Tuesday, May 25, 2021

Climate Change: How the ETS keeps emissions high

Stuff reports today that Refining NZ has reached an in principle agreement to shut down the Marsden Point oil refinery and move to importing refined fuels. Which should be good for emissions - as best I can tell from Emissions Tracker, Marsden Point is responsible for 664,000 tons of CO2 (being the only liquid fuel refining facility in the country). Thanks to a past sweetheart deal, none of that is covered by the ETS, and they weren't scheduled to enter it until 2023. The shutdown is explictly driven by their desire to avoid ETS costs.

This is exactly what the ETS should be doing: polluters who can clean up, polluters who can't shut down. And in the case of Marsden Point, its a success. But Marsden Point is an exception, and with other major industrial polluters - Tiwai Point or Methanex, for example - their shutting down won't actually reduce emissions. Why? Because the permits they would have bought to cover their emissions will still be free to be bought by someone else, meaning they can be used to pollute now or in the future. While supposedly intended to reduce emissions, the ETS actually locks us onto a high emissions pathway, where pollution shutdowns don't reduce pollution.

(This might not be so much of a problem if that pathway was steep enough to push us towards a credible emissions reduction goal. But ours isn't. And because future ETS budgets are set five years in advance, we're basicly locked into a pathway which keeps prices low and emissions high, rather than the other way round).

How do we fix this? The obvious move is that we remove permits from the system whenever a major polluter shuts down, by immediately reducing future auction allocations accordingly. This would change the fixed cap in the ETS into a permanently sinking one, and mean shutdowns actually result in emissions reductions, rather than creating space for someone else to pollute instead.