Tuesday, February 20, 2007

Climate change: the hole in the policy

Over the past year, the New Zealand government has been working on a new climate change policy. While I think the policy is fairly comprehensive, and in some ways even an improvement on the old, it does have a hole: direct industrial emissions. And that hole is likely to become bigger with Holcim's plans to put a $200 million cement plant near Oamaru.

Making cement necessarily means producing carbon dioxide, and according to the Greens, the new plant would produce up to 800,000 tonnes of CO2 a year. The expected cost of those emissions (at Treasury's current estimate of NZ$14.77 / tonne) is $11.8 million - 6% of the plant's value - a year. And it could easily be twice that if carbon prices rise (as they are expected to). Because the current policy does not cover direct industrial emissions, that cost will be picked up by the taxpayer. So we will effectively be subsidising Holcim's foreign shareholders $12 million a year to pollute.

I take it as axiomatic that the New Zealand government should not be paying these sorts of environmental subsidies. Holcim should be paying for its own emissions, rather than being able to dump the cost on (and therefore boost their profits at the expense of) the New Zealand taxpayer. This hole in policy needs to be closed, and soon.


Anther whole that should be filled at the same time is that if Holcim were to pay someone to sequester 900 kt of CO2 in New Zealand each year (in forests, or however), they couldn't get credit for lowering the government's carbon bill.

Posted by Graeme Edgeler : 2/20/2007 06:27:00 PM

Interesting to see if the 6% charge would change the viability of the plant.


Posted by Anonymous : 2/20/2007 07:46:00 PM

Graeme: the government's preferred policy is an emissions trading system. Under such a system, Holcim would most definitely get credit for sequestration.

M'Lud: if it does, then the plant wasn't really viable anyway. This is a real cost, and Holcim should be paying it.

Posted by Idiot/Savant : 2/21/2007 12:05:00 AM

Graeme: I should also note that Holcim has a pretty good record of pursuing efficiency gains, and if they kept it up, would do quite well under emissions trading. But its important that the cost be internalised, so that they pay the true social costs of their activities.

Posted by Idiot/Savant : 2/21/2007 12:15:00 AM

Taxing industrial emissions runs into the unfortunate reality that we're not a closed economy. You'd have to impose a carbon tax on imported cement too if you want to have any impact on net CO2 emissions instead of just exporting jobs.
I doubt that Holcim making cement in NZ is going to increase demand for cement. If it's not produced here (in a shiny new efficient plant subject to some environmental standards), it will be produced in some smoking slagheap in China and shipped here. Result: more CO2 is emitted, fewer NZ jobs, worse trade balance.

Posted by Anonymous : 2/21/2007 07:43:00 PM

Johnmacc: Leakage is a much overstated threat. It depends crucially on there being countries outside the international emissions control regime. While there is such a situation now, it is not expected to last, and the regime is expected to expand. And Holcim knows this. Even they support emissions trading, though naturally they are supporting grandparenting so their foreign shareholders can capture the rents.

I'd also happily support a carbon tax at the border on imports from non-Kyoto compliant countries; the EU is currently considering such a tax, and its perfectly justifiable. of course, there are only two countries it would apply to: Australia and the United States.

Posted by Idiot/Savant : 2/21/2007 07:56:00 PM

I/S: IF there's an enforceable/effective international emissions regime, I totally agree. Carbon taxes at the border against imports from non-participating countries would be essential.
My point is that if NZ as a tiny open economy tries to go out ahead of the pack on curbing emissions, its likely to do our economy a whole lot of harm for very little environmental benefit.
If govt wants to be a world leader on reducing carbon emissions, I hope they limit this to their latest line in small symbolic stunts like "carbon neutral government departments" and switching to hybrid limos.

Posted by Anonymous : 2/21/2007 08:31:00 PM

More on the point of "leakage" - the practical task of preventing abuse/avoidance of any emissions control regime are huge. The system relies on effective auditing and measurement of emissions.
Emitters have an incentive to under-report or hide their emissions (polluting for free), their customers have an incentive to collude with this, and the host countries can an incentive to look the other way (depending on the design of the system).
Armies of inspectors can't prevent trade in illegally harvested timber, or prevent breaches in trade sanctions, etc. How can we assume a system to monitor something as pervasive and intangible as CO2 is going to work?

Posted by Anonymous : 2/21/2007 08:43:00 PM