New Zealand’s initial attempt to mitigate the problem of climate
change is moribund, so why is this? The
Kyoto Protocol, which we ratified in 1997, bound us to keep our net emissions
at 1990 gross emission levels between 2008 and 2012, but also tied us to
particular patterns of thinking about greenhouse gases. Not all of these patterns are rational, nor
are they all helpful. Nonetheless, with
a rather unique emissions profile for a “first world” nation, we could offer
the world valuable solutions for developing nations if only we would accept the
opportunity. Forestry could easily make
us fully greenhouse gas neutral while solving erosion problems and improving
profitability of our hill country farms, but for this we need a rational
approach to emissions trading and commitment from our populace.
In this article I shall outline some of the key modes of
thinking introduced by the Kyoto Protocol; highlight where we are going wrong
with emissions trading; and show how forestry could be at the heart of
solutions to this global problem.
Kyoto commitments and
rules
A rise in CO2 concentration from 280 ppm in 1800
to 400 ppm today is reported to be promoting changes to the Earth’s climate
that will be deleterious (IPCC, 2007). Climate scientists are warning us that
emissions of CO2, NH4, N2O and other compounds
collectively known as greenhouse gases (GHGs) are warming our planet and that
weather will become more extreme. Of
course some CO2 is essential for plant growth. We have begun to respond to the risk posed by
this phenomenon.
The Kyoto Protocol was crafted in 1992. It comprises 28 articles that commit
signatories to monitor, report on and reduce GHG emissions. It goes further, however, and sets out rules
for international emissions trading where each country is given “Assigned
Amount Units” (AAUs) representing tonnes of CO2-equivalent that they
have committed to reduce their emissions to between 2008 and 2012, the first “commitment
period”. Typically AAUs are set relative
to a nation’s emissions in 1990, and nations were allowed to choose their
targets. If a country’s emissions dropped
below its level of AAUs then it would have AAUs to sell, while other countries
could meet their targets by purchasing surplus AAUs. Under the terms of the Protocol, only nations
in the Organisation for Economic Cooperation and Development (OECD) listed in
“Annex I” of the Protocol are assigned AAUs and have GHG emission reduction
targets, while other nations can earn other kinds of carbon credits by reducing
emissions. These latter credits are
known as “Certified Emission Reduction” (CER) credits. Countries such as Japan, New Zealand, and the
29 nations of the European Union (EU) have started domestic GHG emissions
trading schemes (ETSs) in order to translate their international commitments
into domestic behavioural changes.
Not all credits are created equal. Removal units (RMUs) are earned from
sequestration in sinks such as new forests in Annex I countries, and are
sometimes regarded as inferior credits because of uncertainties about future
emissions from those sinks. The EU
emissions trading scheme bans trading in AAUs to avoid large influxes from “economies
in transition”, such as Russia and the Ukraine (Flachsland et al., 2008). The EU bans AAU trading with economies in
transition because these countries were originally command economies, and their
transition to market economies has led to massive reductions in industrial
processes and associated GHG emissions since 1990 (Figure 1) that would have
occurred irrespective of concerns about GHGs.
Surplus AAU credits from economies in transition (sometimes labelled
“hot air” credits) are so numerous that if they were traded in the EU they
would swamp the market and lead to very little behavioural change, just as “Emission
reduction units” (ERUs) derived from these AAUs (see below) are currently
swamping the New Zealand market and undermining New Zealand’s ETS and response
to climate change. Europeans justify the
exclusion of AAUs from economies in transition using a concept called
“additionality” to identify acceptable credits generated by behaviour that is
“additional” to normal behaviour and has been taken specifically to mitigate
climate change. Additionality has to be
assessed, leading to additional layers of bureaucracy (Valatin, 2012).
 |
Figure 1 - Net emissions of GHGs from Russia and the Ukraine
by year (Source: United Nations Climate Change Secretariat)
|
The Kyoto Protocol originally defined ERUs as credits
obtained by reducing emissions below a nation’s levels of AAUs, but the term
has since been narrowed to mean credits resulting from a joint development
implementation where one first world nation invests in emission reductions in
another. ERUs from economies in transition are now considered to be a way for these
countries to launder excess “hot air” AAUs.
