Australian ETS Scheme On Hold

Interesting developments vis a vis emissions trading in Australia.  There are several reports in the Australian media on this.   It will be interesting to watch the impact that this development has on New Zealand’s review.

Is 2,750 KT of Credit A Big Issue For New Zealand Agriculture?

Andrew D of the Physics Department at the University of Queensland has put much effort into his comments on my earlier post (please read them all).  He concedes that I have a point about the Kyoto rules but reckons I am overstating the case.  According to Andrew (I have asked him to explain this a bit more fully, and he has in his most recent comment) New Zealand’s 24,866 kt of methane emissions are produced from 2,750 kt of stored carbon.  That is carbon that has been absorbed by our pasture, but for which the agriculture sector gets no credit.

Would an 2,750 kt offset be significant for New Zealand agriculture?  I believe that it would, particularly when you remember what our Kyoto obligation is.  Our obligation is to restrict emissions to 1990 levels.

Many thanks Andrew for the effort you have put in on this.

In 1990 New Zealand emitted 22,413 kt of methane (CO2 equivalent).  In 2006 we emitted 24,866 kt of methane.  That is a 2,453 kt increase.  The 2,750 kt of offset that the New Zealand agriculture sector is being denied by the silly Kyoto rules would mean we have no carbon liability.

Looked at another way we need to buy credits to offset our methane liability.  At a cost of NZ$30 per credit x 2,453,000 we are required to buy credits worth $73,590,000 to offset our Kyoto methane liability.  I deem this significant particularly as the tax payer is currently set to meet the cost of any liability coming from agriculture (agriculture is not due to be part of the ETS until 2013).  I would much rather that $74 million was spent on something other than Russian AAUs.

Why I Think The Kyoto Rules Treat New Zealand Sheep, Beef And Dairy Farmers Unfairly

At least one reader of Kiwiblog appears not to have understood the point I was trying to make about the rules around methane production so I will try and explain myself more clearly.  Yes, I know methane is a potent GHG and that it is probably one of the worst GHGs because of its half life being so long.  I also know that the carbon atoms in methane molecules that are produced in the gut of a ruminant come from carbon stored in the grass not from the atmosphere (I actually thought that was pretty clear from my post).

The point I was trying to make was that farmers are being penalised for the amount of methane produced without adjusting for the fact that to produce the methane their pasture has absorbed close to an equal amount of carbon.  I really only know wine making chemistry so can’t comment definitively about the relative bulk of a tonne of methane as compared to a tonne of carbon dioxide but I can tell you that a molecule of CO2 has as much carbon as a molecule of CH4.  Each contains one atom of carbon.  My guess is that it is almost a one to one conversion.  If one looks at the latest edition of the Ministry of Economic Development’s publication New Zealand Energy Green House Gas Emissions you can see that in one of the tables  (1.1) all gases are converted to CO2 equivalent.  Agriculture produced 37,668 Kilotonnesof CO2 equivalent.  This is made up of 24,866 kt of methane and 12,802 kt of nitrous oxide N2O.   

From the above we know that to produce the 24,866 kt of methane (CO2 equivalent) New Zealand farmers have had to absorb roughly 24,866 kt of CO2.  Why do the rules not give credit for this?  I have seen some argue that it is impossible at this time to tell how much CO2 is absorbed by a New Zealand farm.  This may be true, but a chemist can tell you exactly how much CO2 must have been absorbed by pasture to produce the methane which the Government says it knows each farm is producing.  I think it is unfair that our farmers are not being given credit for this CO2 absorption.

Some Questions On The Science Of Kyoto

This post is not a challenge to those who believe that the climate is changing due to the release of greenhouse gasses (GHGs) by humankind.

It is asking questions about the science that underpins the Kyoto Protocol and and which is being used to determine our level of emissions. 

 Several aspects of the Kyoto Protocol really annoy me.  For a start how can we solve this problem if major emitting economies have not taken on any obligations?  It looks as though the US will take on commitments to whatever replaces Kyoto but there seems no chance off China, India and Brazil etc taking on commitments.

