Reading between the lines for the Government’s review of the emissions trading scheme it’s easy to detect the admission of a cock-up. By allowing our scheme to get flooded by cheap, fraudulent foreign credits, the Government has spent the last four years suffocating the Emissions Trading Scheme (ETS). Now they suddenly realize it needs to be alive and kicking in order to achieve our 2030 target.

Suffocating the ETS

As we have seen previously, the Government has allowed unlimited cheap, fraudulent carbon credits from overseas to dominate our Emissions Trading Scheme. This drove the price of carbon in New Zealand to virtually zero between 2012-2015. Government is now planning to hand over these fraudulent credits to meet our international obligations – an action that if legal is certainly immoral. In our view these junk units should be dumped immediately. We’ve been party to fraud.

We’re now shut off from buying any foreign credits until at least 2020, due to the Government’s refusal to recommit to the Kyoto Protocol. But the result of three years with no effective price on carbon was massive and the shockwaves will be felt for years. Investments have been made with scant consideration of the likely future cost of carbon. Forests have been felled, and dairy farms put in their place. Some companies were given free NZ units to cover their emissions, whilst they could also buy foreign units for next-to-nothing and keep those free units (which have a much higher value) in the bank. The result is that our country’s carbon dioxide emissions have kept rising, when last year those of the rest of the developed world fell.

In deep shtook

Now the Government has realised that due to their inaction, we are facing a huge uphill battle to even meet the measly 2030 target for reducing emissions that we put forward in Paris last year. Maybe they didn’t think they would be in government that long. But now they are realizing that they’ve shot themselves – and the country – in the foot.

Under Kyoto we promised to cap our emissions at 1990 levels. After years of inaction our emissions have increased so that it will take a mammoth effort even to get them back to 1990 levels, let alone 11% below that level as we promised in Paris.

To make matters worse, during the 2020s many of our forests will be harvested, increasing our emissions further. This is the well-known ‘wall of wood’ that while growing, has along with the dodgy international credits, spared our blushes thus far.

These are two key reasons why having a much larger target, such as matching the EU’s target of 40% reductions by 2030 wouldn’t cost much more than the minimum acceptable target we chose.

Admitting failure in public sector speak

The Government have effectively admitted this problem in their consultation document. The stated ‘drivers’ for their review of the Emissions Trading Scheme are in italics below, and we’ll take a quick look at what that actually means.

Improving the performance of the NZ ETS against its objectives – the Government’s evaluation of the ETS under their own watch has found that “the NZ ETS has not significantly influenced domestic emissions or business decisions”. That is, we have so comprehensively neutered the scheme that it hasn’t managed to have any meaningful impact at all – a clear fail, although some politicians and vested interests might consider it a wonderful result.

Preparing for a more carbon-constrained future – this is code for ‘we can’t cheat our way out of the 2030 target like we have with the 2012 and 2020 ones’. Bugger it all, we’re going to have to do something now.

Increasing certainty about future policy settings – again the evaluation found that “stable long-term policy policy settings would increase the influence of the NZ ETS on business decisions”. That is code for businesses asking Government to stop tinkering with the ETS. An ETS that has unpredictable parameters is a disaster for business – sure we’d prefer no constraints, but if we have to have them, for goodness sake give us constraints that we can be sure of.

Managing banked emissions units – the Government gave away units for free while they could buy units for next to nothing and bank the free ones. How do we get a real price on carbon when these companies have so many free units in the bank? In other words we now have a legacy problem to deal with as a result of our government knowingly conspiring to participate (more than any other country) in a market for fraudulent credits. Sorry, we didn’t think we’d get exposed.

What can we do?

Sweating yet? You should be. In climate change terms the Government has run up a debt on its credit card and now the time to repay that debt is rapidly approaching. We don’t know how bad the situation is because for some bizarre reason the government is consulting without having released the net emissions (that means total emissions including forestry) projections for 2030.

Of course, we can hope that international trading will save the day as it did over the past few years. But no country will allow us and our carbon trading partners, Russia and the Ukraine, to get away with the rort we have perpetrated in the past. Besides, trading will only ever be a temporary fix. We know that all countries have to get to net zero carbon emissions somewhere between 2050 and 2100, so we need to focus on getting our own economy off fossil fuels.

Before we got into trading dodgy international units, most companies were buying credits from foresters, and the price was driving more tree planting. Given we have over 1m hectares of marginal land, forestry is likely to be the largest lowest cost opportunity towards meeting our 2030 target. We need to shake our fossil fuel addiction, but given the mess we are in as a result of past inaction, hitting our 2030 target will rely heavily on forestry to bridge the gap. Trees take a few years to start drawing down serious amounts of carbon, so we need to get planting ASAP. We can’t leave it to the night before the assignment’s due.

So when it comes to the ETS, key questions facing Government are how many trees do we have to plant in the next few years in order to meet our 2030 target, compensating for the wall of wood that will already be cut down? And what price on carbon will be necessary to deliver that planting in the coming years? Let’s hope someone in Government is thinking about that.

Reviving the ETS

In short this means we need to revive the ETS, and quickly. We need to get a price on carbon so that our forestry industry has an incentive to get planting, and hopefully enough will get planted in time to save us in 2030 – after all trees take time to grow. And remember that planting trees is only a short term strategy – by 2050 we need to get our use of fossil fuel (coal, gas and oil) down to virtually zero. That means investing in wind farms, electric vehicles, more public transport (especially electrified rail), less urban sprawl, and shifting Fonterra’s milk dryers from coal to wood. A decent carbon price will help with all that too.

Trouble is, the Government have treated the forestry industry with such contempt over the past few years that they now have a real credibility problem. What do they have to do to be taken seriously?

We’ll look at that in our next blog.

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