Proposed ETS amendments

A reminder for those wishing to make submissions on the ETS these close on the 11th. The consultation document is here consultation document (PDF, 4.49 MB)

They are asking for submissions on 4 questions. If you address your submission to these you will have more chance of effecting change. A rant about the inanity of it all might make you feel better and will remind the bureaucrats that read them that we do not like what they are doing but unless it addresses the issues raised in the consultation document it will do no more than that. I suggest address the issues and add disapproving comments in the context of the point you are addressing.

Three of the questions relate to forestry in particular whether the Government should adjust the level of compensation to pre-1990 forest landowners in light of the introduction of offsetting?

I personally think foresters should be able to choose either compensation or the right to offset; they should not receive both.

For livestock farmers the question to answer is;

General

  1. 1.       What do you think of the overall package of amendments the Government is proposing to make to the ETS as outlined in this document?

 

These are the Govt proposed amendments I will be submitting on; What I am submitting (or words that effect) I have underlined.

 

• Provide for a power to delay the entry of emissions from animal livestock and fertiliser use for up to three years if certain criteria are not met, following a review in 2014.

 

The Govt needs to change the legislation to be able to do this I will be submitting that the words “up to three years” be removed with no limit on how long entry can be delayed.

The reason I submit this is that if the criteria the Govt has set for the entry of livestock emissions are not met then they should not be included in the ETS regardless of what year it is. There is no reason to set a maximum extension of three years so no limit should be included.

 

The criteria the Govt has set before livestock emissions are included are;

 

• there are technologies available to reduce these emissions

• international competitors are taking sufficient action on their emissions in general.

 

A review of the ETS will be held in 2014 as required by ACT in its 2008 coalition agreement with National. It will review how these conditions have been met.

The report of the last review led by David Caygill said that farmers could reduce emissions by increasing per head production, planting trees and using DCD. The next review will likely conclude the same thing so the criteria for assessing whether this condition has been met needs to be set differently.

I will submit that if compliance with the ETS is to remain at processor level then only technologies that can apply throughout NZ can be considered for this test.

That rules out DCD.

I will also submit that the abilityto reduce emissions must be balanced with other impacts such a process may have. For example it may not be advantageous to the environment to burn fossil fuel to spray a chemical onto the soil to kill the soil bacteria responsible for denitrification which is an important part of the nitrogen cycle which is the most important chemical reaction to life on this planet.

Doing the above makes as much sense as blowing up the sun because it causes skin cancer.

I will submit that technologies to reduce emissions must not include the ability to offset emissions by planting trees as this is not a realistic or sound economic proposal for farmers on high value fertile land. It also goes against the intention of the UN not to enact policies that reduce food production. It is also not a technology to reduce emissions, rather it is an offset mechanism only.   

 

I will submit that it is only the ability to reduce emissions greater than 1.3% per year per kg product that should trigger this condition being met. Livestock emissions do not need to be in the ETS because farmers are currently reducing emissions by this amount without an ETS. Livestock emissions also cause no increase in the concentration of any greenhouse gas when produced in steady state, which is most of New Zealand’s livestock emissions. 

 

On the second condition

• international competitors are taking sufficient action on their emissions in general.

 

I will submit that this condition is too vague. Who decides what is sufficient and under what criteria? It must specifically include livestock emissions and that international competitors be defined as livestock producers and that the condition be that NZ’s biological emissions are not included in the ETS until our competitors are subject to the same financial liabilities for their biological emissions.

 

At the consultation meeting I attended they made a point of saying that this clause used the term general emissions instead of biological emissions deliberately. It is inconceivable that the NZ Govt would handicap its farmers by not requiring our competitors to be paying for their emissions and maybe National is putting in a vague condition to give it an out. The problem is that it may not be a National Minister deciding this; it could be a Green one.

 

They Govt brings out the same line that Nick Smith used to do that because livestock emissions make up such a large proportion of our emissions compared to other countries we have to include them in our ETS even if other country’s do not submit their farmers to the same impost. I can make no sense of that reasoning at all. What does it matter what proportion of our emissions they make up? We just decide what to include and what not to include in our ETS. Europe’s ETS does not include transport, a major part of their emission profile; in fact no other country does so we can do the same for biological emissions.

The Govt is also eying up opportunities to align our ETS with the Aussies. Having farmers on both sides of the Tasman treated the same way is essential. The relative contribution of each sector to their national emissions profile is quite irrelevant.

 

The Caygill panel could only refute the claim of unfairness by saying “The argument that no other country includes biological emissions in its emissions trading scheme ignores the point that these emissions are covered by the target for which New Zealand is accountable, whatever happens elsewhere. This is easily solved; don’t include them in the targets. It would be quite legitimate for NZ to set a target which excludes biological emissions. The other countries that are not including biological emissions in their trading schemes are hardly going to be able to complain.

 

On the issue of livestock emissions they propose changing the Global Warming Potential of methane from 21 to 25 and nitrous oxide from 310 to 298

This is because Kyoto used these GWP’s so they have been set since Kyoto began when in fact they should have been 25 and 298 respectively to match the latest science. This will increase the liability farmers face. I will submit that GWP’s are a flawed system and that the UN is actively seeking a replacement metric. Until this occurs a flawed metric should not be used in major economic policy, namely the ETS.

