Thursday, July 21, 2016

Climate change: The cost of fraud

Radio New Zealand reports that Treasury advised the government to bring agriculture into the ETS after the latest review. but in the process, they bury the real news: that the government's poor decisions around allowing use of fraudulent Ukranian and Russian emissions reduction units in the ETS has put us on the hook for between $3.8 and 7.5 billion in additional costs between 2021 and 2030.

The bad news is contained in a Treasury aide memoire to climate change Ministers. In it, Treasury notes that allowing the use of cheap fraudulent units has led to New Zealand businesses stockpiling 140 million NZ units - roughly three years worth of net emissions. These units can be surrendered in the future to meet ETS obligations, but the government can't use them to meet its future climate change obligations (presumably because the Kyoto Assigned Amount backing it is no longer valid, thanks to our refusal to sign up for Kyoto II). Which means it will have to cover those emissions itself, by buying units on the open market at an estimated price of between $25 and $50 per ton. Which adds up to a hell of a lot of money.

The good news is that they expect the phase-out of the two-for-one deal to increase demand in the ETS and soak up some of this stocpile. But even then, they expect at least 50 million units (a liability of $1.3 to $2.6 billion) to be hanging around after 2020. And presumably they'll be facing the same problem, though on a lesser scale, in meeting New Zealand's 2020 target as well.

Which is presumably why the government is so reluctant to surrender the profits of its fraud: because they need those units to meet our 2020 target.

(Treasury's overwhelming goal remember is to avoid the "threat" of increased expectations, that is, actually being expected to do something about climate change).