26 June 2012

Did anyone sign the Kyoto Protocol in good faith? The Kyoto Escalator shows that New Zealand certainly didn't

Robin Johnson's Economics Web Page introduces the Kyoto Escalator chart and argues that New Zealand was just as complicit as the major European countries in negotiating the Kyoto Protocol so that they complied with it without reducing either gross or net emissions.

Kyoto Escalator
New Zealand's Gross greenhouse gas emissions (blue) net emissions (brown) and 'Kyoto' emissions (red) 1990 to 2012. Double click on the chart to see it at 100% and in good resolution.

Professor Dave Frame is the new director of the Climate Change Research Institute at Victoria University of Wellington. He is a University of Canterbury-trained scientist who has worked for some years in Britain. He has just joined the climate change fray with a very interesting opinion editorial "International focus needed over climate" in the Dominion Post. Welcome to climate change issues back in New Zealand, David.

David Frame writes that New Zealand does not want to be thought of as the country that reneges on international treaties.

"Reputationally, accepting commitments and then failing to deliver on them is not a look New Zealand likes. "Doesn't honour the treaties it's signed" is not one of the few sentences we want people to remember about us."

So, yes, I agree, New Zealand should honour the treaties it signs. I hate to nitpick but, isn't New Zealand the country that was explicitly founded in 1840 on a treaty that was not honoured?

David Frame describes the history of the Kyoto Protocol climate negotiations

"...the Kyoto Protocol was a no-win situation for places like New Zealand. In the 1990s Britain and Germany were reducing their emissions of greenhouse gases for non-climate-related reasons (declining manufacturing and the collapse of the coal industry in Britain; technological substitution in the case of post-reunification Germany)."
"Kyoto's structure, reductions of emissions by some specific fraction compared with 1990 levels, were designed with this in mind, since it allowed Europe to appear to "take the lead" without actually doing anything very different from what they were going to do anyway. It was an approach so clearly aligned with the near-term reputational interests of some stakeholders that the Nobel prize-winning strategist Tom Schelling wrote of it: 'I cannot help believing that adoption of such a commitment is an indication of insincerity'."

Frame believes New Zealand's negotiators were innocent parties who acquiesced in these machinations while Britain and Germany portrayed themselves as "leaders" on climate change, even though their emissions reductions basically consisted of doing what they were going to do anyway.

While I am a little disappointed that Britain and Germany acted in such a self-serving way, I don't doubt that David Frame is correct about their motives. However, I don't think he is correct to say New Zealand was innocent. On 31 October 1997, the then Minister of Climate Change Simon Upton gave a speech about New Zealand's negotiating position three weeks before the UNFCCC meeting in Kyoto.

Upton stated that within New Zealand's negotiating position, using forest sinks to offset increases in emissions was just as important as the Protocol including international emissions trading, an all-gases approach and prompt acceptance of commitments by developed countries.

"Sequestration of carbon in sinks (such as forests) should qualify alongside emission reductions for the purposes of counting progress towards any targets that are agreed."

Upton contines.

"I want to say why sinks are important - spelling out in broad terms the economic benefits to New Zealand of counting sinks - and explain briefly how New Zealand considers they ought to be treated. Then I want to say why - even though the correct treatment of sinks is both fair in terms of the Convention, and good for New Zealand's economy - sinks nevertheless do not and cannot protect New Zealand emitters of greenhouse gases from adjustment."
"Adding to carbon stocks through afforestation should count positively; reducing stocks (through forest harvest, land clearance and such like) should count negatively."
"If - and I emphasise if - sequestration is treated in the way New Zealand has long been advocating, then the major contribution we expect to make to removing carbon from the atmosphere in future years will earn us 'credits'."

Upton and the New Zealand negotiators got what they wanted. Forest carbon sink credits were included as offsets. However, Upton provided several cautionary notes. If NZ's forest carbon credits were recognised in Kyoto, it may be perceived as special pleading. Also fairness suggested that forest owners should receive them, and be able to sell them. As opposed to the Government keeping them for compliance with Kyoto.

