In which expert advisory work from the PCE illustrates why the ETS in its present form risks a massive lignite subsidy, and Tim Groser — quite rightly — observes that this would be “ridiculous” and “incoherent”

December brought more proof the emissions trading scheme is broken, in the opinion of the Parliamentary Commissioner for the Environment; also, some interesting remarks from Climate Change Negotiations Minister Tim Groser who, presumably unintentionally, expressed the same view.

The Parliamentary Commissioner for the Environment (PCE) has had a long interest in lignite. The latest report from her office, Lignite and Climate Change: The High Cost of Low-Grade Coal (November 2010) — which was to have been released in the week of Pike River and, in the event, was deferred to mid December — assesses the likely impact of proposals by Solid Energy, L&M Mining, and Chinese joint venture Qinghua, to mine lignite in Southland.

Lignite’s environmental challenge is its greenhouse gas emissions. The emissions trading scheme (ETS) will not mitigate them. On the contrary, it may assist with the business case, by us all paying large amounts of money to polluters, not vice versa.

Among other uses (urea, briquettes), are proposals for transport fuel production: two plants producing, respectively, up to 35,000 barrels of diesel per day (two-thirds of New Zealand’s current diesel use) and up to 50,000 barrels per day (New Zealand’s entire diesel use). These, say the PCE, “may well qualify for significant subsidies” under the ETS, despite their massive emissions impact.

She calculates that a plant making 35,000 barrels of diesel per day from lignite (that is, only one of the proposals) would emit, per year, 5.5 million tonnes of greenhouse gases more than the same amount of diesel made conventionally, from crude oil.

This is “incompatible with the promises the government has made internationally to reduce greenhouse gas emissions” to between 10% and 20% below the 1990 level by 2020. Instead, our emissions are projected to continue to rise, until 2019, and be 30% above the 1990 level in 2020 — an “enormous” gap (shown at figure 3.2), costing us anywhere between $1 billion and $6 billion to buy offshore carbon credits.

That is without counting lignite, which would increase the gap by 20%, if just one of the two proposed plants was built, and 50% if both were built (figure 8.1).

Whereas Solid Energy has talked up the importance of “taking full responsibility for greenhouse gas emissions” (sort of — “We are investigating a range of options to help reduce or offset CO2 emissions ...”) and “full carbon compliance”, and carbon capture and storage, the PCE says whether talking about trees, or storage underground, this last is magical thinking.

The ETS, in theory, is ‘polluter pays’ for the necessary credits. In practice, in its present form, there are ‘allocations’ for trade-exposed carbon-intensive industries: up to 90% taxpayer-funded free credit, for the worst polluters.

The PCE sees a risk and a likelihood that in future, the process of refining lignite into transport fuel would be an allocation-eligible activity, costing additional billions, totally contrary to any principle that might be discerned in the ETS.

“It makes no sense for taxpayers to subsidise new investment in carbon-intensive technology,” she says, noting that it raises the policy question of how we decide what activities are eligible, and suggesting that the “review of the scheme in 2011 provides an opportunity to address this and other serious shortcomings”.

This all seems to have fallen on fertile Ministerial ground. Here are some remarks from Tim Groser, reported by Colin James about:

… another important initiative he conceived four months ago and got endorsed at a meeting he called in Cancun: a push for cuts in national subsidies for fossil fuels. … It is, Groser says, “ridiculous” and “incoherent” to negotiate cuts in emissions while also subsidising them. Eliminating the subsidies would be a major contribution to containing emissions.

If Groser is taken at his word, it is not just the subsidy of new investment in carbon-intensive technology (as per the PCE) that makes no sense, although that is certainly true. It makes no sense for taxpayers to subsidise any fossil fuel; or greenhouse gas emissions; or indeed (since, in these remarks, he has taken agriculture as his model) the late entry of agriculture in 2015 — if at all — followed by 90% allocation. Indirectly, that is a national — in both senses, actually — subsidy.

Groser is saying precisely what the ETS’ critics have been saying.

Whatever the answer may be in the end to the policy question, the legislation, right now, creates a problem of economically inefficient and risky uncertainty, by not telling us the answer.

The impetus of lignite mining proposals must be a worry for ETS Minister Nick Smith, who says that tackling climate change is his government’s number one environmental priority. The ETS, as far as anyone can tell, is his government’s number one tool to achieve it; yet here we have proposals enthusiastically being progressed that would significantly increase, not reduce, greenhouse gas emissions, contrary to promises and policy.

The ETS is patently not, at present, any real obstacle to commercial investment decisions, even marginal ones.

