Submission on the proposed industrial allocations review in New Zealand's emissions trading scheme, 2021

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 and a chapter in a textbook 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.

Overview

Industrial allocations (IAs) to prevent “leakage” are problematic. Not only do they undermine incentives to prevent pollution in Aotearoa, but they open the door to gaming our emissions trading scheme (ETS). They also rely on an argument that is barely better than the “we are too small to matter” argument.

Undermining incentives

When we allocate an IA to a greenhouse gas emitter, we are allowing pollution to occur in Aotearoa for fear that it might otherwise occur somewhere else. This runs counter to our stated goal of preventing greenhouse pollution in Aotearoa. Employing IAs means we are much less likely to meet our climate change targets, partly because a greenhouse gas polluter is allowed to add to our emissions, but also because the entire ETS is seen to be unfair and arbitrary. IAs make a mockery of the process. We can all clearly see that if we are economically important enough or can afford to make a “convincing” case to government officials then we do not have to contribute to the process. Other participants will believe that they are carrying an unfair burden in the ETS, and they will be right in that belief. The heaviest burden will fall on smaller enterprises who cannot afford to devote time to making a special case to the crown. This undermines the whole scheme.

Gaming

The most blatant example of gaming with IAs occurred when enterprises received NZUs as IAs and then purchased cheap, fraudulent credits to submit for their “allowed” pollution instead of the allocated NZUs. The difference in price between NZUs and imported credits meant that they were essentially paid millions of dollars for being polluters. While the crown may argue that imported credits are no longer acceptable in the ETS, the real lesson from this incident is that any arbitrary complication in our ETS rules opens the door for gaming that undermines the process. IAs are an unnecessary, arbitrary complication.

The argument

The “we’re too small to matter” argument says that greenhouse gas polluters should be allowed to pollute in Aotearoa because Aotearoa contributes such a tiny proportion of global GHG pollution that our stopping pollution will not solve the problem. It is a facile argument, because any group of 5 million people anywhere in the world could make the same claim, and then the climate change problem would remain unsolved. We all need to contribute.

The argument for IAs is similar. It says that we cannot stop emissions-intensive and trade-exposed industries (EITEs) from emitting greenhouse gasses for fear that they might emit somewhere else. This is a facile argument. If all countries adopt this rationale then all emissions-intensive and trade-exposed industries would be allowed to pollute everywhere, and the problem would not be solved. We all need to contribute, and we need to trust that other countries will limit pollution from EITEs along with us. If they do not, then their greenhouse gas accounts will suffer and they will deserve the criticism and ultimately sanctions that the rest of the world will inflict on them.

Some EITEs argue that if they operated elsewhere then they would pollute more in those other places, or that if they ceased operating here then this might enable dirtier operators to continue polluting elsewhere. They may support this argument with a study of greenhouse gas pollution from their operations in Aotearoa compared to those from operations overseas. However, overseas studies do not always agree with their assessments. Moreover, effectively excluding them from the ETS by using IAs provides absolutely no incentive for them to become less emissions-intensive. Furthermore, this argument is based on an assumption that other countries will not provide incentives for these industries to reduce emissions, when in fact they are very likely to do so.  Do we really wish to become a haven for emissions-intensive industries?

Recommendation

The crown should immediately cease all IAs to EITEs, and instead work towards ensuring equity for, and commitment from ETS participants. This will do far more to enable Aotearoa to meet its climate change commitments than any tinkering with a problematic, unfair, and ultimately counterproductive ETS complication.

Where to for Aotearoa’s forests? Indigenous and plantation forests will help us get to net zero and reverse climate change

Euan Mason & Tim Enright

This is an extended version of an article published by Newsroom.

In the face of undeniable, dangerous climate change we all need to take responsibility, change what we do, and play our part. Change may be hard but we are on track for 3 degrees or more of global heating this century and this must be stopped. Our nation of 5 million lives in a 27 million hectare subtropical paradise with fantastic potential for forestry - Aotearoa, land of the long white cloud. By expanding indigenous and plantation forests we can get to net zero emissions, absorbing & storing (sequestering) more greenhouse gases (GHGs) than we emit. We have committed ourselves to net (allowing for forest absorption of carbon dioxide) GHG neutrality by 2050, and we now have to figure out how to get there.