"New Zealand's stance on sinks has been treated with scepticism by some because, superficially, it looks as though it may be special pleading by New Zealand to take advantage of our sinks to reduce the pressure on emitters to make adjustments. We do not see it that way. New Zealand has been clear in responding to other countries that we do not see the accrual of sink credits as a way to insulate New Zealand from acting to reduce emissions. We see New Zealand's sink credits being an integral part of the international emission trading market. As such, we see New Zealand emitters facing the world price for carbon emissions provided that price is generated by a free market in emission permits."
"Let me now turn to a related question: why recognition of sinks nevertheless does not and cannot protect New Zealand emitters of greenhouse gases from adjustment. It might be suggested that New Zealand's interest in sinks stems purely from a desire to secure for itself a large buffer that would allow for significant growth in greenhouse gas emissions. That is not the case -- nor do I believe would it be credible to pursue such an objective."
"It would simply not be credible to advocate least cost tradeable mechanisms for the world and then seek to keep New Zealand's forest credits for domestic use only. Sequestration credits should accrue to the forest growers who earn them, and they should be free to place them on the world market."

So Simon Upton foresaw two problems with using the credits from forest carbon sequestration as a buffer to allow growth of GHG emissions. There was the reputational problem of New Zealand's insincere negotiating position in the Kyoto discussions. And there was the problem that the credits should accrue to the owners of the forests, not the Government.

New Zealand's climate change officials solved the "who's credits?" problem by inventing a new 'junk' currency to be issued to the commercial foresters instead of Kyoto units (and to buy off greedy emitters); the New Zealand Unit. The real Kyoto forest carbon removal units were kept "off the balance sheet". In the New Zealand Greenhouse Gas Inventory 1990 2009 and in the Kyoto Protocol net position report, the carbon sequestration from 2008 to 2012 is estimated from forest surveys. The actual Kyoto removal units will not be recognised until after 2012. It is these as-yet unissued units that offset the 19% increase in New Zealand's gross GHG emissions since 1990.

It seems since Simon Upton's time, we have developed collective amnesia about intentionally negotiating the Kyoto Protocol so that we could rely on forest carbon sinks to buffer increases in greenhouse gases. Has any one of the Kyoto Protocol parties negotiated and acted in good faith? New Zealand certainly hasn't

24 June 2012

Post card from Skin and Blister on the Euro debt crisis

My sister has lived in Crete for the last two years, which is of course part of Greece. Thats after 25 years in England. Her accent is Estuary English. If you met her, you would think that she is English and probably from East London or Essex, from her accent and peroxided blonde hair. I email her most days with reports on the health of our mother, Ruth. The other day I emailed her about the Greek elections. I had observed that the Greek elections had led the NZ media cycle for a day or so; mostly in a "News for Gerbils" sort of way. Will the Euro be saved? Will the Euro affect NZ exports?.
Lots of breathless news ("Will the Eurozone be saved") about the Greek elections and the swearing in of the new Prime Minister Mr Samaras. OMG. Is it much of a deal where you are?
Her reply was:
re: Greece, all a bit subdued here. We are not Athens or the mainland however so its always been (or seemed) a bit remote here. BIG football game on tomorrow night. however. Euro 2012. Greece versus Germany!! apparently Angela Merkel is going to it and will be in the stands.
Never mind the Greek economic situation, lets watch the football! I understand that Greece was thrashed by the German team 6 - 2. Here are Clarke and Dawe on the economics of the European sovereign debt crisis. I dedicate this to my sister.

21 June 2012

Phil O'Reilly of Business NZ flogs the dead horse: ETS stands for Emitters Trading Scheme

Why is only Business NZ putting a proverbial head above the parapet and expressing a view on the New Zealand Emissions Trading Scheme (the NZETS)? I argue that the NZETS gives us the "Eyes Glaze Over" syndrome as it is a flogged dead horse. The NZETS is toothless by design. In both respects, Business NZ has got the NZETS exactly how they want it.

Phil O'Reilly, the CEO of business lobby group Business NZ, has just written an opinion piece in the Herald on the New Zealand Emissions Trading Scheme (the NZETS).

Okay, I think I can guess what you are thinking.

"Oh no, an article about the NZETS...just the mention of it sucks the life out of me. I bet it has attracted a whole lot of crackpot denier comments. It's so complex and full of jargon I don't really know what to think about it. I find the whole subject just a turn-off. My Eyes are Glazing Over.
Yes. This is the entirely natural MEGO response. You need to fight it! Most mentions of the NZETS descend into flogging the dead horse in order for the snake to swallow the elephant in the room.

We need to realise that this ETS-inertia politically assists the parties who gain from the current NZETS. That is of course, the big emitter business members of Business NZ. So, obtain a coffee or other stimulant and return. I can help you through this. I have waded through Phil O'Reilly's NZETS musings so you don't have to.