There are two tracks for generating ERUs. Track two involves oversight from an
international board, the Joint Implementation Supervisory Committee, but track
one allows host countries to approve projects, assess verifiability and issue
credits themselves. There is evidence
that track one projects, which produce the majority of ERUs, are being used to
launder surplus, “hot air” AAUs (Alessi and Fujiwara, 2011). Conversion from one to the other is routine
and many joint development implementation projects are in economies in
transition.
Certified Emission Reduction (CER) credits can also be
controversial. As non-annex I countries
do not need to account for emissions, it can be profitable for them to engage
in activities that produce GHG emissions in order to either reduce or sequester
them and so generate CERs. A classic
case is the production of CFC-22 which has a by-product, CFC-23, that is 11700
times worse as a GHG than CO2, and yet the cost of scrubbing CFC-23 is
about $1 per tonne. Data show that
CFC-22 plants produced significantly less CFC-23 during periods when no credits
could be claimed than when credits could be claimed (Schneider, 2011). While this is an extreme, it highlights a
larger problem with CERs, that when people are rewarded for reducing pollution
but they are not penalised for generating pollution this will inevitably create
perverse incentives. These perverse
incentives can only be avoided through expensive, somewhat ad hoc and expensive
bureaucratic judgements about “additionality”.
We need also to understand that paying people to reduce GHG
pollution, such as through ERUs or CERs awarded for pollution reduction, is
radically different from paying people to sequester GHGs, and brings into
question what we mean by the term “GHG neutral”.
GHG “neutrality”
“A wind farm provides electricity
from wind, a plentiful renewable source. Carbon Credits are awarded for the
carbon emissions that have been avoided as compared with electricity generation
by burning fossil fuels.
The Te Apiti Wind Farm by Meridian
Energy is located in the lower North Island of New Zealand. It is a 90MW
wind farm made up of 55 Vestas 1.65MW wind turbines. The wind speeds at the
site are on average 9.3 m/s giving an annual output of over 325 GWh. The
wind farm reduces GHG emissions by approximately 203,125 tCO2e/year....
.... In order to be able to
promote your business as 'Carbon Neutral', and earn the label of 'Green
Carbon: Carbon Neutral Certified', you must first Measure your carbon
footprint, Reduce your emissions where possible, and then purchase and retire
the correct amount of carbon credits.”
These quotes are typical of those engaging in carbon
trading. The idea is that we can claim
“GHG neutrality” or “carbon neutrality” by purchasing carbon credits to offset
our emissions, but purchase of credits derived from lowering pollution below
the level of a free allocation (essentially a kind of domestic emission
reduction unit) does not confer GHG neutrality.
This can easily be seen by using the example above. Suppose Meridian Energy generated enough
domestic ERUs through wind power generation to reduce its GHG emissions to
exactly half of its free allocation of credits (In the NZ ETS, companies get an
allocation of free NZUs that means they are allowed to pollute without penalty
up to a certain level). It could then
use the credits it generated to account for its remaining emissions and claim
to be GHG neutral even though it was still emitting 50% of its original allowed
GHG pollution. This kind of
irrationality arises from the Kyoto concept that we need only reduce emissions
down to our level of AAUs, and below that level we can sell AAUs. Meridian Energy could be said to have reached
some kind of target if it reduced its GHG emissions to 50% of its allowed
pollution, but it is irrational to reward it with sellable credits that people
can use to claim “GHG neutrality”. International ERUs suffer from the same kind
of irrationality when they are derived from Assigned Amount Units (AAUs). Unfortunately this irrationality has
contributed to the undermining of New Zealand’s emissions trading scheme. Only credits derived from sequestering GHGs
in sinks can be sensibly used to confer GHG neutrality on purchasers’
activities, and these credits are an important key to changing the way we live
and solving the problem of climate change.
New Zealand’s ETS
New Zealand is fortunate that the Kyoto Protocol apparently
allowed us to keep our net GHG
emissions (emissions minus sequestration) at 1990 gross emission levels between 2008 and 2012. In fact our gross emissions have grown by
19.8% since 1990, the sixth largest increase among developed countries, while
our net emissions have grown by 59.5% since 1990, the second greatest increase
among developed nations (UNFCCC, 2012). Had we been required to stabilise either our
net emissions to net 1990 levels or our gross emissions to gross 1990 levels
then we would have failed utterly.
Clearly, in order to actually achieve real world outcomes that are
meaningful in the battle against climate change, we need to rethink our
approach to emissions trading.
