the elephant in the room, the snake becomes the dead horse that needs some more flogging.

Climate change has been politically institutionalised. Its now "flogging a dead horse". Everyone has a policy (a horse). Everyone talks their policy. No one does anything.

These policies all have a narrative that explains the problem (the horse is under-performing) and a 'narrative' solution (keep flogging the horse).

It is here that the metaphor of "flogging the dead horse" fits so well. Firstly, the probability of the two main political parties really acting to reduce our emissions of greenhouse gases is the same as the probability of the flogged horse springing back to life.

The second reason is that the best dead horses can be repeatedly flogged.

Take NZ's main planning law, the Resource Management Act (RMA). It's the ultimate flogged dead horse of NZ politics. In its 20 years of life, it has been in an almost eternal state of being vilified from all sides: for environmental failures and for economic inefficiency.

Both National and Labour have both been subjecting it to interminable reviews and amendments. The basics remain the same. Plans are written with lofty goals. Plans don't reflect consent practice. But then consent decisions rarely reflect plan goals. Consents are needed for some activities not others. Some consents need more evidence and take longer than others.

The NZ ETS is the new dead horse in the flogging stable. Its perfect. Like RMA issues, the NZ ETS is fiendishly complex. To most people, the NZ ETS is a MEGO topic. My Eyes Glaze Over. A recital of any of the detail of the NZ ETS is usually enough to induce that response. Thus deflecting most criticisms.

Being complex, if not incomprehensible by design, the NZ ETS can be fitted, usually negatively, into any political viewpoint. Farmers can still oppose it with vitriol despite their generous treatment. It is just as good a political punching bag as the RMA.

The National Party's 2009 amendments institutionalise that most Kiwi of practices -- a five yearly review by committee. To me this is the statutory recognition of the near-permanent state of "fixing" the RMA is subject to. Labour have said they will continue the 5-yearly reviews if they become Government. Thus they have bought into Nick Smith's approach of eternal moderating of the NZ ETS. Labour get a payoff of needing less specific policies.

So debates on the NZ ETS, like this one, between Nick Smith's soundbites and Greens Co-leader Russel Norman's observations on perverse price incentives, on TV One's Q and A programme, don't really matter politically. The debate itself is just more MEGO. The snake swallows the elephant.

Interestingly, TV One had former Greens col-leader Jeanette Fitzsimons as their 'pundit' for the Smith/Norman debate. She cut right through the snake punditry by analysing the NZ ETS on the meta level. Fitzsimons said the NZ ETS was now so weak and distorted that it no longer mattered what tinkering Smith did to it. "It's like driving a car fast towards a cliff and arguing whether to go in fourth gear or fifth".

Which is of course another way of saying the horse is dead and no amount of flogging will make it trot again.

Agricultural emissions out of NZETS and Nick Smith fails ETS basics

Robin Johnson's Economics Web Page cross-posts on the New Zealand decision to indefinitely defer the entry of agricultural emissions into the NZ emissions trading scheme

New Zealand Climate Change Minister Nick Smith has confirmed that agriculture will be unlikely to enter the New Zealand Emissions Trading Scheme. The news has as they say gone around the world with coverage in the NZ Herald, Reuters, Bloomberg and the Sydney Morning Herald.

Gareth of Hot Topic puts it this way.

"Hon Dr Nick Smith... explained the recent decision to indefinitely delay bringing agriculture into the scheme, stating the technology to do so practically does not yet exist"

Nick Smith yet again gets away with a soundbite of spin that is contradicted by the orthodox economic rationale for having an all-sectors all-units and all-gases international emissions trading scheme for greenhouse gases.

Just for the sake of argument, let's ignore the Sustainability Council's work on agricultural emissions reduction and assume that Dr Smith is correct that there are no practical technologies that will enable the agricultural sector to reduce emissions.

Let's go back to basics. Why do we even have emissions trading including all greenhouse gases across all sectors and across national borders?

The whole point is so that 'cheaper emissions reductions' can, in the short to medium term, largely carry the can for 'expensive emissions reductions', in meeting emissions limits or caps.

In economics speak, a sector of an economy with 'expensive emissions reductions' options is more or less just the same as a sector without practical technologies to enable reductions of emissions. Agriculture, for example, according to Nick Smith!