Why is there such inconsistency over points of obligation?  Why are consumers held responsible to the release of GHGs from oil, gas and coal and not the producing countries, when the country that cuts down a tree is held responsible for emitting the full amount of carbon stored in that tree from the time that it is cut down?  An importing country faces the full liability for emissions from gas, oil and coal, but exporting country faces the full liability for wood.  And why does the exporting country face the full liability for its agricultural emissions as opposed to the country that is going to actually consume the product that was produced as a result of all those emissions having been made?  So New Zealand imports oil from country x and bears the full costs of releasing the GHGs from burning that oil in New Zealand.  We export meat to country x, but also face the full cost of producing all the GHGs released while producing this meat.

Why was horticulture excluded from the original emissions trading scheme?  We store plenty of carbon in horticulture.  Our systems are essentially closed – in wine for example we absorb in the grape growing process exactly as much CO2 as we put back into the atmosphere in the wine making process.  Our vines store more cabon each year, and those of us growing things organically, are constantly boosting our carbon levels in our soil.  We get no credit for this under the previous Government’s scheme but we face full costs on all our inputs.

And have we got the science right over methane production from our cows and sheep?  This is a critical issue for New Zealand as our agricultural emissons are half our total emissions.

Where does methane come from? It comes from the guts of cows and sheep.  It is is produced in the guts of ruminant livestock as a result of the actions of methanogenic bacteria and protozoa on the feed being eaten by the ruminant livestock.  In New Zealand’s case that food is mostly grass.

Now this is where I am hoping to be corrected, but my reading of the Kyoto Protocol gas calculation rules suggests that the methane emitted is being measured (estimated based on stock numbers) in gross terms.  But no counterbalancing adjustment is being made for the fact that the components that make the methane were largely absorbed from atmosphere as carbon (methane – CH4 – is one atom of carbon and four of hydrogen).

No where can I find a measure of the amount of carbon dioxide absorbed by our pasture in New Zealand.  While pasture doesn’t store carbon well (grasses tend to die and then release carbon back into the atmosphere relatively quickly – unlike trees that live many years) pasture absorbs as much carbon as does forest.  If is wasn’t for the interaction of animals, pasture would be a fully closed system in terms of CO2.  As much carbon as is absorbed would be released again once the grass dies.  The animals convert the carbon that has been absorbed by grass into all kinds of things.  Out one end comes the methane that everone is so exercised about.  The other end is even more disgusting but those droppings do add carbon back into the soil where it is stored.  And of course the meat and wool produced gets eaten or consumed into clothing.  The carbon will get released back into the atmosphere one day, but is maay take many years.

But in terms of carbon and GHGs isn’t this as much a closed system as pasture without the animals?  The grass absorbs the carbon dioxide from the atmosphere.  It gets eaten and that carbon gets combined with some hydrogen in the gut thanks to some microbe induced anaerobic frementaion and methane gets released into the atmosphere.  So as a result there is less CO2 in the atmosphere but more methane than there would otherwise be. But they are both GHGs.  Why therefore do our farmers not get pinged for producing methane when in fact without the methane there would still be CO2 being released into the atmosphere?  And why are they being pinged at all for being part of what is essentially a closed system?  No more GHGs are being put up into the atmosphere than are being absorbed by the pasture.

Looking at the way things are measured here in New Zealand the amount of CO2 being emitted and absorbed by agriculture is treated as a neutral exercise – data is deemed to be not available.  If it was, would it confirm or refute the case I make above?  But even without this data how can determine a farmer’s liability?

Finally, as mentioned above in relation both to pastural agriculture and viticulture, I think that there is an issue over the measurement of, and need for account to be taken of the amount of carbon being absorbed in our soils.  I have seen plenty of scientists getting excited over the prospects for using biochar to store carbon in soils, but what about what is already going on?  Without taking acount of what is already taking place how can we get a true picture of the amount of GHGs we are actually producing from our agriculture sector?

