Tuesday, March 14, 2006

Climate change: too narrow

New Zealand's climate change policy is currently being revised. As part of this process, the government has held a number of "stakeholder engagement days", consulting with industry, electricity generators, interest groups and consultants (though not, seemingly, with environmental groups) about their plans. According to the presentation on the web, these plans include a limited carbon tax on large emitters. There are roughly thirteen companies emitting over 0.25 MtCO2-equivalent a year, which together account for 21% of our CO2 emissions. Taxing these emissions (or applying some other economic instrument such as a limited "cap and trade" scheme) will provide these firms with an incentive to reduce their emissions, and thereby help New Zealand meet its obligations under the Kyoto Protocol. It's a complete reversal of the previous policy, in which these same large emitters were generally going to be exempted from carbon taxes through Negotiated Greenhouse Agreements and instead asked to pursue voluntary reductions. But with the foundation of previous policy - the carbon tax - being canned, everything is back on the table.

While I welcome this move on the basis that it implements the "polluter pays" principle and that (almost) anything is better than nothing, the problem is that it really is targeted too narrowly to produce the level of reductions we need. 21% of CO2 amounts to about 10% of total gross emissions, or around the amount we exceed our Kyoto target by every year. Unless we're planning to shut down these thirteen companies entirely (leaving us with a severe electricity shortage, among other problems), we need to spread the burden of emissions reduction much wider to have any real hope of having an impact.

The other problem with this policy is that it ignores the twin elephants in the room: transport and agriculture. These make up 16% and 49% of our gross emissions respectively, and are both growth areas - and the government's plan now is to do absolutely nothing to reduce them, or even to prevent further rises in emissions. The large emitters rightly see this as inequitable, but the rest of us should also be concerned, because it is a plan for failure. Unless we seriously target one or other (and ideally both) of these sectors, we simply have no credible hope of meeting our Kyoto target. And that is something we will all pay for later...


The key one is agriculture - which Idiot/savant thought it was clever to include natural emissions alongside industrial? But which politician is going to try tackling that? Of course in targeting the largest dozen emitters you take in Fonterra which could be a back door fart tax.

The problem with the targeted approach is that it misses the larger part of the economy - SMEs and may create an incentive to stay an SME (which also may be far larger emitters based on output per econimic unit produced so the good guys get punished for being successful andeasy targets). At the same time it may punish large businesses that export (eg CHH, NZ steel) or provide essential products (NZRC) and encourge them offshore - the whole reason for exempting them in the first place. That will not be good for the economy and poor economies tend to be less efficient.

Transport is hardly an elephant when it is the third largest emitter. It also generates significant wealth through empowering trade flows. You have a big problem if you reduce that in significant ways. And growth will be limited by improved efficiency.

Personally I would have no problem with putting a lower limit on fuel efficiency for new cars with significant up front costs linked to lower efficiency vehicles as the fuel tax proves that small incremental costs don't make a difference. There should also be encouragement to trade up to greater efficiency and retirement of old cars like mine, but this govt is more concerned with controls and punishment than encouragement.

To be fair to the Govt they are working on a new energy strategy. I don't envy them the task. We all have ideas and reasons why something won't work, it's much harder to come up with things that will work.

Posted by Anonymous : 3/14/2006 09:49:00 PM

I haven't read enough about the early COPs to learn why agriculture was included, but my suspicion is that it was done to muddy the waters and shift the focus away from the original strong emphasis on CO2 emissions. While its scientifically sound, I'm not sure that food production is something we really want to discourage. But its there, and we have to deal with it.

Yes, the targetted approach misses too much of the economy, and sets no incentive for savings elsewhere - which may also be cheaper. Transport is more an elephant because of its growth rate; we are really not going to be able to make our target without doing something. As for what, I think you're on the right track - regulate for energy efficiency. The idea isn't to reduce the amount of transport we get (as you say, it's absolutely vital), but to reduce the emissions that causes - which means doing it cleaner and more efficiently than we do at present. This is well within the reach of current technology (indeed, the problem is that we're not using current technology, and instead using older, less efficient cars), and it is frankly scandalous that they haven't already taken steps in this area. But unfortunately, successive governments have been obsessed with the purity of economic instruments, and unwilling to back them up or "distort" them with other policy as well, and so now that we've decided not to go down that path, we have no backup plan.

Ironically, thanks to George Bush, we now have an effective carbon tax ten times what the government was intending to charge. And its having an effect - substantial enough to knock half a billion off petrol taxes, which is a fair bit. If it keeps up for a couple more years, we may see some serious changes in the transport sector. But this is more due to "good luck" (or bad, for the Iraqis) than solid policy.