Turning to Phil O'Reilly's article, at first reading it seems a confusing mix of criticism of the NZETS and also some praise.

The criticisms; NZETS policies are uncertain, there has been lost of tinkering and amending - this is bad for investors and even low carbon investors.

"We need to stop the politicking, get the settings fixed, and just let the ETS get on with it its job."
The praise:
"The framework is fundamentally sound and capable of allowing a stronger price signal to flow through once the international carbon market revives...Major design changes at this point are unnecessary since higher carbon prices are almost certainly on the horizon, especially if Europe recovers."
What on earth is Phil O'Reilly on about? I can't decide which is further from reality; that the NZETS has a sound framework, or that the European economies are about to recover!

However, facts and internal consistency just don't matter in a business op-ed about the NZETS. A bit of criticism is a useful dog whistle to the fringe of climate change deniers. Sure enough, they pop up in the comments section including Hot Topic's favourite energy expert Bryan Leyland. The wingnuts perform the function of making Phil O'Reilly look centrist and therefore reasonable.

And, according to the flogging the dead horse theory, it doesn't matter what you say about the NZETS, the mere mention of it induces ennui. So the more yada yada yada, the better.

But! Let me focus on the bottom-line meta-message from Phil O'Reilly. It is "Hand offs the generous free allocation of emissions units to emitters" as indicated in this quote.

"The allocation of free units allowed under the ETS is not a subsidy but a necessary protection against an uneven playing field."
Business NZ have a history of lobbying very effectively against having an effective carbon price. In particular, for the NZETS, they have lobbied very hard and successfully for generous free allocation of emissions units to big emitters. Its useful to look back at the history of this.

In 2005 Business NZ opposed the proposed carbon tax

They succeeded in getting the tax withdrawn. Clearly, the carbon tax didn't have enough exemptions.

In 2006, Business NZ started "a project to develop a framework for emissions trading". Partners were Business NZ members (and big emitters) Genesis Energy, Mighty River Power, Contact Energy, BlueSkope Steel, Solid Energy, Comalco (now Rio Tinto Alcan NZ), Fletcher Building and Fonterra.

Why were they doing this? Phil O'Reilly said "It's important that the system doesn't harm business competitiveness, and hopefully it can actually enhance competitiveness." One part of the project was to "evaluate and make recommendations on emission credit allocation schemes for different sectors".

In other words, by 2006 Business NZ had already evolved what was to be a highly successful tactic; over-emphasize the competitiveness risks to the big emitters and lobby for generous free allocations of emissions units to the big emitters.

In September 2007, Helen Clark's Labour-led Government released its draft NZETS Framework. In this framework, the free allocation of units to eligible industrial emitters was to be equal to 90 per cent of 2005 emissions plus electricity consumption up to 2012, then decreasing annually on a linear basis so allocation ended in 2025, with no allocation to new industries.

In April 2008, Business NZ said the proposed NZETS allocations did not sufficiently protect the competitiveness of businesses. They catastrophically predicted that the NZETS would would cause 28% to 32% contractions of sheep and wool farming, dairy farming and processing and metals production, causing the loss of 52,000 jobs.

By 2008 Rod Oram was describing their approach thus.

"Business New Zealand says it supports an emissions trading scheme. But it's now clear it means one that transfers most of the costs to consumers and taxpayers."
Business NZ were not even trying to deny this. Passing the cost of the Kyoto Protocol onto taxpayers had been an explicit policy since 2007 when Phil O'Reilly said:
"The government needs to meet the 2012 liability itself rather than multiply its cost many times by passing on to businesses."
Labour stuck with 90% of 2005 emissions for free allocation and the 2025 end-year in the Climate Change Response (Emissions Trading) Amendment Act 2008 which became law in September 2008. Business New Zealand spat the dummy at not getting its way. Phil O'Reilly described the NZETS as "deficient","a risk to our economy" and an "example of poor law-making".

In 2009, the new National Government reviewed the NZETS, and then adopted amendments to it in November.

Brian Fallow noted that the large industrial emitters had got three big wins: a price cap of $25 a tonne to 2012; allocation of free units based on an intensity basis; a more gradual phase-out of free allocations at 1.3 per cent a year not 8.5 per cent.

Phil O'Reilly of course agreed and said "the Government had listened to business concerns about potential economic damage by providing for a more measured transition into a full trading scheme, while still placing a price on carbon."