To paraphrase from another Nick, Lord Stern, in a well-functioning "deep and liquid" market for emissions permits, emitters with expensive mitigation options become buyers of permits and purchase permits from emitters with cheaper mitigation.

The role of the all-gases ETS, is to provide a wider variety of cheaper markets for emissions reductions, than would be the case in a single-gas ETS (such as a ruminant methane ETS, if there was one).

So the role of the emitting industries with fewer mitigation options (or more costly options) is to provide a flow of funds to reward those industries that have the cheaper emissions reduction options!

Logically, the lack of immediate practical mitigation technology in any one sector, is not a valid reason for leaving a sector out of an all-gases ETS.

Oz Carbon Tax Passes Senate

The Australian "Carbon Tax" has been passed in the Senate and will become law. It remains to be seen if Tony Abbott, should he get elected, follows through with his hubristic and dogmatic threats of repealing the law.

The Greens are understandably pleased.

Mining interests and The Australian have predicted this will trigger the imminent demise of the entire Australian economy, even though the more likely threat is due to financial problems in Europe. Piers Akerman (hat tip Deltoid) dredges up the old Dark Ages analogy to describe the horror that is about to befall us all at the hands of  the "Green Cultists" who, for some unexplained reason want to rain doom on us all.

I guess we all have our own favourite falling sky to fret over... 

Finally, carbon tax becomes law

The Age, Nov 8.

The Labor government has finally got its carbon price plan through the Senate — on a vote of 36 to 32.

The carbon price begins with a tax, starting next July and will move later to a trading scheme. The issue has dogged Labor, contributing to Kevin Rudd’s fall from the leadership, after he backed off on his emission trading scheme, delaying it when he could not get it through the Senate.


‘‘The Gillard government has today secured a clean energy future for all Australians,’’ Ms Gillard said.


The carbon victory comes as Labor was heartened by an improvement in today’s Newspoll, with the ALP primary vote rising from 29 per cent to 32 per cent.

Supporters of the carbon scheme celebrated out of the Parliament, undeterred by torrential rain. 

Carbon facts: how the package will roll out

The Age, Nov 8.

How the clean-energy package will roll out:

Carbon emissions tax for the 500 biggest polluters starts on July 1, 2012.

Tax moves to an emissions trading scheme in 2015.

Tax begins at a fixed price of $23 a tonne and rise by 2.5 per cent a year until 2015.

Tax will not apply to agricultural emissions or light on-road vehicles.

Electricity generation, stationary energy, some business transport, waste, industrial processes and fugitive emissions will be covered by the initial tax.

Average households will see a $9.90 weekly cost rise.

Average households will receive assistance of $10.10 weekly.

Free carbon permits will be the given to the most emissions-intensive and trade-exposed industries.

The government wants to cut pollution by 80 per cent by 2050.

There are many tired phrases used by grumpy old men, and Piers hackneyed use of "The Dark Ages" should prompt the question, exactly how dark where they? Well, not much really. 

Top 10 Reasons The Dark Ages Were Not Dark 

Wikipedia suggests that this period of Western Culture was just a bit obscure to the scholars of the Renaissance - many of whom glorified Rome. So if you love empires, wars and conquests then I guess the relative peace in Western Europe during this time (at least until the Crusades) means yes it was "dark". The Byzantine and Islamic cultures on the other hand had a mostly rip roaring "dark ages" of a time.

UPDATE

 Markets Live: Stocks lose $37b on Italy fears

Those clever evil Greens... at must be their doing.

New Zealand Minister Nick Smith fails the smelter spin test

Robin Johnson's Economics Web Page cross posts about New Zealand Climate Minister Nick Smith's spin over emissions trading subsidies to an aluminium smelter.

What does New Zealand's Minister for Climate Change Issues, Nick Smith, say when the New Zealand Green Party accuses him of subsidising greenhouse gas polluters?

Well it seems he denies it and he produces instructive soundbites of spin. I am informed that at Wellington's Oxfam election and climate change debate he said that New Zealand's sole aluminium smelter at Tiwai Point is the only aluminium smelter in the world exposed to a carbon price.

He has said this soundbite a few times. For example, in response to NZ Green MP Kennedy Graham on 29 September 2011:

"..the aluminium smelter in Bluff is the only aluminium smelter in the world to face any price at all for its greenhouse gas emissions".

