Monday, 12 April 2021

Getting to Net Zero

We have not been fans of the Climate Change Commission's draft report.

New Zealand has an Emissions Trading Scheme with a binding cap, and a declining path for net emissions in the covered sector. Measures taken within the covered sector cannot reduce net emissions. NZU not purchased by one sector get purchased and used by another. Regulatory measures around coal boilers or electric cars can affect the price of NZU, and will affect which sectors move earlier or later in reducing emissions, but they cannot affect the quantum of emissions. 

Like, imagine you have a crate of 12 beers and 12 thirsty people, each of whom would be pretty happy to drink 2 or 3. They run an auction to decide who gets the scarce beers. The thirstiest folks drink two, others cut back to a half or none. The money goes into the crate. Then each of the dozen people gets a 1/12th split of the money in the crate when the beers are gone (the heaviest drinkers wind up compensating the rest this way). At next weekend's session, the crate will only have 11 beers - there's a declining cap. And so on. After the first session, all the beers were consumed, and folks split the money. And it's pretty obvious that they'd have been happy to have drunk an awful lot more if there were more in the crate. 

Regulations saying that Jim cannot have any of the beers, or that Mary cannot drink more than 3 of them, or that Fred must go to Alcoholics Anonymous because he's bidding the price of beer up too much - none of those wind up affecting how many beers get consumed on the night. They change who drinks them, and they affect the price at auction, but that crate's going to be empty at the end of the session unless you put in so many rules and constraints that they wind up more binding than the "there are only 12 beers" constraint. If the set of rules ban half the folks there from drinking any beers, restrict three people to having no more than 1, and the remaining 3 didn't want more than two drinks anyway - then the rules would reduce total consumption. But if you had really wanted to knock the amount down by three beers, it would have been easier just to pull three of the bottles from the crate at the outset and pour them down the drain before auctioning the remaining 9.  

The Climate Commission's draft report is rather less tasty than the draught beers in that crate - even if the beer were Rheineck. It's full of regulations saying that Jim is banned from having a coal boiler, that Mary can't plant pine trees, and that Fred is banned from importing petrol vehicles. But all of those are under the ETS cap. Someone else uses the NZU instead if a coal boiler gets banned. And while the Commission claimed that all of it made sense and that the economic costs of overriding the ETS were minimal, they didn't release a lot of the detail that might prove it. 

So our submission, written mainly by my excellent colleague Matt Burgess, went through those issues, urged more transparent costings of the non-ETS policies, and urged the use of a carbon dividend to address equity issues rather than a pile of costly regulatory measures that try to do it by shifting who bears the costs. Matt hits on some of this in the Herald as well

The interview between my former Vice-Chancellor, and current Climate Commission Chair, Rod Carr, and Matt Burgess is really well worth listening to. 

National is now threatening to break up the two-party consensus on climate change because it is dissatisfied with the Climate Change Commission’s Draft Consultation document. 

The party’s Climate Change spokesperson, Stuart Smith, has taken the unusual step for the Opposition of making a formal submission to the Commission highly critical of  its proposals. 

He says they are impossible to support. 

And yesterday, he wrote to Climate Change Minister James Shaw asking for a three-month extension to the consultation period on the report. 

“My concern is the draft Plan would be impossible for us to support and put us in the unfortunate position where we are opposing the Commission’s first Emissions Reduction Plan,” he told POLITIK.

“In order to avoid this, I am requesting the Minister extend the time the Commission has to develop this plan. 

“National first and foremost wants a robust emissions reduction plan that we can support. 

“This, I believe, is a constructive step to create a situation where we may be able to support the final Plan.” 

POLITIK: “Is it fair to say the Government cannot now take National’s support for the Climate Change Commission’s recommendations as a given?” 

SMITH: “Correct.”
It's tempting to think this doesn't matter, because Labour has a majority and may well just legislate everything that Carr recommends, without bothering to go ahead with cost-benefit assessment on individual measures. 

But it does matter. 

The Draft Report recommends banning petrol vehicle imports from the early 2030s. If the Commission can't show that this really is cost effective, and National consequently commits to rescinding any such ban because transport is already in the ETS, the ban becomes nonbinding - there will be a change of government before the 2030s. 

Similarly, reversing bans on other things already covered by the ETS, like fossil fuel powered industrial and process heat, or bans on new gas connections, would also matter in maintaining the viability of those setups (remember - they're all covered by the cap, it won't change net emissions). 

So we then have to plan on going back to relying on the ETS and its declining binding cap, rather than running a pile of other stuff that is unlikely to be helpful. 

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