Wednesday 21 September 2022

Gross or net?

The Climate Commission keeps trying to push us from having a Net Zero target to having a Gross Zero target. 

Carbon News reports:

Climate Change Commission chair Rod Carr says, if left alone, the planting of pine trees purely for carbon credits will prevent the ETS from playing the part it should in reducing carbon emissions.

Speaking at the Climate Change and Business Conference in Auckland, yesterday, Carr said the government needed to address the problem urgently but in consultation with those most affected by any changes: foresters and landowners.


Climate change minister James Shaw acknowledged the commission’s concern that a glut of forestry offsets in the 2030s “could lead to a crash in the ETS price and a return to the bad old days of companies just using cheap offsets rather than actually reducing their emissions.”

The ETS's job is to limit net emissions on a path to Net Zero in 2050. Forest sequestration can be an important part of that. If it is cheaper to sequester a tonne of carbon than to prevent a tonne of emissions, then do the former. 

There can be all kinds of potential problems. If there are biodiversity benefits from native planting over pine, and those are substantial enough to warrant policy involvement, then set a subsidy for the production and maintenance of those habitats. 

Here's Shaw, from the same piece:

“Aotearoa is the only country in the world with an ETS that allows companies to offset 100% of their pollution with forestry.”

He said including forestry in the ETS had meant the cap was a very soft one. 

“That’s because anytime anyone plants enough trees to sequester a tonne of carbon, we automatically generate an NZU, which is a permit to pollute a tonne of carbon into the atmosphere.

“Which means, technically, that unlimited forestry allows unlimited pollution,” Shaw said. 

We don't have a soft cap, or at least not in this way. We have a cap on net emissions. The point of having a net emissions cap is to be flexible. Climate doesn't care about gross, it cares about net. But politicians and, seemingly, the Commission, want to force gross reductions even if that's less cost-effective. 

Caps on net emissions are great because they're agnostic about how net emissions come down, so long as they come down. If carbon capture tech aiming at USD$100/ton pans out, that sets a natural limit on ETS prices. If it doesn't, the ETS encourages finding other options instead. But if we wind up flipping to a gross target, it can't help us. 

One might start to get the impression that none of them actually care about net zero, but instead mainly care about the behavioural changes required for gross emissions targeting, for reasons other than climate change. 

Changes that would make a tonne of sense, if all of this were actually about reducing net emissions through 2050:

  • Setting a cap on the number of unbacked ETS credits that can be issued by the Crown between now and 2050, requiring that annual auction and allocation draw from that pool;
  • Considering the number of outstanding units when setting that cap to 2050;
  • Rejigging the ETS price cap to track a weighted bundle of carbon prices in credible ETS markets rather than just being some nominal amount - this would have us more easily following without exceeding prices elsewhere;
  • Using international credits to back units issued at the price cap, unless the government has immediate access to cheaper ways of backing those units - and note that government would earn money at the price cap under this mechanism rather than facing fiscal risk;
  • Taking ETS revenues and redistributing them to households as a carbon dividend rather than a slush fund for political favourites.

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