On TV One's 'Q and A' programme:

"the New Zealand Aluminium Smelter in Bluff, it is the only one in the world that pays any face at all for carbon pricing." (1)

In Parliament in September 2009,

"...the Bluff smelter, on 1 July next year, will be the very first to face a carbon price for its pollution. The European scheme excludes aluminium smelters until 2013..."

Does Dr Nick's soundbite stand up to scrutiny? Not really. The European Union Emissions Trading Scheme, which started in 2005, excludes the European aluminium smelters until 2013. But it included electricity generation from 2005. And aluminium smelting is very electricity intensive. As the International Energy Agency says: "Although the primary aluminium sector is not directly covered by the (EU) ETS, the impacts of the CO2 price are felt through increases in electricity prices" (p 8). (2)

So, Europe's smelters are exposed to a carbon price through their power bills.

Another example of a Smith soundbite is saying that the overly-generous free allocation of emissions units to industry in the NZ ETS is not a cost to the taxpayer. For example: Parliament on 29 September 2011:

"This member and other members make the gross error of trying to claim that not exposing industries or consumers to the full price of carbon over all their emissions is somehow a subsidy. A subsidy implies that there is a cost to taxpayers. That is not true.."

Unfortunately for Dr Nick, that's not what the New Zealand Auditor General, Lynn Provost, says in her accounting and auditing advice for emissions units in the public sector

"NZUs have a market value and the issue of NZUs without charge to participants is an expense to the Government and creates a liability".

Sorry Dr Smith, the Tiwai Point smelter is not the only aluminium smelter exposed to a carbon price in an ETS. And the European smelters probably pay a higher carbon price through their electricity costs as the Tiwai Point smelter owner is compensated for electricity costs as well as emissions through excessive free allocation of emissions units.

Sorry Dr Smith, you can't just create and give away a permit to emit greenhouse gases that has a clear market value and say there is no cost to taxpayers as Treasury did not write out a cheque. The Auditor General confirms what we taxpayers already know that there is a real cost to taxpayers of giving emissions units away to big emitters.

Footnotes
(1) NB By 'pay any face' I think he means 'face any price'.)
(2) IEA, 2008,'Climate Policy and Carbon Leakage - Impacts of the European Emissions Trading Scheme on Aluminium'

The Minister's Chartjunk in the NZ ETS Review 2011

This is a guest post from Robin Johnson's Economics Webpage.

This evening I was intending to carefully read the Report on the New Zealand Emissions Trading Scheme that Minister for Climate Change Issues Nick Smith released today and write a considered review.

However, I only got as far as Nick Smith's forward on the the third page when I got stopped in my tracks by Figure 3, a misleading piece of chartjunk if I ever saw one, about New Zealand being on target to meet its obligations under the Kyoto Protocol. Here it is.



Fig 3 New Zealand's net Kyoto greenhouse emissions 2000 2012

The chart legend says it shows "Kyoto net emissions (actual emissions)". This parameter trends upward to 2007 and then in 2008 and 2009 it suddenly drops below the blue line of NZ 1990 emissions. Thus showing we are meeting our emissions reduction committment that we signed up in the Kyoto Protocol. Its enough to make you proud to be a Blue-Green.

This chart is junk because it misrepresents the underlying data on greenhouse gas emissions. Back to the legend: "Kyoto net emissions (actual emissions)". Why does it say "actual emissions" in brackets? Because Smith would like you to think that. Lets look at real chart of real New Zealand greenhouse gas emissions.



NZ Total GHG emissions 1990 to 2012

This shows total real emissions up to 2007 and predicted emissions 2008 to 2012 - the green line. It looks nothing like Fig 3. The actual and predicted trend does not show a return to 1990 volumes of emissions. However, that legend also said net emissions, that is total or gross emissions in any year less carbon absorbed by forests. Maybe Fig 3 is based on net emissions.



NZ Gross and Net GHG emissions 1990 to 2012

The trend in net emissions (total less forest sink removals) or the blue line shows an even steeper rate of increase than the total emissions. So how can Fig 3 show that New Zealand reduced emissions to 1990 volumes? Two more clues are in Figure 3. The title is "Kyoto net" and there is a note under the data source says "Kyoto net 2000-2007 values are backcasted". So the Fig 3 data is not just "net", it is also "Kyoto net" and "backcasted". What does ''backcasted" mean? Another chart shows how Smith gets to Fig 3 from the real total and net emissions data.