 

I will also submit that changing the GWP’s at the whim of a conference creates uncertainty. If we are to use these flawed GWP’s then their value needs to remain unchanged for a defined period. Farmers need to know what these GWP’s will be without fear of another increase at the next conference. There is enough fear created by those things anyway. If we are to have GWP’s the Govt needs to set a clear process in place as to how often and when these GWP’s will be subject to change in our ETS.

 

The other proposals I will be submitting on are general ones to do with the function of the ETS

• Introduce more explicit powers to enable auctioning of NZUs within an overall cap subject to further consultation on the detailed settings.

This is a significant change to the current ETS. Two problems here.

 

Auctioning NZU’s changes the fundamentals of the scheme. Currently the Govt gives NZU’s to a forester- the emitter buys the NZU off the forester- the emitter then surrenders the NZU back to the Govt.

 

It is cash neutral to the Govt.

 

By auctioning NZU’s the Govt will get involved by cutting out the forester and selling to the emitter. There will be a limit on the number of NZU’s the Govt sells so the foresters will still be able to sell their units. The problem the Govt is trying to solve is that an emitter can buy an international unit from overseas instead of NZU’s from forestry and surrender these. The Govt wants to avoid the flow of money out of the country by auctioning units so that emitters will buy from the Govt instead of overseas. (the price will be the same ). They maintain that this auction process will be income neutral to the Govt because the money they get from the auctions will be equivalent to and just replace the value of these international units that they get now.  The reality is that they can not sell these international units because there is no demand for them they are worthless. The big problem I see is that it will just become a cash cow for the Govt and with future Minister of Climate Change issues able to alter the settings of the ETS by regulation rather than legislation this ETS could become just another tax to raise revenue rather than save the planet.

 

 

Second Problem

Currently our ETS is a no cap trading scheme. NZU’s are distributed on an intensity basis so farmers will receive NZU’s  covering 90% of their livestock emissions in 2015 or whenever it comes in. They have to purchase the other 10%. If livestock emissions doubled between now and then due to a miracle grass doubling production then farmers would still get 90% of the new level of emissions.

 

By introducing a cap this will change the scheme from an intensity based scheme to a true cap on trade scheme. Farmers can live better with an intensity scheme than a capped scheme because livestock emissions reduce by 1.4% each year per kg product due to increased productivity but as production increases so too do absolute emissions. If a cap is in place the price will go up as demand increases with no increase in supply

 

The Government seems to be all over the place with this, on the one hand they lower the demand and therefore carbon price by continuing the transition measures and on the other hand they want to introduce a cap which could dramatically increase the value of units if supply does not increase to match demand.

 

What the cap will be has not been set, the Govt proposes that the Minister of Climate Change will set the cap each year based on whatever international commitment NZ has.

This is far too loose, it gives tremendous powers to the Minister and with future international commitments unknown the impact of this change to the ETS is unknown.

 

 

• Provide a power for appropriate quantitative restrictions on the use of international units subject to further consultation on details.

 

Again this is all too loose, they propose being able to restrict how many international units an emitter can purchase on a percentage basis. The percentage would be able to be set by the Minister and changed at his whim. By saying that the restrictions will be set based on further consultation shows what a mess the Ministry is in. They need to get this legislation through this year but they have no details ready at this point. Once the legislation is passed to allow the percentage to be set by regulation they propose a consultation process to help set the percentage. I don’t thinks so! Once the Minister has the power to set the percentage of international units an emitter can surrender without going back to the parliament he does not need to listen to anything we say in the consultation process. By saying they will have such a process is just placating us so that we will give him the power to ignore us in the future.

 

I will submit that the proposed ETS auctioning process and the ability to set a cap and the ability to limit the purchase of international units should not proceed into legislation until all the criteria are in place. I will also submit that any changes a Minister of Climate Change wants to make to the cap, the amount of units available for auction and the percentage of international units an emitter can purchase must be through legislative change, not regulation.

 

The reason for this is that any changes will directly affect the market making it not a true market. So any changes need to be consulted and scrutinised by the public through the parliamentary process.

What the Govt is trying to do here is get the legislation passed that will allow it to change the ETS using as yet undefined criteria. With undefined criteria, the effect can not be defined and no legislation should be passed if the effect of that legislation can not be determined.

 

I will also submit that with no international commitments after 2012 other than conditional targets and if the ETS is to be changed in such a way that  these targets directly affect the ETS and our economy then for the sake of certainty and so that business can plan ahead, unconditional targets must be set several years in advance and remain relatively constant.

 

Certainty is the reason for this; imagine trying to do budgets for a farm purchase or development which is fraught with enough uncertainty re weather and prices so to have a Minister of Climate Change dicking around with the carbon markets as well it would be too much. Remember the Minister is a politician, he is not an expert on these matters, he could really wreak havoc with all the powers they propose giving the Minister.

 

Well done for reading all that. I hope it made sense.

 

If you want to send a submission the details are below, and if you want any info to help you you’re your submission email me or ring me.

Cheers Robin

 

Please send your submission by email to:etsconsultation@climatechange.govt.nz

If you are unable to email your submission then please post it to:

ETS Review Consultation Ministry for the Environment PO Box 10362Wellington 6143

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