Protectionism The Real Enemy

I started to read the special Christmas double edition of The Economist last night (I managed to find a copy at Cromwell Paper Plus).  The first Leader is a story entitled Fare well, free trade.  It talks about how we are seeing a frightening combination of forces – a contraction of both capital investment and world trade.  The shifting of both trade and capital flows into reverse has not happened for a generation.

The article also deals with a factor that worries me enormously, the ability of world leaders to say one thing on the international stage, and to act very differently at home

In many countries politicians’ fealty to open markets is already more rhetorical than real. In November the leaders of the G20 group of big rich and emerging economies promised to eschew any new trade barriers for a year and to work hard for agreement on the Doha round of trade talks by the end of December. Within days, two of the G20 countries, Russia and India, raised tariffs on cars and steel respectively. And the year is ending with no Doha breakthrough in sight.

As economies weaken, popular scepticism of open markets will surely grow. Among rich countries, that danger is greatest in America, where grumbles were heard long before recession set in. The new Congress, with bigger Democratic majorities, has a decidedly less trade-friendly hue. Barack Obama’s campaign rhetoric left an impression of a man in two minds about trade, which he has since done nothing to dispel.

And to add into the mix trade distorting policies are beginning to abound

Politicians from Washington to Beijing are being pressed to help troubled industries, regardless of the consequences for trade. A bail-out of Detroit’s carmakers, whatever its final extent, will be a discriminatory subsidy. As China’s exporters go bust by the thousand, industries from textiles to steel have been promised handouts and rebates. Subsidies will beget more subsidies: Nicolas Sarkozy, France’s president, says that Europe will turn into an “industrial wasteland” if it too does not prop up its manufacturers. They will also invite retaliation. With China’s bilateral trade surplus at a record high even as America’s economy slumps, Congress will not take kindly to Beijing’s bolstering of its exporters.

The Economist suggests a policy prescription which I can only endorse

Add all this together and it is hard for a free-trader not to worry. So what is to be done? The first requirement is political leadership, especially from America and China. At a minimum, both must avoid beggar-thy-neighbour policies. Second, a conclusion of the Doha round would help. A deal would reduce the risk of broader backsliding by cutting many countries’ bound tariffs—and it would establish Mr Obama’s multilateral credentials. Third—Doha deal or not—is greater transparency. A good recent idea is that the WTO publicise any new barriers, whether or not they are allowed by its rules.

But The Economist misses one new factor which is probably more worrying than anything else it talks about.  That is the prospect of new instruments being introduced to keep US and European industry internationally competitive after cap and trade or carbon taxes are introduced as a response to climate change.  My fear here is that these policies will spark a trade war which will threaten to future of the WTO rules based system.  Avoiding such an outcome will be one of my key themes for the year ahead.

Merry Christmas

We are paying the price for two near 30 degree days in a row down here with a much cooler overcast day today.  I actually prefer cooler Christmas days.  There is nothing worse than spending the day in the kitchen when it is hot and sunny outside. 

I see that 50 people have visited Dear John today which is more than I had expected.  Can I wish all readers a very happy Christmas.  I hope the New Year is as prosperous as possible.

As we can’t sell any wine today I may have some time to post on concerns I have about threats to free trade.  I might also share some thoughts on the science underpinning the Kyoto Protocol and our ETS.  This is not about the science of climate change and whether we humans are causing the climate to change.  Rather it is about the science used to underpin the rules.

Quite a few people have read the post yesterday about Fiji.  Whaleoil has posted a long comment which suggests that my proposed policy response won’t work.  This may well be the case but I have yet to see anyone come up with a suggestion which might work – aside from direct intervention.  And, if Whaleoil is right and the good Commodore enjoys majority support for what he is doing, then intervention won’t work either.

Another Good Herald Editorial

Not quite the same line as was run in yesterday’s Editorial from The Australian but today’s Editorial in the New Zealand Herald also deals with the hard realities of politics now surrounding the climate change policy response

It must be galling to be green these days. Just when an imminent change of government in the United States promises some leadership on climate change, countries like ours are beginning to backslide. The new Government has ordered a review of Labour’s emissions trading scheme and moved to cancel three steps Labour had agreed with the Greens: a moratorium on additional fossil-fuelled power generation, a compulsory biofuels quota and the banning of incandescent light bulbs.

