Wednesday, January 03, 2007

Climate change: learning from Norway

Norway is taking a symbolic lead on tackling greenhouse gas emissions by announcing that it will be offsetting all official air travel. While this is mostly a symbolic move - official air travel is a tiny proportion of emissions - it sends a powerful signal to the public that the government is taking action and that they should too. The obvious question is, why isn't New Zealand doing this as well? And why, given Helen Clark's stated desire to put New Zealand at the front of international action on climate change, weren't we doing it already?

While we're on the subject, New Zealand could learn a lot from Norway on how to manage its greenhouse gas emissions. Like New Zealand, Norway has a strong reliance on renewable energy, and a lot of trees. Unlike New Zealand, it has used these advantages properly to put itself in an enviable emissions position. According to the UNFCCC's compilation of key GHG data [PDF, large], as of 2003 Norway has reduced its net equivalent emissions to 7.8% below 1990 levels, against a Kyoto target of a 1% increase. How has it achieved this miracle? Reading their latest National Communication [PDF], it seems that they have done everything we have not: put a price on carbon, included greenhouse gas emissions in planning requirements, and encouraged better forest management practices to improve sinks.

Norway introduced a carbon tax in 1991, at a variable rate ranging from 337 NOK (NZ$75 - 80) a ton on petrol to NOK 86 (NZ$20) a ton for the pulp and paper industry. This is heresy to policymakers in New Zealand, who have consistently stressed the need for economic instruments to impose a uniform price across the economy so as not to distort the market (and then argued against it because that would result in "leakage" of vulnerable sectors). The Norwegians don't care about that, and happily have different rates for different industries depending on economic importance and the perceived risk of leakage - and it works just fine. The main effect has been a significant improvement in energy efficiency and carbon intensity. Gross emissions have not fallen - but they have certainly risen at a much slower rate as new investments have been pushed towards efficient technology that reduces emissions and therefore costs. In the case of the oil industry (a major emitter, responsible for 28% of gross CO2 emissions), the tax

...has contributed to reduce emissions from the offshore petroleum sector by 3 million tonnes CO2 in 2000, equivalent to 5 per cent of total greenhouse gas emissions in Norway. Given the lifetime of these measures and the increase in the sector's activity level, it is believed that the CO2 tax has reduced the emissions level at least as much after 2000.

More recently, the Norwegian government has started taxing other greenhouse gases such as HFCs and PFCs, as well as waste going to landfills and incinerators. They have also introduced a pilot emissions trading scheme mirroring the ETS; large industries can either pay tax or be issued permits and face the market price. New gas-fired power stations (and many parts of the petroleum industry) are being incorporated into this scheme.

Greenhouse gas emissions are covered under Norway's Pollution Control Act, and require a discharge permit. This is almost always granted, due to the overlap with other policy instruments, but the Act allows the government to require technological improvements, and this has been used to ensure that planned gas-fired power stations are both efficient and will be able to make use of carbon capture and sequestration as it is developed.

The other half of Norway's emissions control miracle has been a 56% increase in forest sequestration since 1990. It is unclear from the report how this has been achieved - it speaks mostly of improved management practices - but coupled with the slower increase in emissions, it has meant a complete reversal. Norway will be a net seller of credits during CP1, with a ready-made market right next door in the EU.

Looking at Norway shows what New Zealand could have done if we had tried. As for why we didn't, there are two basic reasons. The first is that our governments have always been half-hearted about action, seeing it as requiring too great a political cost. The second has been our policy culture. Douglas, Kerr, and the other ideological leaders of the Revolution may be long gone, but their ideas continued to dominate policymaking long after their departure, resulting in an obsession with purist market solutions. New Zealand policymakers considered both regulation and economic instruments during the 90's, but it was always one or the other; we couldn't do both as that would be "double dipping". Likewise the emphasis on the "perfect solution" of a broad economic instrument imposing a universal price across the entire economy resulted in endless policy work over taxes and emissions trading and points of obligation and allocation mechanisms - none of which makes a difference to the actual outcome provided there is a price. Meanwhile, the perfectly workable approach we had in the early 1990's of treating greenhouse gases as pollutants under the RMA and requiring them to gain resource consent was rejected as inferior to the market solution and ultimately nobbled - despite there being no economic instrument in place. As a result, we had a ten-year gap in policy in which emissions were able to grow unchecked; the quest for the perfect was very much the enemy of the good.

Regulation may be inferior to economic instruments; unequal taxes may distort the economy. But the clear evidence from Norway is that they also work. Their policies may be impure, imperfect and compromised - but they get results. And that is what is important - not how closely your (theoretical, never-implemented) policies can mirror the theory in a first-year economics textbook.


You may be pleased to know that the PM is in fact taking her holiday this summer in Norway - here's hoping there's some osmosis going on.

Posted by Span : 1/03/2007 06:03:00 PM

Presumably what we neded was to have a big 'pro fart tax march' while the farmers were having an anti fart tax march.
Otherwise the strongest pressure is always 'anti' any specific action not 'pro' anything productive.