New Zealand implemented an emissions trading scheme in order
to promote changes in our behaviour that reduce our net GHG emissions and allow
us to meet our international commitments.
The scheme has been introduced sector by sector, with forestry fully in
the scheme from 2008, energy and industry in from July 2010, and the entry of
agriculture into the scheme has recently been postponed indefinitely. Owners of forests established on non-forest
land after 1989 can choose to accrue domestic carbon credits (known as New
Zealand Units (NZUs) in our emissions trading scheme), and those established
prior to 1990 must surrender NZUs if land use is changed. If post-1989 forest owners have accrued
credits then they must surrender credits at time of harvest to reflect the loss
of carbon storage in the landscape. This surrender at harvest means that our
domestic removal units have credibility, as any future leakage will be
accounted for. Emitters have to
surrender credits, with free allocations of 50% available to the energy and
industrial sectors until 2013, and there is a fixed price option where emitters
can purchase credits from the government for $25 (effectively a price cap).
Our ETS is failing to change behaviour, partly because of
low credit prices, and partly because we have taken a piecemeal approach to
implementing it.
The latest spot price for NZUs is around $3, and the trend in
prices is shown in Figure 2. Figure 3
shows credits surrendered by New Zealand GHG emitters during the last six
months of 2010 and all of 2011. Note
that prices of NZUs dropped as people in New Zealand started buying foreign
CERs and ERUs. New Zealand has remarkably
few restrictions on purchases of foreign credits, and so credits from economies
in transition, which are often derived from AAUs that are not admissible in the
European trading scheme, can be purchased freely for use in the New Zealand
system.
 |
Figure 3 – Volume of different types of credits surrendered
in the New Zealand ETS during the last half of 2010 and during 2011 (NZETS, 2012). Fixed=Fixed price option at
$25/credit, NZUf=NZUs from forest sequestration, NZUo=other NZUs. |
The piecemeal approach to our emissions trading scheme, in
particular the total exclusion of our agricultural sector, has further reduced
its effectiveness and its credibility. New
Zealand’s GHG emission profile (Figure 4) is closer to that of a developing
nation than a first world one. On
average developed nations have far lower percentages of agricultural emissions
and waste (17% versus New Zealand’s 50%), and far higher emissions from energy
(81% versus New Zealand’s 43%) according to the World Resources Institute (2012). By excluding agriculture from our ETS, we
give a free ride to the very sector that emits more GHGs than any other single
sector in the country. In addition to the
impact on the New Zealand scheme’s credibility and perceptions of unfairness,
this exclusion reduces the likelihood that new forest sinks will be planted in
New Zealand because marginal and eroding lands where we should sensibly plant trees
for carbon sequestration are predominantly owned by farmers. If farmers were required to purchase credits
for their emissions then they would rapidly become interested in growing their
own credits via forestry if that was the least cost alternative. It is likely that farmers with no marginal
land would enter into joint ventures with those that did own some. Hill country
farming would become more profitable, and erosion would be mitigated.
 |
| Figure 4 – New Zealand’s gross emissions by
percentage in 2010. Our total emissions
in that year were 71.7 M tonnes of CO2-e (Source: United Nations
Climate Change Secretariat). |
There is, however, one respect in which our ETS has a sound
design. When I discuss afforestation as
a climate change mitigation option with foreigners, their responses are often
to assert that RMUs are undesirable because forests are temporary sinks and
ultimately sequestered CO2 will be returned to the atmosphere. I then explain how our ETS keeps owners of
forest planted after 1989 honest through monitoring, that it requires
purchasing of credits to account for harvesting, and yet due to interest earned
on credits generated throughout a rotation such a scheme still has the capacity
to promote afforestation. This is often
a revelation for them.
What forestry could
achieve
More than twice as much carbon is stored in the Earth’s
biomass than is stored in the atmosphere, and estimates of storage in plant
matter range from the 500 billion tonnes (Mahli, 2002) to 650 billion tonnes in
forest biomass alone (FAO, 2010). Global emissions of GHGs were
estimated to be 49 gigatonnes CO2-e in 2004 (IPCC, 2007).
If the FAO’s estimates of total forest storage and forest area (FAO, 2010) are accurate, implying an average forest storage
of CO2-e of 596 tonnes/ha, then we would need approximately 1.4
billion hectares of new forest to return atmospheric CO2
concentrations to 280 ppm. This is
approximately 1/3 of the deforestation we think humans have caused.