Meanwhile in Australia, where Labor came to power a year ago proclaiming itself a better global citizen than the Howard Government, newly announced carbon emissions reduction targets are a fraction of those expected. It is a striking reversal from the fanfare that attended Kevin Rudd’s trip to Kyoto immediately after his election. His Government’s commitment for the period beyond the term of the Kyoto agreement would cut emissions by only 5 per cent below 2000 levels unless most others agree to much more.

For the moment there is not much prospect of a bolder consensus. Even in Europe, where efforts to meet climate change are farthest advanced, a summit conference in Poland last week made little evident progress towards a post-Kyoto programme. In the current international climate the reason is not hard to fathom. Economic recession has eclipsed all other concerns, particularly costly ones.

All the talk of net economic gains from adjustment to climate change has gone out the window. Warnings such as those in Britain’s Stern report, that failure to adjust would carry crippling economic costs, seemingly have been forgotten. When real job losses loom, environmentalism receives a reality check. Green politics is a luxury of prosperity, which is why developing nations have been reluctant to join emissions reduction pacts and why green political parties are found almost exclusively in rich countries. No matter how left wing their social instincts, they draw almost all their support from relatively well paid academics and liberal professionals in fairly secure jobs.

Greens have been enjoying success in the debate over climate change, marginalising remaining sceptics and convincing most governments that industrial emissions of carbon dioxide have to be contained. The recession now shows how shallow the conviction has been. If most people believed the consequences of climate change to be catastrophic, and believed emissions reductions to be the best response, government would not hesitate to act. Recession would seem a minor temporary risk in comparison.

Even the Labour-led Government in this country postponed emissions trading for the oil industry when petrol prices spiked briefly this year, and it backed off home shower regulations as soon as they caused embarrassment to Labour’s election campaign.

Clearly environmentalists have more work to do to convince governments and the public that climate change exceeds all other threats to their livelihoods and that the supposed solutions are worth the candle. It is hard for most people to believe a mandatory change of light bulbs will do much for the planet.

For the credibility of their cause Greens cannot simply sit out the recession before trying to convince the world again of the urgency of climate change solutions. The solutions invite a contraction of carbon-based industry and a transition to renewable energy sources that would probably cause temporary unemployment on a larger scale than this recession threatens.

If governments are able to soft-pedal on proposed solutions whenever their economies turn sour, the public will be left to wonder whether climate change is really to be taken seriously.

The Australian On Rudd’s Climate Change Policy

Very good Editorial in today’s Australian by Paul Kelly.  I hope all NZ policy makers read this as should those criticising our Government

THIS was the only way Australia was going to price carbon: with huge household compensation, help for trade-exposed industry, a modest absolute target equating to an ambitious per capita target and locking our effort into the global agenda.

John Howard, where are you now? This is a deft policy in which Kevin Rudd is Howard. Put precisely, Rudd is a green Howard. He has made climate change into a magic pudding. It is a work of political genius that would make Howard proud.

This is a huge fiscal churn: pricing carbon from just the top 1000 companies is a classic top-end revenue base with the proceeds distributed to households with a bias to the poor and families, where low-income families are over-compensated at 120 per cent, petrol is quarantined from price damage, new funds are created to assist small business and big businesses at risk win healthy protection money.

All the parts of this political machine are stolen from John Howard Incorporated. No wonder the Coalition is tight-lipped. If only Howard had realised emissions-trading policy could look like this. If you thought Howard’s GST compensation was generous – and it was – then have a look at Rudd’s even more generous carbon pollution compensation. It sure beats the hell out of the GST. Households get more money plus the moral vanity of telling the neighbours they are saving the planet.

Paraphrasing a famous line, Kevin is here to help you, help your pocket and help your planet. The greens and the scientists are still playing in the warm-up arena, having missed the main event entirely.