Posted by Anonymous : 1/04/2007 06:41:00 AM

Intersting information. Norway produces 99% of its power needs from hydro. We could dam more rivers.

I wonder if Norway will be considering forgoing export revenues from oil? Given oil is *such* a money spinner for Norway I would be interested in knowing whether they internalise the cost of carbon emmissions from those exports, in the same way, perhaps, we are expecting farmers to internalise the carbon cost of exported meat.

Posted by Anonymous : 1/04/2007 12:04:00 PM

Noddy: or build more windfarms, or dig more geothermal wells - the important thing is that it is renewable or low-carbon, not which particular technology we use. But Norway faces some of the same problems we do - they've run out of hydro space, so are now building gas turbines; what their policies have ensured is that those turbines are a) as efficient as they can be; and b) CCS ready. Meanwhile, due to the policy gap, our power companies are looking at coal (and inefficient, dirty coal at that) because they don't have to pay for their externalities.

Norway also has a significant amount of electricity generation as part of its oil industry, typically done as a byproduct of the refining process. Again, their policies have produced steady efficiency improvements and lower emissions than "business as usual".

As for oil, they don't tax the carbon in the oil itself (because under the UNFCCC, its the problem of those who burn it, not those who dig it up), but they do tax the carbon cost of its production (fugitive emissions, refining etc). And this is exactly what our farmers are being asked to do. There is no proposal to tax them on the carbon content of meat and wool; instead, it is all about ensuring they pay the cost of emissions from animals and fertiliser involved in production.

Posted by Idiot/Savant : 1/04/2007 12:34:00 PM

Noddy: Unfortunately for NZ, the cases are not parallel. Most greenhouse responsibility for oil occurs after the point of sale; most greenhouse responsibility for meat animals occurs before the point of sale.

So, carbon emissions from exported oil can't be internalised, as (at the time of export) there have been no emissions (other than those involved in extraction, which *should* be internalised). The buyer has a choice about how/ whether to use the oil (e.g. as chemical feedstock rather than fuel); the seller can't dictate that.

By contrast, raising meat animals for sale is the seller's choice (as to which animals, and how raised), and so all greenhouse emissions up to the point of sale are the seller's responsibility. (The buyer may have a choice -- and a greenhouse responsibility -- about how to cook it, but that's about it.)


Posted by Anonymous : 1/04/2007 12:39:00 PM

Yeah, we'd better hurry too. It's been heating up something chronic here in NZ ...

Posted by Duncan Bayne : 1/04/2007 02:36:00 PM

> because under the UNFCCC, its the problem of those who burn it, not those who dig it up

that doesn't make it the truth. meat and wool is less of an issue because its renewable in the short term.

> Most greenhouse responsibility for oil occurs after the point of sale; most greenhouse responsibility for meat animals occurs before the point of sale.

Again this is just convention. that is rather like saying that gun makers or drug growers/dealers war are not responsible it is the people taking the drugs or doing the shooting who are responsible.

I see demand side approaches rather similar to trying to stop shootings by procecuting more shooters or drug dealers as opposed to limiting supply.

> The buyer has a choice about how/ whether to use the oil.

Oil in the ground is a secure storage location for carbon - there is basically nothing outside of that that is as good. Almost all other uses end up in the air (or somewhere else unplesant) one way or the other.

Posted by Anonymous : 1/04/2007 08:23:00 PM

BTW right behind noddy on the more hydro. We should have a pro hydro march.

Posted by Anonymous : 1/04/2007 08:25:00 PM

While we're on the subject, New Zealand could learn a lot from Norway on how to manage its greenhouse gas emissions.

So are you saying you ALSO want to import thermal and nuclear produced electricity from Russia like Norway hmm.

Posted by maksimovich : 1/05/2007 07:54:00 AM

"Unfortunately for NZ, the cases are not parallel."

I realise that and was making a devil's advocate type comment pointing out that the sacrifices made by Norway don't affect their main source of export revenues to the same extent. At current prices oil has very high profits margins. Primary produce does not. Some years ago I remember $20/barrel being the price at which North Sea oil became worth extracting. Currently it is sitting at around $60 / barrel having hit record highs of $80 in 2006. I don't think meat and dairy come close to those returns.

Which is not to say that we cannot and should not learn from Norway's experiences, but we should be aware of context in order to make the "right" decisions.

Posted by Anonymous : 1/05/2007 11:19:00 AM

"Which is not to say that we cannot and should not learn from Norway's experiences, but we should be aware of context in order to make the "right" decisions."

I think this was entirely I/S's point - we don't have to make the "right" decision, we only have to make *a* decision. Even a poor implementation of a carbon tax would have been better for the country than 8 years of all-talk-but-no-action policy development and interminable "where did I put my gonads?" dribble from Labour.

Personally, I think a methane levy on livestock should be implemented ASAP, otherwise there will never be an economic incentive for farmers (and the 50% of our national emissions they represent) to actually change. If voluntary measures were going to work, they would have done so by now. They clearly haven't, so it's time to legislate.

Posted by Anonymous : 1/05/2007 05:47:00 PM