NZ Kyoto calculation 1990 to 2012

Greenhouse gas emissions, as defined for compliance with the Kyoto Protocol, are gross from 1990 to 2007, and once the Kyoto committment period starts in 2008, an Annex B country like New Zealand can meet its target by deducting removal units issued for carbon sinks - so Kyoto-defined emissions go net from 2008. Hence the red line. The removal units issued for afforestation (the increase in carbon stock in a forest planted since 1990) appear as if from nowhere in 2008 and disguise the growth in both the gross and net emissions.

This isn't new information. In 1997, Simon Upton, the Minister for Climate change in Jim Bolger's 1990's National Government spoke of New Zealand's position at the UNFCCC talks; "if sequestration is treated in the way New Zealand has long been advocating, then the major contribution we expect to make to removing carbon from the atmosphere..will earn us 'credits' ".

Interestingly, Upton had this cautionary note: "It might be suggested that New Zealand's interest in sinks stems purely from a desire to secure for itself a large buffer that would allow for significant growth in greenhouse gas emissions". Upton believed that would not be a credible policy.

However, since Upton's day, the chartjunk that is Figure 3 indicates that New Zealand's climate change policies have consistently been all about providing exactly that buffer to allow for significant growth in greenhouse gas emissions while claiming to have mitigation policies such as the NZ ETS that match our much-abused clean green overseas image.

Trans Tasman ETS Challenge

Or the ACT as seen from NZ, a guest post from Robin Johnsons EWP making some comparisons between the New Zealand scheme and the proposed Australian Carbon Tax (ACT).


Securing a Clean Energy Future - how comprehensive?

I have to admit I recently rushed to conclude that the Australian carbon pricing scheme would be a "leapfrog" ahead of the NZ Emissions Trading Scheme (NZ ETS). Okay, I admit I generally think the NZ ETS is worse than nothing as a policy to reduce GHG emissions. So the Australian scheme must be more effective. So I have leapt to a conclusion without doing the number crunching.

Now I have actually read Julia Gillard's carbon pricing proposal and can offer a slightly more considered opinion.

The carbon price scheme has a name and obligatory website; Securing a Clean Energy Future. The full document is Securing a Clean Energy Future, The Australian Government's Climate Change Plan, Commonwealth of Australia 2011, ISBN 978-0-642-74723-5.

First of all, the 'Clean Energy Future' is not a carbon tax. It is a cap and trade emissions trading scheme with a safety valve. Page 25 says "Large polluters will report on their emissions and buy and surrender to the Government a carbon permit for every tonne of carbon pollution they produce." That's very much an emissions trading approach, but with a fixed carbon price for three years. The price is A$23 per tonne from 1 July 2012, then A$24.15 in 2013-14 and $AU25.40 2014-15 (p 26). From 1 July 2015, the carbon price will float within and upper and lower ceiling with the Government setting an overall 'Cap' or limit on GHGs (p 27).

The GHGs covered are; carbon dioxide, methane, nitrous oxide and perfluorocarbon emissions from the aluminium sector (p 28).

There will be 500 sources of emissions, which will be companies or sites with direct greenhouse gas emissions of 25,000 tonnes of CO2-e a year or more, Sectors covered will be; stationary energy, waste, rail, domestic aviation and shipping, industrial processes and fugitive emissions (p 27).

But not farming or land transport fuels.

So how comprehensive is 'Clean Energy Future'? To me, the comprehensiveness of a carbon tax or an emissions trading scheme is a good metric of likely efectiveness. And its a metric to use to make comparisons between policies.

Lets say the comprehensiveness is the proportion of total GHGs emitted that is either taxed or included in an emissions trading scheme. 'Clean Energy Future' claims half to two-thirds. The report states that more than half of Australia's GHG emissions will be directly covered by the scheme, and almost two-thirds of GHGs will be included when other measures are included.

