The Climate Chap: Emissions Trading Scheme: Carrots and sticks

13 June, 2022

So, by now you know that New Zealand still produces an ever-increasing amount of nasty carbon and methane emissions that contribute to our global climate crisis. This must be stopped and reversed in order to meet our international commitments and protect our future.

Our Climate Change Commission has done a great job in defining how best to achieve major emission reductions from now through 2050. But Aotearoa faces a stark choice. Do we simply rely upon our industries and citizens to “go sustainable” and voluntarily reduce emissions? For each citizen – that’s you – the Government is leaving you alone for now. For our industries not so.

It would be neat if every industry voluntarily committed to do its own thing. Some are. However, our Government has a better idea – a cunning plan involving incentives and penalties called the Emission Trading Scheme, or ETS for short. The overall purpose of ETS is to motivate industry to significantly, quickly and continuously reduce their nasty emissions, thus the carrot. Those not coming to the party will be penalised, thus the stick.

How does it work? Almost impossible to answer in such a short column, but here goes. Jacinda nominates a price per metric tonne of emissions that are applied to industry (energy, forestry, manufacturing, transport, cement, landfills, non-pastural agriculture etc). This price needs to be high enough to motivate industries to reduce emissions sooner than later. Those not reducing emissions have to buy “vouchers” from the government or existing voucher holders each year. Government gets lots of dosh to support climate change initiatives, while businesses failing to perform will experience increasingly expensive and uncompetitive repercussions. Naturally the increased costs will be forwarded to you – the customer.

The scheme was introduced in 2008 and by 2018 the government was receiving over $400 million in penalties. With the passing of each year the cost per voucher will increase as time will be running out to meet our 2050 goals.

Simple? Not so quick! For a start the Government has exempted some of our largest emitters for fear they will close shop and relocate to more generous countries: Steel from Glenbrook, aluminium for Tiwai Point and Methanex from Waitara (previously paper from Kawerau) are protected from the ETS.

And now the biggie: Our livestock industry has been exempt and will remain so until 2025. This means that farmers have been free to increase herd sizes in recent years and generate even more methane emissions without any penalty.

This industry generates approaching 50 percent of all our nasty emissions and you may well ask why they are being treated so kindly. Firstly, we have separated fossil fuel emissions from methane emissions, 50/50. So when we speak of “net carbon zero” by 2050 this means that the ongoing fossil fuel emissions will be offset by our lovely native trees. Other nations include all emissions in one total and strive to be totally “net zero”.

However, the methane emissions, dominantly from ruminating livestock but also nitrate-based fertilisers, are treated separately with such emissions only targeted to reduce by between 24-47 percent by 2050. Reaching the 24 percent mark is okay, so by 2050 we could still have 76 percent of animal-based emissions which represents 38 percent of our total emissions remaining beyond 2050 even if we succeed in being “net carbon zero”. Oy Veh!

To achieve a 24 percent reduction by 2050 means reducing emissions by less than1 percent annually. Simple enough, reduce your herd by approaching 1 percent, plus look towards planting a few native trees, and maybe diversify by investing in plant-based farming to produce cheaper and better foods whilst also reducing the need for fertilisers and expensive manufacturing costs.

But wait there’s more. Come 2025 agriculture will only pay 5 percent towards each voucher. The taxpayer covers the remaining 95 percent. Therefore, no real incentive for the industry to change. When challenged, the industry always replies with “we have the most efficient industry in the world”. Maybe, but this has absolutely nothing to do with the pollution of our planet. By the way, a 2 litre blue milk at my local Pak’n Spend costs 50 percent more than the same product at Tesco. Methinks the UK industry must be more efficient than ours.

Interesting times.

It would be neat if every industry voluntarily committed to do its own thing. Some are. However, our Government has a better idea – a cunning plan involving incentives and penalties called the Emission Trading Scheme.