Posted by Idiot/Savant : 3/15/2006 12:09:00 AM

I tend to be a free marketer but recognise that if the govt has policies it would make sense to promote them, but do so in a low impact way. That's why I favour dealing with new cars as that will not really inconvenience anyone except perhaps new vehicle importers, but it could just shift sales from one segment to another, and even encourage more sales due to incentives to scrap less efficient vehicles (as opposed to older as many older ones are more efficient than new XR8s)

I'd take the storm about transit's figures with a pinch of salt. That issue was always going to arise due to efficiency not prices. I was at a meeting 3 years ago when the then minister of transport said petrol tax was doomed as take was going to drop and RUCs were likely for petrol. It should be noted that petrol is a mature fuel. It grows slowly anyway so I don't buy this argument that there has been a big drop in consumption as historically demand has been fairly inelastic and prices are nowhere near as high as during the 80s. One of the issues policy people are having to deal with is the relatively low impact oil prices are having on economic activity. i think there were other agendas going on in the transit issue.

Anyway, diesel and jet are the big movers as they reflect movements in economic activity and tourism, and neither are taxed directly.

Gee George Bush is responsible for the growth in middle class China and India, he will be pleased.

Posted by Anonymous : 3/15/2006 09:58:00 AM

"I haven't read enough about the early COPs to learn why agriculture was included,"

Because it's our main source of greenhouse gas emissions?

Saying "we shouldn't target growing food" is like saying "we shouldn't target making stuff". The aim is not to stop food production or manufacturing, but it make it more sensitive to costs in terms of greenhouse gasses.

It's not "nature" vs "industry". It's two different forms of business.

It's possible to make agriculture produce far fewer greenhouse gasses without endangering our ability to feed everyone on the planet.

The whole point of Kyoto is to try and get people to pay for their greenhouse gas emissions. If the costs of greenhouse gas emissions are passed on to the consumer then the market can start acting to improve things.

If it turns out that eating meat and/or dairy products produces greenhouse gasses, then it's good if a market mechanism can pass that cost should be passed on to consumers, who can then choose if they want to pay the extra.

Posted by Icehawk : 3/15/2006 12:37:00 PM

And even meeting our Kyoto target would be hopelessly inadequate in combating global warming.

The greenhouse impact of agriculture can be greatly reduced by growing more crops (food and biofuel) and fewer animals. That would reduce methane emissions, reduce burning of fossil fuels, and produce more food.

There are plenty of ideas that will work, and to be fair to the Government, they're moronic ostriches who aren't even contemplating them. Option3 instead of Transmission Gully, for example.

Posted by Commie Mutant Traitor : 3/15/2006 01:02:00 PM

Icehawk: agriculture is our main source of greenhouse emissions - but we're very unusual in that regard. Globally, methane is not nearly so important, and originally the sole focus in the negotiations which eventually led to Kyoto was CO2. It was only later that other greenhouse gases (which were covered under the UNFCCC) were included. At the time, the New Zealand government supported that, because they were shit scared of getting clobbered if methane was handled seperately (our methane emissions at the time being around ten times the global per capita average).

As for discouraging food production, yes, its two different forms of industry - but one is rather more vital than the other. And its not all about cows; a significant source in other countries is rice paddies, which provide one of the world's staple foods.

The problem with global warming is and has always been about industrial and transport CO2 emissions. Everything else - methane, CH4, forest sinks - was added in an effort to distract from that simple fact. It would be nice if we could get the focus back onto that for the next round - but somehow I really doubt it will happen.

Posted by Idiot/Savant : 3/15/2006 05:44:00 PM

CMT: yes - but it would be a start. If we are to solve this problem, we need to cut greenhouse gas emissions by around 60% from the 1990 baseline. That can only happen if we transform our economies away from carbon and towards sustainability. That sort of change will take decades, and Kyoto is only the first step towards achieving it.

The real test will be with the negotiation of targets and rules for CP2. The cuts there need to be deeper; unfortunately, with too many Annex I countries failing to meet their targets, I'm not sure that there will be the political will.

According to the UNFCCC's report on Key GHG data, Annex I has made an overall reduction of 5.9% since 1990 (against a collective target of I think 5%). But almost all of this "progress" has been made by the "economies in transition" - meaning the formerly communist states of Eastern Europe, who suffered a massive economic collapse. And emissions are rising, not sinking. So there's a long way to go yet.

Interestingly, many of the European countries have managed to reduce their agricultural emissions, and I'll skim some of their UNFCCC communications to find out how. But agricultural practices are quite different over there (they keep their animals in barns, for one), so such changes might not be able to be made here.

And yes, I agree completely with your assessment of the government. One thing that is clear from my reading is that they have consistently dragged their feet and avoided doing anything, initially in the hope that the Protocol wouldn't come into force, and more recently out of fear of the business community. I'm now worried that the ongoing negotiations for CP2 will be a similar brake on policy action - which means we're likely to be in the same terrible situation after 2012...

Posted by Idiot/Savant : 3/15/2006 06:00:00 PM