Wednesday, August 17, 2011

Climate change: Overallocated

Over on Hot Topic, Simon Johnson analyses the data from the government's Report on the New Zealand Emissions Trading Scheme. And he has made a disturbing discovery: the scheme is massively overallocated:

In the six months from 1 July to 31 December 2010, 12.8 million NZUs were gifted to participants by “free allocation”; 9.4 million NZUs were transferred to foresters for forest carbon sequestration and 8.3 million units were surrendered to the Government (Surrender means to obtain units equivalent to a participant’s greenhouse gas (GHG) emissions and to transfer the units to the Government’s account at the NZ Emission Units Register).
Ignore the forestry side of the equation, since its a long-term allocation. The big problem here is that polluters were given 12.8 million units last year, but only had to surrender 8.3 million. In other words, they were given 4.5 million units more than they actually needed. The value of those units is approximately $100 million, which is going straight onto polluters' bottom lines.

Not only does this fundamentally break the scheme, it also shows that the government's pollution subsidies are broken. Polluters are supposed to get 60% to 90% of their actual emissions. Instead, they seem to be getting 150%. In other words, we're not just letting them pollute for free - we're effectively paying them to do it.

Why is this happening? I don't think its fraud by polluters; their annual emissions and free allocations are based off the same sets of figures. Instead, it seems that the government's allocative baselines for eligible industrial activities are far too high. Which is what happens when the figures are effectively decided by industry lobbyists working through a cooperative (I would say "patsy") Minister. And the net result is not only windfall profits for polluters, but an ETS which actively incentivises higher emissions.

No wonder people think the ETS is a fraud: it is. It doesn't help the environment. Instead, it pays polluters to pollute. It can be fixed, but the longer this is allowed to continue, the more discredited the scheme will become. And then we'll be back to square one, having the same arguments and trying to work up a new policy.