The policy papers are filled with increases in Family Tax Benefit A, Family Tax Benefit B, sweetheart deals for pensioners, special guarantees for motorists, rewards for self-funded retirees and proof of Labor’s commitment to equity. Appendix E of the white paper says the Rudd Government “will use every cent it receives from the sale of pollution permits to help Australian households and businesses” adjust to pricing carbon. In the first two years of the scheme, the extra revenue is $11.5 billion and $12 billion.

The message from Rudd’s policy is that politics has not been suspended and the world has not changed. Just the reverse. The wheels of government spin. Only the method of the tax-transfer system is modified and redirected in a new crusade to re-elect another government.

Rudd’s white paper occupies the middle ground of politics around a new structural reform.

This is how Australian democracy pioneers historic reforms. It is the same middle ground that Bob Hawke and Paul Keating used in the 1980s to carry their reforms, and it is the middle ground that Howard used to introduce his GST-led tax reform.

But the price of reform keeps increasing. Rudd cannot make everyone a winner but, at a carbon price of $25 a tonne, the cost-of-living impact is estimated at 1.1 per cent, less than the GST, with household compensation running at $9.9 billion during the first two years, which is far higher than for the GST.

The key to Rudd’s policy lies in its balance, its hip pocket and its idealism. “Our primary objective has been to get the balance right,” he says.

Like every successful PM, Rudd is pragmatic. He doesn’t pretend that Australia can save the world. He won’t jeopardise Australia’s interests by offering binding cuts unreplicated by others. And he refuses to privilege climate change science with an absolute command of the public policy.

The feature of the climate change debate during the past six months has been its fantasy element: the range of people who deluded themselves into thinking the rules of Australian politics and public policy had been abolished. That didn’t happen in World War I or World War II and itwon’t happen in the climate change war.

The scientists, frankly, should heed the lesson from this decision. They don’t grasp what is happening. They risk seriously misreading this issue in Australia and globally.

Rudd’s unconditional reduction target of 5 per cent by 2020 off 2000 levels with the option to lift to a 15 per cent reduction constitutes the policy balance the Australian community expects from its leaders.

It is not a sell-out.

The 5 per cent target (taking note of Australia’s high population projections) equates in per capita terms to a 27 per cent reduction. The 15 per cent target – Rudd’s option if the world concludes a tougher global deal – equates to a 34 per cent per capita reduction. Such Australian goals are comparable with or tougher than counterpart EU per capita targets.

President-elect Barack Obama’s position is for the US to return to 1990 emission levels by 2020, or a zero reduction. Obama, presumably, will be pushed further in global negotiations. But this benchmark represents a 25 per cent reduction in per capita terms. So Rudd’s targets compare favourably with those of other industrialised nations.

This reality has been apparent for some time. It was documented at length by Ross Garnaut.

The propaganda campaign by greens, scientists and non-government organisations for Australia to embrace an unconditional 25per cent to 40 per cent reduction target was always doomed. Rudd concluded this required too extreme an adjustment for Australia and too great an exposure compared with lesser efforts from other nations.

There is no prospect the Obama administration will commit to such 25per cent to 40 per cent reductions. The Australian Government has long recognised this reality. The EU’s campaign to this effect created a benchmark that originated in science and not global negotiating reality.

The key to the genuine global progress lies elsewhere: in a deal between the US and China. The question is how much extra Obama must move to force China across a threshold to stronger action creating the basis for a global compact. When they meet, this will be Rudd’s message for Obama.

The immediate politics will assist Rudd and create a dilemma for the Malcolm Turnbull-led Coalition. Rudd is selling two ideas. First, Labor has acted on climate change. It made the promise and it honoured that promise. The scheme will start in 2010 and be in its infancy at the next election. Rudd will depict himself as a hero who responded to the climate change threat “to our people, our nation and our planet”.

Every delaying tactic by the Coalition will be painted as proof of climate change scepticism. Labor will turn this against Turnbull in his own seat. Rudd wants to negotiate Senate passage with the Coalition and this will become a political wedge against Turnbull. If Turnbull resists he becomes a sceptic; if he agrees he faces an internal revolt. Meanwhile Rudd will define Labor forever as the party that acted on climate change.

