Wednesday, July 31, 2019

Climate Change: Decarbonisation and price caps

Some interesting stuff out on decarbonising industry emissions yesterday. First, there's the news that Danone is to convert its Balclutha milk-drying plant to biomass heating, effectively making it carbon neutral. Its a good move, and exactly what we need to see. It also highlights just how unambitious Fonterra is being in merely promising not to build any more coal plants (while leaving the door open for climate-destroying natural gas).

Secondly, there's a report from Transpower, on Taking the Climate Heat out of Process Heat. This highlights the opportunity we have on this front - 37% of process heat emissions are for low-temperature processes (less than 100 C), which can be immediately replaced with heat pumps, while another 44% is medium temperature, which can usually be electrified as well. It also highlights the efficiency of electrical heating: usually twice as efficient as coal, and up to seven times as efficient using heat pumps, which means significant cost-savings, despite the higher apparent price of electricity.

Interestingly, a noticeable user of process heat is schools, and on that front is appalling to learn that at least 60 of them are still burning coal ("at least" because the Ministry of Education has no idea, and half of schools simply didn't bother to respond to Stuff's OIA request on the topic). Its especially shocking when you consider that solar PV is a no-brainer for schools - their demand is all during the day - and that there are multiple providers who finance the up-front cost of installation, and take their repayments out of the (much cheaper) electricity prices that result. This is something the government has direct control over, and an obvious area where they could step in to improve things.

So why isn't this switch happening as fast as we'd like? Fundamentally its a matter of carbon prices. And on that front, the news is bad: the price is up against the $25 price cap, a "transitional measure" that has now been in place for a decade. This is an ongoing situation which has been occurring since the middle of 2018, and it suggests that the natural price of emissions is much higher than $25. As for what to do about it, the answer is simple: raise it. And while the government has said they'll be doing that "no later than the end of 2022", pretty obviously they need to do it much quicker than that if we want proper incentives to decarbonise and plant trees. There is a strong case here for legislating under all-stages urgency, stronger even than there is for excise tax increases (in that the economic damage of polluters banking credits while paying the fixed price is much greater than that of people buying petrol a few cents a litre cheaper), and that is what the government should do. And to future-proof themselves against their own inaction, they should provide for the price cap to increase perpetually. That way, if the government's plans for auctioning and a "cost-containment reserve" are dragged out (as usually happens in this area of policy), we won't end up stuck in the same situation again, subsidising polluters while they make out like bandits.