Climate Change: National's gas fantasy

Yesterday the government released the advice on its proposal to repeal the offshore fossil gas exploration ban, including a Climate Implications of Policy Assessment statement, Cabinet paper, and Regulatory Impact Statement. I spent some time looking at these last night, and the short version is that the government's plan is pure madness. It is utterly inconsistent with the 2050 target, and will completely blow our carbon budgets.

First, the CIPA. MBIE uses its own model, rather than He Pou a Rangi's, because they believe (or want Ministers to believe) that gas is declining faster than He Pou a Rangi expected. In this they assess the impact of repealing the ban at 14.2 million tons of CO₂ to 2035, and 51.6 million tons to 2050 - basically another year's worth of emissions:

They try to handwave this with reductions from "displaced coal" and more EVs and industrial electrification due to a "stable electricity price", but they don't quantify any of that, so these are the numbers they've got. And if you take them at face-value, and poke into the details of our future emissions budgets and ETS settings, they become very problematic very quickly.

Lets look at the second emissions budget period (EB2, 2026-30). The total allowed for that five-year period is 305 million tons. He Pou a Rangi expects 149 million tons of that to be CO₂, and poking into their modelling, they think roughly 71 million tons of that is going to come from energy, industry, and buildings. National's policy would increase that by 5.4 millions tons, right when we need to be cutting.

But its all fine, says MBIE, because:

All emissions in the gas sector are covered by the New Zealand Emissions Trading Scheme (ETS). The ETS has a soft cap which means any additional emissions in the gas sector could be offset elsewhere but due to the stockpile this may take time to happen.

Or, to put it another way, "someone else will have to stop polluting so the gas industry can continue to make money". Which invites the obvious question of "who"? Who will that 5.4 million tons come from? Who will be shut down to protect National's favoured industry? Cars? Trucks? Because that's what they're talking about here: someone else pays the price to protect the gas industry (just as now we are all paying the price to protect farmers).

But perhaps a more pressing question is going to be "how"? Because if you look at the ETS numbers. They are not going to add up. Below is the current recommendation for ETS unit limits, which is going to be adopted by the government (or else it will be imposed on them by the courts again). Those unit limits are designed to burn the entire stockpile of surplus credits in the system by 2030. And as a result, they allow only 18.8 million tons from 2026 to 2030:

So, throwing another 5.4 million tons of demand in there is going to mean someone is going to miss out. And it will mean higher carbon prices, with a consequent impact on the cost of living, than if we just kept the ban in place and managed the decline of the gas industry like we need to.

And it's all going to get worse in the next emissions budget. EB3 (2031-2035) has a total cap of 240 million tons. 121 million tons of that is estimated to be CO₂, and 64 million tons from the energy, industry, and buildings sector. MBIE estimates there will be an extra 8.1 million tons of emissions in that budget period, so a 12.7% increase. we don't have ETS unit settings for that period, but we can work them out: a total cap of 240 million tons, less 192 million tons outside the ETS, leaves 48 million tons of ETS emissions. Industrial allocation - pollution subsidies - will eat 16 million tons of that, and technical adjustments another 3.5, so the final auction volume of 28.5 million tons over 5 years. And National plans to increase demand by 8.1 million tons - almost 30%.

As for EB4 (2036-40), He Pou a Rangi has just recommended a total budget of 134 million tons, including 79 million tons of CO₂. To get there, they expect to reduce energy and industrial emissions by 19 million tons from EB3, which does not leave a lot. Meanwhile. National wants to increase emissions by 13.5 million tons.

As MBIE points out, the ETS cap is "soft", meaning people can plant trees to offset increase emissions. But the budgets already assume this, and increased tree-planting is factored into them (indeed, He Pou a Rangi has recommended that EB2 and EB3 be cut by 19 million tons to account for the extra trees that have been planted in the past few years). As for National's carbon capture fantasy, MBIE's numbers are net of carbon capture - meaning, as polluters will refuse to adopt it, actual emissions will be higher.

Basically, there is simply no way that National's bigger gas industry will fit within the budgets. And while primary legislation can't be legally challenged, every administrative decision they make to implement it will be subject to legal challenge for that inconsistency.

On the positive side, national has just made the case for us that we can't go back to gas. That that pollution industry cannot have a future. And while they may be able to pass a law saying otherwise, the sheer inconsistency of this policy with legislated targets and emissions budgets means that the next government will have to repeal it and reinstate the ban. Gas companies being able to read the law as well as anybody else, you'd expect that prospect to deter the investment National hopes to promote.