Friday, September 03, 2021

Climate Change: We need a total carbon budget

On Wednesday the government blew its carbon budget, flooding the market with 7 million tons of extra pollution (at a social cost of over a billion dollars) in a failed attempt to keep carbon prices low. In the aftermath, Stuff quoted Climate Change Minister James Shaw as saying he would be taking it out of future carbon budgets, which was some hope for sanity. Sadly, that hope was dashed: today Newsroom reports that Shaw will be covering only 1.6 million tons from future carbon budgets. As for the rest, he's going to pretend it is already covered as "stockpile reduction". This might meet the lax test of the Climate Change Response Act (which only requires CCR volumes to be covered when they exceed a formal emissions budget), but its basicly lying with numbers like Labour's "billion trees" (which included existing planting). Meanwhile, the reality is that those 7 million tons will be burned sometime, so we need to find a way to remove it from the system.

All of which suggests that we need a total allowable carbon budget for New Zealand to prevent such bullshit. What would such a budget look like in our current legal framework? Well, the Zero Carbon Act commits us to net-zero (except methane) by 2050. Depending on the exact methane target, that means net emissions of between 16 and 23 million tons in 2050 (midpoint 19.55). Using the same 2017 emissions baseline used for methane in the Act, that implies a total carbon budget of 1445.1 to 1549.6 (midpoint: 1497.45) million tons from 2021 to 2050. Methane post-2050 complicates this. But assuming we decide to phase it out at some stage, then it adds an extra ~200 million tons for a 20-year phase out (less if it is quicker, or if the 2050 target is deeper).

(As an aside, the total allowable global carbon budget to have a merely two-thirds chance of staying within 1.5 degrees is estimated by the IPCC at 420 billion tons. New Zealand has about 0.06 percent of the global population, so we're entitled to 0.06 percent of that. Doing the maths, that linear, status quo budget is about six times more than we are entitled to. And that's ignoring the burden of past emissions. At the very least, we have a moral duty to undershoot that budget by as much as possible, if not draw down everything in excess of our population share post-2050).

That total budget is all the carbon (except methane) we can ever emit. If the ETS covered everything (it doesn't), it sets a limit on how many non-forestry credits can ever be allowed to enter the system (e.g. by auctions or free allocation). The stockpile - 120 million tons at the start of this year - also comes out of that, since it is carbon that will be burned. And pretty obviously, credits issued as subsidies under the (old) fixed price option or (new) cost containment reserve have to as well. And on that front, poor policy design by James Shaw has allowed an extra 37 million tons of pollution to enter the system this year - ~2.5 percent of our total allowable budget.

A total carbon budget approach has implications - notably, that we must set future ETS allocations taking into account the total stockpile, so we don't let more carbon enter the system. But it also has consequences for free allocations, and in particular agriculture. The government's promise of subsidising agriculture by 95% of 2005 emissions - 37.7 million tons - phased out at 1% a year - implies that if it enters the ETS in 2025 the sector will receive 933 million tons of subsidies by 2050. That's over 60% of the total carbon budget. It also implies that the sector will continue to receive subsidies well in excess of its actual emissions post 2050. And that's simply unsustainable - environmentally, morally, and politically. The implication is that that promise is going to have to be broken, and that phase-our rates are going to have to increase. And on that front, its worth noting that farmers have already been entirely exempt from the system for nearly 15 years, and that that is more than enough lead time for them to change their dirty practices and get used to the idea of paying their way. And if they haven't used that time wisely to adapt, well, they deserve to go out of business.