The Government has turned its back on 13 years of leaving tough economic decisions to markets and conceded that the Emissions Trading Scheme will not bring about the greenhouse gas emission reductions we need to meet our climate change commitments.
Since the ETS was introduced in 2008, New Zealand has failed to meet any of the climate change targets it was set under the Kyoto Protocol in 1997 and the Paris Agreement in 2015.
And ironically, the ETS and the distortions it encourages is one of the main reasons for that.
A number of studies, including one by the Climate Change Commission, have concluded that as the ETS price rises, it tends to encourage the planting of more pine forests rather than the reduction of greenhouse gas emissions.
For hill country farmers, it is a no brainer.
They will earn a profit from sheep farming of about $350 a hectare per year, but if they plant their farms in trees, they can earn $1800 a hectare per year from cashing in the carbon credits their trees earn.
The higher the ETS price goes, the more likely it is that sheep will be replaced by trees.
But the process does nothing to reduce emissions. In theory, it is supposed to male emitting activities like filling a car with petrol more expensive and therefore less attractive to do. But the ETS price on petrol has gone up by a factor of 10 over the past five years and had no impact on fuel consumption.
These issues are canvassed in the Government’s discussion document, which it will consult on over the next few months before preparing the Emissions Reduction Plan by the end of May next year.
That will be the working blueprint to achieve the overall emissions reductions which Climate Change Minister James Shaw will take to the UN Climate Change COP26 conference in Glasgow next month.
The discussion document says the Government is looking for a reduction of 7.4 per cent from 2018 emissions by 2025 as its first big cut. Reductions will then continue with new targets proclaimed every four years.
This proposed reduction takes account of the carbon that will be absorbed by the 331,100 hectares of forest currently in the ETS scheme.
But because the carbon price which is paid out to the forest owner has nearly doubled over the past year (an ETS unit is now at $64.50 a tonne of carbon), afforestation is continuing at a rapid rate.
Speaking at the Carbon Forestry 2021 conference in June, Tess Keough, the Climate Change team Leader at Te Uru Rakau (the NZ Forest Service), said it was expected that pinus radiate seedling planting would increase by nearly nine per cent this year.
She estimated that after 28 years (the pine forest cycle), 20 hectares of trees would earn $600,000 in ETS credits. That figure is probably nearer $800,000 at yesterday’s ETS price.
The discussion document says that since 2008 when credits began to be paid, $3.2 billion has been paid to forest owners.
Climate Change Minister James Shaw said yesterday that in the short term, the Government would continue to aggressively drive afforestation.
“But that isn’t a good long term solution that gets us through the next 30 years, but not no further,” he said.
The discussion document says the Climate Change Commission recognised that growing afforestation could cause a problem with the effectiveness of the ETS in driving gross emission reductions, and so it recommended amending it to strengthen the incentive for gross emissions reductions while it managed the amount of exotic forest planting.
“This is because while the emissions removed by exotic forest planting can offset gross emissions, this is a one-off benefit and means the land must remain in forest permanently,” the document says.
“This reduces the flexibility of land use and delays reducing gross emissions.
“We intend to look at this issue more closely, and if needed, will change the way forestry is treated under the NZ ETS.”
And Shaw indicated yesterday that rather than use the ETS to reduce the rate of growth of forestry, he was looking at more active Government interventions.
He said the Government wanted to be sure that changes it might make related to forestry in the yet-to-be-unveiled Strategic Planning Act, the Natural and Built Environments Act, and the National Environmental Standard on Plantation Forestry did not have unintended consequences.
“We want to make sure that any systems that we change achieve outcomes but don’t accidentally trip them up.”
Of course, the more carbon that forests can absorb from the atmosphere, the less pressure that needs to go on our second-largest greenhouse gas emitter, the transport sector.
And, again, there are problems with the ETS.
The Climate Change Commission’s goals are for a 13 per cent reduction in transport emissions by 2030 and a 41 per cent reduction by 2035 (compared to 2019).
“The scale of change to achieve these reductions and complete decarbonisation cannot be overstated,” says the discussion document.