Second, Rudd depicts his action as the essence of responsibility, recalling his fiscal conservatism in 2007. Unlike the Australian Greens, Rudd says he gets the balance right between “a scheme that reduces carbon pollution and supports economic growth”. Rudd will sell his scheme as pro-jobs.

The economic consequences of this policy will take several years to have an impact. In the near term this policy is the moment when climate change and happy families came together.

 

Europe Cooling On Global Warming

I have just been reading an interesting article in the Wall Street Journal on the recently concluded UN Cliamte Change meeting in Poznan.  Certainly the fate of the Labour-led Government here has been noted by many in Europe.

Participants at last week’s United Nations climate conference in Poznan, Poland, were taken aback by a world seemingly turned upside-down. The traditional villains and heroes of the international climate narrative, the wicked U.S. and the noble European Union, had unexpectedly swapped roles. For once, it was the EU that was criticized for backpedalling on its CO2 targets while Europe’s climate nemesis, the U.S., found itself commended for electing an environmental champion as president.

The wrangle over the EU’s controversial climate package at a separate summit in Brussels wrong-footed the world’s green bureaucracy. The EU climate deal was diluted beyond recognition. Instead of standing by plans to cut CO2 emissions by 20% below 1990 levels by 2020, the actual reductions might be as trivial as 4% if all exemptions are factored in.

The Brussels summit symbolizes a turning point. The watered-down climate deal epitomizes the onset of a cooling period in Europe’s hitherto overheated climate debate. It may lead eventually to the complete abandonment of the unilateral climate agenda that has shaped Europe’s green philosophy for nearly 20 years.

The reasons for the changing political atmosphere in Europe are manifold. First, the global economic crisis has demoted green policies nearer to the bottom of the political agenda. Saving the economy and creating jobs take priority now.

Second, disillusionment with the failed Kyoto Protocol has turned utopian thinking into sobriety. After all, most of the Kyoto signatories failed to reduce their CO2 emissions during the last 10 years. There are also growing doubts about the long-term viability of the EU’s Emissions Trading Scheme. The price of carbon credits has collapsed as a result of the financial crisis. The drop in demand and the recession are likely to depress carbon prices for years to come. As a result, the effectiveness of the extremely volatile scheme is increasingly questioned.

Third, a number of countries have experienced a political backlash over their renewable energy schemes. Tens of billions of euros of taxpayers’ money have been pumped into projects that depend on endless government handouts. Each of the 35,000 solar jobs in Germany, for instance, is subsidized to the tune of €130,000. According to estimates by the Rhine-Westphalia Institute for Economic Research, green subsidies will cost German electricity consumers nearly €27 billion in the next two years.

Perhaps even more important is the growing realization that the warming trend of the late 20th century has, for the last 10 years or so, essentially come to a temporary halt. The data collected by international meteorological offices confirm this. This most peculiar fact is rarely mentioned in policy debates, but it certainly provides decision makers with a vital respite to reconsider their climate policy options.

Above all, Europe’s politicians have recognized that green taxes have turned into liabilities that may undermine economic stability and their chances of re-election. As German radio Deutsche Welle put it last week: “With the recession tightening its grip on the German economy, [Chancellor Angela] Merkel is betting that job reassurance is more important to the average worker than being a pioneer in tackling climate change.”

 

Ban On New Thermal Generation Was Bad Policy

I am very pleased that the ban on new thermal generation of electricity is to be gone by the end of the week.  This was one of the previous Government’s climate change policies that we liked the least.  Modern gas fired plants are emit far lower levels of carbon than old coal fired stations yet the policy seemed to ensure that Huntly was going to be used for many years to come.  Moreover, the ban seemed likely to continue the ridiculous situation of us losing much of what we generate because we transmit power over long distances to the places it is needed (eg Auckland).  A gas powered station on the outskirts of Auckland will be a very efficient option for a company such as Genesis.