In February 2010, Business NZ submitted on the development of Industrial Allocation Regulations in their by now time-honoured way, of emphasising free allocation to emitters:

"In the absence of other jurisdictions having emissions trading or carbon taxes, officials need to err on the side of generosity when developing the specific detail around the allocation of free units."
Fast forward to April 2011 and in Business NZ's submission to the David Caygill review of the NZETS they recommended that the $25 price cap and the 1:2 part obligation (which were due to end in 2012) be kept for ten years and that the start of phase out of free allocation be delayed until 2018

In November 2011, when the David Caygill review announced it was recommending slower implementation of the NZETS, Business NZ said the slowdown was welcome but not enough.

In April 2012, the Government announced its intention to keep the $25 price cap until at least 2015 and to have a slower phase out of the 1:2 part obligation to 2012. In other words, they met Business NZ almost halfway.

I think its clear from this review that Business NZ has always taken a tough negotiators position on the NZETS free allocations. They work out what they can reasonably expect, then they always ask for more concessions above that. Then they complain vigourously when they don't get everything they want.

Hence their op-eds seem confusing, contradictory and act as honeytraps for crackpots. But it doesn't matter, as any discussion of the NZETS is enwrapped in a veil of flogging the dead horse.

The ETS in NZETS really does stand for "Emitters Trading Scheme"

15 June 2012

Pure Advantage replies about downplaying carbon pricing

The green-business-growth ginger group Pure Advantage have posted a reply at Hot Topic blog to my criticism that they are avoiding talking about carbon pricing.

They say they are completely aware of the need for real carbon pricing and that they are aware of the ineffectiveness of the New Zealand Emissions Trading Scheme. And they paid for James Hansen's speaking tour.

However, they perceive a "political reality" that John Key's National-led Government is not listening to criticism of the ETS or their broader energy and climate policies. Duncan Stuart says;

Your argument that Pure Advantage is not being transparent on carbon pricing is unfounded.
Will dialling up the price of carbon and including all sector scheme participants change behaviour? Absolutely.
Will government do this? No.
Will Pure Advantage repeating our ETS position make a difference to government’s lack of willingness to act? No.
But what would happen if Pure Advantage were to encourage industry to take the initiative and change their behaviour in the absence of a strong carbon price (i.e. ‘reality’)?
Well, for one thing you get a win by actually decreasing emissions rather than talking about it, and, secondly, you’ve then got a marketplace which is actually more capable and willing to accept said carbon price and a government that feels more comfortable about dictating that price.
It seems Pure Advantage are still saying the path forward to a carbon price is by downplaying the carbon price within the larger rubric of "Green Growth/sustainable development". To me this is Pure Advantage admitting that what they understand about carbon pricing is not quite what they say about carbon pricing.

How is that leadership?

I think Churchill's comment on the Americans in the Second World War hits the spot.

"Americans can always be counted on to do the right thing...after they have exhausted all other possibilities."

11 June 2012

Pure Advantage pushes 'New Zealand’s Position in the Green Race' but is silent on carbon pricing

I look at the latest Pure Advantage report promoting green economics. It's all great sustainability stuff except that it fails to mention carbon pricing (emissions trading schemes or carbon taxes). How seriously can we take the Pure Advantage "green growth" message on climate change, when they are not upfront about their position on a price on carbon?

Pure Advantage, the green business advocacy group, have just released another green growth report 'New Zealand’s Position in the Green Race'. Hot Topic blog has posted about Pure Advantage before and Phillip Mills guest-posted on how NZ needs a bold low-carbon business strategy too.

The report has three goals: to define green growth, to summarise New Zealand's uninspiring environmental and economic performance, and to propose "a process for developing a green growth recipe for NZ and a strategy for delivering it" (page 27).

The basic idea of the report is clear from this graphic - where 'Green Growth' starts as an amorphous brain storm of idea, which then gets focused through the 'NZ Green Race' report and an economic analysis, before emerging like a butterfly from a chrysalis as a number of strategies and policies.

Pure Advantage believes that "corporates need to step up to provide the necessary leadership" because "New Zealand’s political leadership has successively failed to make the distinction between greening our current dirty industries, and creating new forms of high-value growth in a green economy" (page 11). Hear hear for both observations!

Climate change features strongly in their definition of green growth (as does flowery language).