“The NZ ETS plays an important role, but it will not be enough to reach the net-zero target. “
The document says that though the cost of the ETS on fossil fuel use is ten times what it was five years ago, “the impact on travel has been minimal – consistent with overseas findings.’
The document cites a recent study that shows that relying on the ETS alone to boost electric vehicle uptake would require a carbon price of $595.
Clearly, an ETS price at that level would induce massive distortions in the economy. Most farms, for example, would be replaced by pine forests.
So Shaw is looking for other ways to get people out of internal combustion engine cars.
“As a vehicle importer who relies heavily on second-hand vehicles to feed our own market, if we don’t limit the imports of those vehicles, then we will; in fact, we already are a dumping ground for the less efficient vehicles from around the world,” he said.
“And so there is simply no way that we’re going to be able to decarbonise transport without some form of limitation.
“Precisely what that takes, we’re interested in people’s views on.”
There are other proposals. Overall the document says the Government wants to reduce reliance on cars by supporting people to walk, cycle and use public transport.
“One of the transport targets that has been floated is this idea that you’d have a reduction in vehicle kilometres travelled of 20 per cent over the course of the next 15 years,” said Shaw.
“Now, in order to achieve that, there is no one kind of action that you need to take; there is a lot of different actions that you need to take.
“And you need to take a number of those actions in the course of this first plan (2022 – 25), but you need to take then the subsequent actions over the course of the following, three emissions budget periods as well.
“Some of those things you will not achieve in the second or third budget period if you don’t start acting on them in this budget period because of the lag time on implementation and the kind of response time that takes.”
Implicit in the transport proposals, for cars at least, is the proposition that they will become Electric Vehicles.
But they will be competing for electricity with industry which will be converting from fossil fuel-fired boilers and processing plants to electricity. But we do not, at present, have enough power.
“I think that transport’s latest projections are if we’re going to decarbonise the economy, then we’re going to need approximately 70 per cent additional renewable electricity generation on top of all of the generation that we have at the moment,” said Shaw.
“And also, we have to take out that last 15 per cent or so of our fossil generation that’s currently enough in our system.
“So that is a massive challenge over the course of the next, you know, 10, 20, 30 years to build that generation and to build it in time to meet demand.”
The discussion document copped its fair share of criticism yesterday; from the fossil energy sector, from the motor trade and predictably from Greenpeace, whose lead agriculture campaigner, Christine Rose complained that it was “hot air” and “bullshit” because action to cut emissions from intensive dairying was notably missing.
Shaw said the reason for that was that consultation over the agriculture industry’s “He Waka Eke Noa” proposal to lower methane emissions was separately taking place over the summer.
“He Waka Eke Noa” is a proposal to keep agriculture out of the ETS and instead price farm emissions separately.
The summer consultations will focus on developing a farm-level emissions pricing mechanism that will be based on individual environmental plans for each farm.
The Climate Change Response Act requires that farming reduce methane emissions by 10 per cent by 2030.
Shaw did not sound optimistic yesterday that the consultations would achieve their goal.
“I think if you speak to any of the industry partners who are involved in that, they will say it’s very challenging, and ultimately it is up to the Climate Change Commission next year to provide an independent view of progress,” he said.
“And you know, we’ll see how that goes.”
Complicating matters is the development of the Groundswell farmer protest movement, which POLITIK understands is putting pressure on Federated Farmers to back away from some of the He Waka Eke Noa commitments.
But one source close to the negotiations was confident yesterday that the industry would be able to agree on a pricing mechanism. If they don’t, then farming would go into the ETS.
But the big change that will emerge from the overall consultations will be less reliance on the ETS to deliver the emissions reductions targets to get us to net zero emissions by 2050.
“I think we’re moving from a phase where certain economists thought that all you needed to do was have an ETS and magically everything would change.
“We understand that it is a critical necessary but insufficient tool by itself to be able to achieve change.
“You’ve got to have it. You’ve got to getthe settings right.
“We’ve only just started to see the result of getting those settings right, literally in the last few months, actually compared to those sort of 14 years that it’s been in operation.
“And so it is necessary, but it is not going to do the job by itself.”