'Clean Energy Future' includes an appendix of forecast revenues. In the year to 30 June 2013, the 'Clean Energy Future' scheme will earn A$ 7.74 billion (Appendix C, p 131). At the fixed price of A$ 23 per tonne, that gives 337 million tonnes of GHG (by CO2-e) that is taxed or priced. Thats 60% of Australia's 2009 GHG emissions (565 million tonnes) priced in 2013. That seems not a bad start, given that Geoff Bertram and Simon Terry have calculated that the NZ ETS, after free allocation, delayed start dates, only prices 3%, (12 million tonnes out of 378 million tonnes) of New Zealands GHG emissions between 2008 and 2012 (Bertram and Terry 2010, The Carbon Challenge, p 111).

But is there any free allocation of carbon permits to emitters in the 'Clean Energy Future' scheme? Yes, if you look carefully there is.

The revenue forecast in Appendix C lists costs of A$ 2.85 billion for "Jobs and competitiveness program" and A$ 1 billion for "Energy security".
Table 15 on page 114 notes that "Jobs and competitiveness" invloves the free "allocation of permits ...to new and existing entities undertaking an eligible emissions-intensive trade-exposed (EITE) activity". Table 16 Energy Security p 116 indicates that "Energy security" involves "allocation of permits and cash estimated at $5.5 billion over six years to assist highly emissions-intensive coal-fired generators" and "payments for the closure of around 2,000 megawatts of very highly
emissions-intensive coal-fired generation capacity by 2020".

So of the A$ 7.7 billion collected from the 500 emitters in 2012-2013, possibly some A$ 3.85 billion will be rebated to the dirtiest and most carbon-intense emitters, as long as they are trade-exposed. The definition of emissions-intensive-trade-exposed isn't exactly tied down and has a number of parts. One is being imports or exports as greater than 10% of production. Also, rather like the NZ ETS, any assistance to emitters will phase out at a very gradual 1.3% a year (Table 15, p 114).

Lets assume that 100% of these two categories is spent on free allocation of permits or is just given as a subsidy to some of the 500 emitters. If we have 337 million tonnes of GHG emissions (by CO2-e) that is priced, and subtract 167 million tonnes for the gifting and assistance ( A$ 3.85 billion divided by $23AU = 167 mt) we get 169 million net tonnes of GHG emissions priced in 2013 under the 'Clean Energy Future' scheme. Thats 30% of 2009 GHG emissions of 565 million tonnes.

Okay, I am comparing 2013 for the 'Clean Energy Future' scheme with 2008-2012 for the NZ ETS, but a minimum of 30% coverage of GHG emissions beats 3% of GHG emissions hands down. The 'Clean Energy Future' scheme is more comprehensive than the NZ ETS by a factor of 10. 30% of GHG emissions priced vs 3% priced. That certainly is a big "leap frog" ahead by our trans-tasman cousins, I would say.

Its the future with no polluter

Given the recent news that former Governor of the Reserve Bank of Australia Bernie Fraser will be the inaugural chairman of the soon to be established Climate Change Authority (CCA), I proffer the above tag line for the official motto¹.

Bernie Fraser to head climate change authority
SUN 10 JULY 2011
Prime Minister, Deputy Prime Minister and Treasurer, Minister for Climate Change and Energy Efficiency

The Gillard Government is pleased to announce that it intends to appoint the former Reserve Bank Governor and former Treasury Secretary Bernie Fraser as Chairman of the new Climate Change Authority (CCA).

The CCA is to be established by legislation as an independent body to provide expert advice on key aspects of the carbon pricing mechanism.

When the carbon pricing mechanism moves to a flexible price emissions trading scheme, the Government will put annual caps on the amount of carbon pollution that can be released into the atmosphere by entities covered by the carbon price.

The CCA will play an important role in the governance of the carbon pricing mechanism.

One of the CCA’s responsibilities will be to make recommendations to the Government on future pollution caps under the carbon pricing mechanism.

These recommendations will have regard to, among other matters:

• the Government’s announced medium and long-term carbon pollution targets;

• progress towards emissions reductions;

• the impact of its recommendations on the Australian economy, including on specific industries.

The Government will make final decisions on these pollution caps, based on the recommendations of the CCA.

The CCA will also provide advice on the performance of the carbon price and other climate change initiatives and will track progress towards Australia’s pollution reduction targets.

It will conduct regular public reviews and its reports will be made public.

The headline at The Age is,

$15 billion in tax cuts for low and middle income earners under carbon deal
Phillip Coorey
July 10, 2011 - 6:39PM

Low and middle-income families and singles pensioners and other welfare recipients are the biggest winners from the carbon price while those on generous incomes will bear almost the full brunt with next-to-no assistance.