Green Growth is:

* "the aggregated economic benefit that comes from minimising waste and the inefficient use of energy, reducing pollution and greenhouse gas emissions, enhancing natural resources and biodiversity"
* "an economic progression driven by a series of interrelated and unprecedented global commercial imperatives, including the geopolitical drive for domestic energy security, exploding population growth, changing social demographics, mounting climate obligations, rapid decarbonisation of economies towards renewable energy..."
* "a global economic revolution driven by a series of interrelated global mega-trends, including rapid decarbonisation of economies towards renewable energy"

The report works well on the first two goals, but it fails in terms of the the third goal as their 'recipe' for dealing with climate change does not include carbon pricing. The New Zealand Emissions Trading Scheme (ETS) is mentioned twice in the report. On page 27 there is a brief mention of the ETS in discussion of NZ's growth in greenhouse gases. And in a quote from the OECD on page 34.

So what? Should Pure Advantage mention the ETS or carbon taxes/prices? The ETS is probably perceived to be most boring topic ever. Discussing the ETS is usually flogging the dead horse to swallow the elephant in the room.

But how do Pure Advantage think we can achieve a rapid decarbonisation of the economy without carbon pricing? As James Hansen says there needs to be a rising carbon fee on all emissions of carbon dioxide and greenhouse gases.

Or, as the economist William Nordhaus says

"If economics provides a single bottom line for policy, it is that we need to correct this market failure by ensuring that all people, everywhere, and for the indefinite future are confronted with a market price for the use of carbon that reflects the social costs of their activities. Economic participants - thousands of governments, millions of firms, billions of people, all making trillions of decisions each year - need to face realistic prices for the use of carbon if their decisions about consumption, investment, and innovation are to be appropriate."

It is very unlikely that Pure Advantage don't have an opinion on emissions trading and carbon pricing. Its also very unlikely that they think they know better than either Hansen or Nordhaus. They are after all successful intelligent business people who have identified with sustainability. So its highly improbable that the Pure Advantage team think that decarbonising the economy can be done without effective carbon pricing.

So why don't they mention carbon pricing explicitly as an essential method to decarbonise? I suspect the answer is in this quote from the executive summary;

"To date much of the green debate in New Zealand has focused on the downside: costs and enforced obligations. Pure Advantage has been formed to focus on the economic upside of being green..."

"Costs and enforced obligations": that sounds more like the more traditional business view of the ETS. The Pure Advantage team seems to view the ETS as a downside, just like the rest of the business community who are not-so green-growth. And they only want to push the upside of green growth. So in promoting green growth (and decarbonising) to their business colleagues, Pure Advantage feel they have to downplay the ETS.

I have problems with this approach. It is less then completely transparent. Its also not showing leadership.

Wouldn't real green growth leadership involve openly stating that New Zealand must have a carbon price? That New Zealand needs to have an effective no-exception no-subsidies ETS or carbon tax instead of the ineffective NZETS?

William Nordhaus has made this comment on global warming eloquence without carbon pricing.

Whether someone is serious about tackling the global-warming problem can be readily gauged by listening to what he or she says about the carbon price. Suppose you hear a public figure who speaks eloquently of the perils of global warming and proposes that the nation should move urgently to slow climate change. Suppose that person proposes regulating the fuel efficiency of cars, or requiring high-efficiency lightbulbs, or subsidizing ethanol, or providing research support for solar power—but nowhere does the proposal raise the price of carbon. You should conclude that the proposal is not really serious and does not recognize the central economic message about how to slow climate change. To a first approximation, raising the price of carbon is a necessary and sufficient step for tackling global warming. The rest is at best rhetoric and may actually be harmful in inducing economic inefficiencies.

I'd love to hear from a spokesperson from Pure Advantage who can tell me that they are not just "eloquent speakers" on global warming who do not propose a carbon price.

Here are some questions for Pure Advantage.

* Do they recognise the economic point that decarbonising must involve carbon pricing?

* Do they accept that the NZETS is an ineffective carbon price scheme?

* If yes to both these questions, why don't they show leadership and stand publicly for what they believe in?

02 June 2012

Livestock and Feed Policy in New Zealand: 1975 to the Present

I have just added the paper 'Livestock and Feed Policy in New Zealand: 1975 to the Present, to the real Robin Johnson's Economics Web Page. Robin wrote this in 1985 and 1986 when he worked for the Centre for Applied Economics and Policy Studies at Massey University.