Forests provide oxygen, carbon sequestration, enhanced & improved biodiversity, economic returns, employment, taxes, well-being & support of rural communities, wood, paper, erosion control, habitat, recreation, naturally durable woods to replace treated pine, heritage and cultural values. This article focuses on carbon sequestration and we acknowledge it must be part of a wider discussion and plan for Aotearoa, with government policy and financial support, to maximise these benefits.

Aotearoa’s international commitments have changed through the years, from Kyoto targets to our latest commitments which guarantee to reduce carbon dioxide emissions to net zero by 2050, but not methane or nitrous oxide. International evaluations of our climate change mitigation efforts label them as insufficient, and report that if everyone behaved as we plan to then the Earth’s temperature would rise more than 3 degrees. The figure below shows that both our net and gross emissions continue to rise (LULUCF is sequestration by forests). It is clear that we need to get all GHGs to net-neutrality by 2050, not just carbon dioxide, and all sectors need to contribute.

Climate Action Tracker currently rates New Zealand's climate mitigation targets as "Insufficient":

 

The chart above shows that our future (blue) path is into Climate Action Tracker's "red zone" by 2050, and if all nations behaved as we plan to do then global temperature would increase by more than 3 degrees C this century. The red arrow shows what we need to do to play our part and keep temperature rise within 2 degrees; get all net GHG emissions down to zero by 2050.

In 2016 our government and opposition jointly commissioned the “Globe” study, by Vivid Economics, to explore how to get to absolute GHG neutrality. After consulting all sectors of our society the authors reported that we might reduce total GHG emissions (approximately 80 million tonnes of CO₂ equivalent annually) to zero by about 2085, but that also planting new forests would get us to net neutrality by 2050.

Euan’s colleague, Dr David Evison, produced a helpful graph with annual emissions on the y-axis, showing us what this means:

The green line shows what the Globe authors estimated we can achieve in Aotearoa if we seek to reduce gross emissions to zero, while the red line shows the path to net GHG neutrality by 2050.  Students of geometry will notice that the blue triangle has the same area as the triangle formed between the red and green lines, a triangle we can fill with carbon (C) sequestered by forests.

We need new forests because although converting low vegetation to forest stores extra C in the landscape, forests do not increase their C forever; forestry can buy us time while we figure out how to live without emitting GHGs, but it is not a long-term solution to climate change.

How many hectares of new forest we need, and costs of conversion & forest management, depend on what species we establish, where we establish them, and how we manage them. These are vitally important decisions.

Our Climate Change Commission recently released a report suggesting how we might begin reducing our gross emissions, but also that we should embark on a 17-year programme to plant areas of both exotic and native forests. Euan modelled estimates of annual C sequestration of those new forests assuming they would be planted on erosion-prone land, mostly in the North Island, and compared them to sequestration required over the next 60 years to keep us at net GHG neutrality after 2050 (assuming that we continue to reduce our gross GHG emissions to zero by the early 2080s):

The blue line shows the gap to be filled, according to Vivid Economics. The light blue line shows pine sequestration if it is unharvested and eventually converted to native forest (Dr Adam Forbes, an ecologist, demonstrated that we can plant rapidly-growing pine that is intolerant of shade and transition it to slower-growing but shade-tolerant native species). Orange shows sequestration or emission from pruned and harvested pine. Green shows domestic carbon credits (NZUs) earned by pine forest owners under our Emissions Trading Scheme if long-term storage from growth and harvesting cycles is averaged. Purple shows sequestration by native forest using the Ministry of Primary Industry’s (MPI’s) “lookup” table of native forest C storage versus time after planting.

MPI’s native forest lookup table is based on a few temporary forest plots where people measured stems and estimated C storage, while estimates of C storage in pine come from thousands of repeatedly measured plots where changes in stem dimensions have been used to create models that can be used to estimate C storage.We need more research into C sequestration in our native forests.

Several things are clear from the graph:

1.       None of the proposed forest plantings will get us to GHG neutrality by 2050;

2.       “Averaged” NZU entitlements don’t properly represent medium-term impacts of periodically harvested forest on the atmosphere; and

3.       Establishing just under 300,000 ha of native forest will do very little to get us the GHG neutrality by 2050.

Several forestry options would fill the gap in our national accounts. We are likely to choose a mixture of options, but examining them in isolation helps us gauge their efficacy.

Option 1. Plant native forest