Unveiled at midday today by the Prime Minister, Julia Gillard, a package of $15 billion in tax cuts and increased benefits mean 4 million households will receive more in compensation that the carbon tax will add to their cost of living.

A further 2 million households will be no worse off by being fully compensated, while another 2 million will receive something.

Of the nation's 8.8 million households, only 700,000 receive nothing.

The scheme will operate as a fixed carbon price of $23 from July 1 next year, and move to a full emissions trading scheme on July 1, 2015, when the market will set the carbon price.

It excludes petrol and is not revenue neutral as first forecast. It will cost the budget $4.2 billion over four years and will erode the forecast $3.5 billion return to surplus in 2012-13 by $530 million.

It's fairly obvious how the Opposition/News Co. is probably going to play this. It will be some variation of economic doomsday-ism rolled up with "the politics of envy" style rhetoric coupled with a frenetic whisking up of the "green socialist agenda" - when The Greens aren't being compared to Fascists, that is.

As Crikey writes, like all such deals, its a compromise. Maybe not the best compromise but it hopefully breaks the inertia and resistance created by the climate denial spin machine.

Carbon tax: the policy and the politics
by Bernard Keane

This is a better package than the CPRS it is so closely modelled on, but not by a lot.

The key problem with the CPRS was that compensation for emissions intensive industries was so great and went for so long that it neutered the price signal...

The same levels of assistance will apply to big polluters again, but this time the Productivity Commission will be on the case to review whether the assistance is justified and there’s an in-built bias toward reduction in assistance to the levels proposed by Ross Garnaut in his updated report if the PC agrees. But big polluters have a guarantee that their assistance won’t be cut until at least 2018, although the PC can start its 2014-15 review early if it believes there are industries making windfall gains from compensation. Which, of course, they will be.

There will also be an independent body to examine the case for accelerating Australia’s laughably unambitious target of 5% by 2020. The Climate Change Authority could become a potent independent source of advice that will pressure future governments inclined to recalcitrance in the key issue of how quickly we proceed with decarbonising the economy.

So two independent sources of pressure on future governments to improve this scheme in its two critical features: how much the price signal is neutered by compensation, and how fast we should be reducing emissions.

The other key advantage over the CPRS is the use of tax cuts aimed at addressing EMTRs for low-income earners. This isn’t merely sensible policy, it’s actually consistent with the government’s own reform efforts so far under Julia Gillard, aimed at increasing workforce participation.

This tax break for 'working families' my also function as a 'pre-emptive' stimulus - given the direction of oil prices and signs that the US and Europe may be in for another bout of GFC.

The bad news is some of the worst polluters will get even more than they got under the CPRS. The coal industry will get a staggering $1.2 billion in handouts, in an outrageous cave-in to the industry that is responsible, more than any other, for Australia’s contribution to global warming. Compensating the coal industry for a carbon price is like compensating the local drug dealer for a crime crackdown.

So how does it stack up against the criteria Crikey suggested last week? Will it be seen as a serious contribution to the cause of an international agreement on climate change? Yes.

This is about as voter-friendly a package as you can get while still doing something about climate change. With tax cuts for low income earners, generous overcompensation for pensions recipients and handouts to rentseekers to mute claims of job losses, the package minimises the potential for scare campaigns and special pleading.

As we all know, this government is so inept it’s likely to botch the selling of the package and leave people convinced they’ll be ruined by it.

Still, by targeting assistance at the steel industry, the coal industry and the coal-reliant electricity sector, Labor is keeping one eye on its heartland, even if it will have trouble with the road transport industry (which is still getting a good deal under road pricing arrangements). The government wants to extend a carbon price to heavy vehicles in 2014 but this has not been agreed by the Multi-Party Committee on Climate Change (read, the independents).

And the package relies far more heavily than the CPRS did on tax cuts to deliver compensation, giving the government a potent selling point — two, actually, because the lift in the tax-free threshold will be over two years.

There are some very generous concessions.

Big polluters get $9.2b assistance
Business Age, 10th July

The federal government will provide $9.2 billion in assistance to support jobs and industries affected by the introduction of a carbon price.

The government released its long-awaited carbon price package on today, announcing an initial $23 carbon price that will be paid by around 500 big top polluters.