Surprisingly, New Zealand could be completely GHG neutral
for between 60 and 100 years by planting radiata pine on approximately 2.4
million hectares (9% of our land area, or more than doubling our current
plantation area) of our marginal lands. Typically radiata pine sequesters between 25 and 35 tonnes of CO2
per hectare per year. Our total
emissions in 2010 were 71.7 M tonnes of CO2-e (Source: United
Nations Climate Change Secretariat). If
we assume a sequestration rate of 30 tonnes per hectare per year then
establishing 2.4 million ha would sequester enough CO2 to account
for all our GHG emissions over at least 60 years. If our carbon forests were
not harvested, studies suggest that we would continue to benefit from
sequestration for at least 60 years and possibly up to 100 years (Woollons and Manley, 2012), and that on warm and wet
sites after some two hundred years natural succession would produce native
forests on those sites that contained similar reservoirs of carbon (Hall, 2001).
A recent study identified that 4.6 M ha of New Zealand is
either highly or very highly susceptible to erosion, and 2.5 M ha of that was
in the North Island alone (Bloomberg et al., 2011). Much of this land could be afforested and
would form the basis of a sink to completely offset our national GHG
emissions. After a protracted heavy
storm it can look like the land shown in Figure 5. Clearly reducing emissions might be a better
financial prospect than afforesting all of it, but we need a strategy to
encourage people to make those calculations; an alternative ETS.
 |
| Figure 5 – Erosion in the North Island hill
country after a severe storm |
A revitalised ETS
We can make rapid progress to help mitigate climate change
by adopting the simple principle that those who emit GHGs should either
sequester them or pay other people to sequester them. This means that international CERs and ERUs should be
unacceptable in our ETS. This may sound
unrealistic now that the rest of the world has adopted irrational approaches to
carbon trading, but New Zealand has recently withdrawn from the second
commitment period for Kyoto and so we have an opportunity to fashion an
entirely new ETS that has integrity. Moreover, our ETS could show the way for
developing nations to participate fully in carbon trading because our economy
and emissions profile have many similar features to those of developing
nations.
Immediately imposing full accountability for emissions on
all sectors would be very disruptive, and so some sort of staged entry into the
scheme for emitters would be wise.
However, adopting a copy of the AAU approach has led the world, and
especially us, into complications and difficulties that have undermined carbon
trading. We could simply say that
emitters have to account for a gradually increasing proportion of their
emissions without giving them any free credits.
Sequestering GHGs should be the only way to generate NZUs.
Under this scenario, economic actors would quickly discover
that without a limitless stream of bogus credits from overseas the credit price
would rise, and they would begin to find innovative ways to reduce emissions
and to explore cheap sequestration – the original intention of developing
emissions trading schemes. It is very
likely that much of our eroding hill country would be devoted to CO2
sequestration and so hill country farming would become more profitable, erosion
would be reduced, and ultimately we would have more native forest in our
landscapes.
We should arrange for independent management of the value of
our NZU currency just as our independent Reserve Bank carefully manages the
integrity of our dollar currency, except that instead of using the Official
Cash Rate, an independent agency would foster the integrity of NZUs by managing
percentages of emissions for which credits would be required. An annual 5% decline in our net emissions,
for instance, would see New Zealand greenhouse gas neutral within 20 years. The
agency’s job would be to meet such a target by manipulating percentages of emissions
for which credits are required across all sectors on an annual basis. Just like the Reserve Bank, the agency would
have to use clear and open processes to ensure minimal surprises.
Concluding remarks
New Zealand has so far failed to respond adequately to
climate change, and our GHG emissions are among the fastest rising in the
world. Our ETS has firstly, suffered
from not having an inclusive scheme and leaving out the single most polluting
sector. Secondly, it has encouraged irrational approaches to GHG neutrality and
unrestricted purchasing of foreign credits in a world where AAUs have been
assigned in an uneven fashion across first world nations and where developing
countries have tied developmental assistance to credits in ways that further undermine
credit trading schemes. However, we
could be GHG neutral through a combination of afforestation of our eroding
lands and progressive innovation in reducing GHG emissions. With an appropriate ETS design we should expect
that the latter would ultimately predominate, but afforestation would buy us
time to change.
References
