Thursday, May 29, 2008

Climate change: the downward path

If the government's planned Emissions Trading Scheme goes ahead, then in 2013 we will have an all sectors, all gases system, with a domestic emissions cap somewhat lower than projected emissions. While the agricultural sector will enjoy generous free allowances insulating it from bearing the full costs of its polluting behaviour, it will at least be included, and there will be some pressure to reduce emissions and seek greater efficiencies at the margins. So what happens after that?

Simple: we progressively reduce the cap. Both National and Labour have at least nominally committed to long-term emissions reductions (though National has set its target so far in the future that it looks like another excuse to do nothing at the moment), and reducing the cap is the best way of producing them. A diminishing supply of permits will force polluters to either reduce emissions, or to buy credits from overseas to cover their excess. Provided overseas reductions are robust, it doesn't matter which they do - a ton of carbon is a ton of carbon, and it doesn't matter much where its not coming from.

How steep a path we take depends in part on whether there is an international agreement setting tough targets to drive emissions reductions. But we can get some idea from the party's commitments. National, for example, has committed to reducing net carbon-equivalent emissions to 50% of 1990 levels by 2050. Net 1990 emissions were 40 MTCO2-e, so this equates to a 2050 cap of 20 MTCO2-e. If the 2013 cap is 65 MTCO2-e, then this means lowering the cap by ~1.2 MTCO2-e per year, or 6 MTCO2-e per five-year period.

Labour's downward path is more difficult to determine. They've committed to a carbon-neutral electricity sector by 2025, carbon-neutral stationary energy by 2030, and carbon-neutral transport by 2040. What this means in practice is simply not allocating any credits to cover their emissions, forcing them to buy offsets from forestry or overseas, but the net result is that by 2040 the government will only be allocating credits for agriculture and industrial emissions. Unfortunately, there's no clue as to how much they will allocate, but given the level of agricultural emissions (37.5 MTCO2-e in 2005), if that is all Labour plans to do, their path is almost certain to be higher than National's (another way of looking at it is to look at the amount required to be offset in each of the start years: this suggests Labour would lower the cap by 24 MTCO2-e by 2040, or a mere 0.9 MTCO2-e per year).

But what if we want to go deeper? The good news is that we have a fair amount of flexibility here, and by spreading reductions out gradually we are less likely to see shocks. So for example if we wanted to reduce 2050 emissions to 25% of net 1990 emissions (or about 10 MTCO2-e), we would only have to lower the cap by 1.5 MTCO2-e a year instead of 1.2. That's not a big difference annually, but it will make all the difference in the world at the end-point.

In the long-term, setting a downward path for emissions isn't that difficult. The difficult bit seems to be taking the first steps.