Over the first three years $9.2 billion of the revenue raised will be used for assistance by way of free carbon permits to manufacturers that generate over 80 per cent of emissions.

For manufacturing industries like aluminium smelting, steel making, flat glass making, zinc smelting, and most pulp and paper manufacturers, they will receive 94.5 per cent of industry average carbon costs.

Lower polluters, such as plastics and chemical manufacturing, tissue paper manufacturing and ethanol production will be eligible for permits to cover 66 per cent of carbon costs.

Liquefied natural gas projects will receive 50 per cent assistance. The steel industry will receive $300 million in assistance to encourage investment and innovation to assist in the transformation to a low-carbon economy.

The coal sector will receive a $1.3 billion package to support jobs during the move to clean energy.

The government said most small businesses will not be materially affected by the carbon price, but will benefit from an extension in the small business instant asset write-off threshold to $6500.

And landholders will also see some financial benefits.

Farmers to reap $1bn windfall
The Australian, July 10.

FARMERS who plant trees and store carbon in their soil will share in $1 billion in carbon tax receipts under the package to be unveiled tomorrow.

Canberra will recruit country Australia to its cause by buying credits from landholders who make carbon savings or allowing them to sell those credits to polluters to cover their carbon bills.

It will also reinvest carbon tax revenue in land research and management programs, including funding for outreach officers and training for farmers who want to take part in the scheme.

Greens deputy leader Christine Milne yesterday said the deal struck by her party would end the "political interference" at cabinet and ministerial level in renewable energy funding programs.

"We're going to see now real support, consistent secure support for research and development, and demonstration and commercialisation projects," she said.

Mr Oakeshott said the latest bargain with the government offered landholders "significantly more" than was on the table under Labor's earlier carbon pollution reduction scheme.

Which should help prevent some farmers from joining or voting for silly front groups like The Climate Skeptics², who also seem to want to revive the "Tilt Australia" campaign.

[UPDATE]
It only took a few hours.

Tony Abbott slams 'veiled socialism'
TONY Abbott has accused Julia Gillard of using her carbon tax plan as a cover for a redistribution of wealth, savaging the new policy as "socialism masquerading as environmentalism".

The Opposition Leader also insisted the package would cost jobs, demanding the Prime Minister visit factory floors and mines to face workers whose jobs he said she had put at risk.

"We're against this," Mr Abbott said. "This is a bad tax. It can't be fixed. It has to be fought."

SURELY Tony Abbott didn't mean to let his Climate Change Denial Disorder (CCDD)come to the fore, again ... he needs to be prescribed some Realityne^TM.

Mr Abbott said. "This is a bad tax based on a lie."

Meanwhile, elsewhere in The Australian, others are looking to the business upside.

Biggest single investment ever made in renewable energy
The Australian, July 11, 2011

The Clean Energy Finance Corporation will start operating in 2013-14 with more than double the seed capital of its overseas counterpart, Britain's $4.5bn Green Investment Bank.

And green power projects -- excluding nuclear, biofuels from native forest woodwaste, and carbon capture and storage -- will take up at least half the fund's capital, after lobbying by the Greens.

Greens deputy leader Christine Milne said the dedicated funding represented the biggest single investment in renewable energy Australia has ever made.

"With a legislatively guaranteed stream of funding outside the budget, no future government will be able to undermine it without changing the legislation," she said.

The fund, which will be independent of government and run by a board of banking, investment management, clean energy and technology experts, aims to partner with business to maximise investment in the sector.

The government believes $20bn will be spent on renewable energy projects in Australia in the next decade and $100bn by 2050. "Treasury modelling shows that with a carbon price, energy from the renewables sector is projected to account for around 40 per cent of our electricity generation by 2050, a significant increase from its current level of around 10 per cent," it said yesterday.

Professor McKibbin was concerned by the scale of the package's subsidies for renewables.

"We know from the Productivity Comission report that that is a very high cost way of reducing carbon per unit . . . it has to be done in a way that is very carefully managed," he said.

"I would prefer that the carbon price system itself generates enough incentives."

1. Bernie Fraser achieved some celebrity in Australia for his role in promoting superannuation funds with the tag line "It's the super of the future", uttered in a distinctive monotone.
2. I've already linked to The Australian, I refuse to have links to two sites from the dark side in one post ;-).