Submission on auctioning credits in New Zealand’s emissions trading scheme

Submitter: Professor Euan G. Mason

Profile: Euan Mason is a Professor at the New Zealand School of Forestry, University of Canterbury, where he teaches silviculture, statistics, modelling, and research methodology.  His research interests include forest growth and yield modelling, tree physiology, and silviculture.  He has published numerous peer-reviewed articles relating to climate change and forestry, and has been employed by government ministries and political parties to advise them on climate change issues from time to time.  He is a New Zealand citizen, born in Invercargill.  He was educated at universities in New Zealand and the United States of America.

Introduction

In previous submissions I outlined New Zealand’s emissions and the failure of our ETS to make any substantial difference to our greenhouse gas (GHG) emissions. Our net emissions increased by 54 % between 1990 and 2016, with agricultural and the energy sectors contributing 49% and 40% of emissions respectively (MfE, 2018). Our gross GHG emissions are approximately 80 million tonnes of CO₂-e. Clearly our emissions trading scheme (ETS) has failed so far, and so we need to change it. The climate change amendment (zero carbon) bill may result in positive change along with additional mechanisms for New Zealand’s climate change response.

In this submission I’ll argue that auctioning credits will undermine the scheme, and I offer an alternative scheme that does not require auctioning and yet will enable us to work towards our national emissions targets in a planned cost-effective fashion.

Why auctioning carbon credits will undermine the scheme

In a well-functioning emissions trading scheme, polluters would have to submit credits in order to be allowed to pollute, and they would purchase credits from those who cleaned up their pollution.  So if the cost of cleaning was higher than the cost of reducing pollution in the first place then they'd choose to reduce emissions. Either way the atmosphere would not receive any more GHGs and purchasers of carbon credits could rightly call themselves "greenhouse gas neutral". Such a logical framework provides a foundation for New Zealand to plan to meet its climate change commitments in the most cost-effective way.

However, that's not what will happen with auctioned credits.  These credits will inevitably be traded, and purchasers of credits will claim to be "greenhouse gas neutral". They will be wrong, because auctioned credits will have no more environmental credibility than the fraudulent credits imported from Eastern Europe which undermined our scheme until they were outlawed.

Auctioned credits will not represent the CO₂ sequestration required to offset pollution of purchasers. Instead they have been created out of thin air by government. They cannot confer greenhouse gas neutrality.

Auctioning “thin air” credits would mean that there would be no linkage between the cost of credit purchase and the cost of removing pollution from the atmosphere. The price of such credits would be ad hoc and would not enable us to meet our targets in the most cost-effective way.

Moreover, introducing credits that represent no sequestration, and therefore have no environmental credibility, will contribute to the failure of the ETS, as outlined in my previous submissions (see http://euanmason.blogspot.com/2019/08/submission-on-climate-change-response.html).

An alternative scheme

Abandon the idea of a cap and trade scheme, and redesign the scheme so that polluters who purchase NZUs are truly GHG neutral.  This might be achieved if we:

•  Apply the ETS equally to all sectors
•  Set emission reduction reduction targets each year that stabilise the NZU price and allow us to meet international commitments on a planned trajectory
• Require surrenders only for “over target” greenhouse gas emissions
• Allow trading only between sequesterers and emitters
• If you overpollute you pay someone else to clean up
• Manage our domestic credits as a currency rather than as a commodity

In this way the “target” emission % of existing emissions (in 2020) becomes a kind of cap, and reducing the % gradually would see us meet our national targets in a planned fashion. With such a scheme we would be sure to meet our targets, and we’d get there in the most cost-effective way.

If ministers at Kyoto had agreed to a scheme similar to the one outlined above then no fraudulent Ukrainian credits would have been available to undermine our ETS, and the entire world would have been on a better track to address the climate crisis.

Euan G Mason

Professor

University of Canterbury

References

MfE. (2018). New Zealand's Greenhouse Gas Inventory 1990–2016. Wellington: Ministry for the Environment.