Two days before Christmas, the ETS review panel was announced. Its members are “not appointed as advocates or representatives of a particular interest or sector group”; however, the seven members reflect this government’s forestry focus, and there are two farmers, one of them a former Federated Farmers president. No environment representative, objected Russel Norman, slamming the review as “one-sided” with representation from “the polluting industries”.

Groser’s remarks are perhaps more fruitful, I think, than close analysis of the review panel’s qualifications.

He can quibble and cavil about what a ‘subsidy’ means; and deny that there are any, domestically, in quite the same way as some other countries; and reconcile his policy with the ETS quite easily, by reference to the “gradual reform over decades”. He can say “That is not what I meant at all. That is not it, at all …”.

However, it would strengthen the moral weight of his “high Cancun profile”, if his government did act in 2011 domestically, to ensure that any current fossil fuel subsidies are eliminated, and new ones are not supported directly or indirectly under the ETS, so that large-scale long-term plans to emit, such as the lignite proposals, can be properly costed and contained.

Comments (12)

by Pip McAlwee on January 12, 2011
Pip McAlwee

The Qinghua Joint Venture has since made further progress. On the same day the ODT published that article you've linked to above, the Australian company in the joint venture lodged a petroleum exploration permit with Crown Minerals (for Coal Seam Gas, Condensate, Gas, LPG, Oil, Petroleum) for an area covering the Nevis Crossing and Lower Nevis Valley.

That ODT article on 3.12.10 also reported that the joint venture partners were hoping to meet Gerry Brownlee and Bill English before Xmas - which had me wondering whether a face to face meeting with Govt Ministers was appropriate given that Crown Minerals is now processing their permit application?

by Mr Magoo on January 12, 2011
Mr Magoo

So in other words the ETS is working exactly as intended by national when they intentionally crippled it?

Why would they change it? Am I missing something?

by Claire Browning on January 12, 2011
Claire Browning

It was always going to be reviewed in 2011. And inevitably, they won't change it; or at least, any changes are more likely to cripple it further, than to correct. That's what makes it worth shining a little light on Mr Groser's comments. Is he a renegade? Doesn't really give that impression. Is he, bizarrely, hoping that the rest of the world won't notice NZ is not walking the talk? Is it just the aspiration-reality gap? -- which is fine, except, we don't really have the luxury of those decades that he mentions.

by Save Happy Valley on January 12, 2011
Save Happy Valley

CCS is not only a gamble, but full of risk:

 

Carbon injected underground now leaking, Saskatchewan farmer's study says

By: Bob Weber, The Canadian Press
A Saskatchewan farm couple whose land lies over the world's largest
carbon capture and storage project says greenhouse gases that were
supposed to have been injected permanently underground are leaking
out, killing animals and sending groundwater foaming to the surface
like shaken-up soda pop. http://www.winnipegfreepress.com/greenpage/environment/carbon-injected-u...

Solid Energy has not at all shown how Lignite can be burnt without large emissions. Gerry Brownlee may have a coal fetish, but that is incompatable with New Zealand doing its part and reducing domestic emissions.

The two ministers responible for Solid Energy and SOEs are SOE minister Simon Power, and finance minister (who happens to be in the electorate with most of New Zealand's low grade Lignite coal) Bill English.

For those critical of the ETS as a policy, it is worth noting that one of the chairleaders for the coal industry Chris Baker (CEO of Straterra the organisation that represents the mineral sector in NZ, Executive Chairman of the NZ CCS (Carbon Capture and Storage) Partnership; Director of the CO2CRC, Canberra based Federal and State Government and industry funded CCS research organisation and Executive Chairman of the Coal Association of New Zealand) claims that:

he played a lead role in getting the carbon tax scrapped in New Zealand...

"Chris joined Saunders Unsworth in 2002 having played a lead and successful role at that time in arguing the business case against the proposed carbon tax."

http://www.sul.co.nz/page/chris-baker.aspx

(he also works for a government relations and public policy firm)

Given the links that national has, and the lobbiests influence on their policy I would not call Tim Groser a renegade at all, he is their to represent big polluter interests when it comes to climate policy, which national is doing quiet well.

National has 1 hour 15 minutes total devoted to climate change at their annual one day bluegreens conference (http://www.bluegreens.org.nz) this month, hardly sounds like their "number one" environmental policy concern.

 

 

by Save Happy Valley on January 12, 2011
Save Happy Valley

Bill English comes up with the opposite of Tim Grosers subsidy statement:

"The Emissions Trading Scheme, while copping a lot of criticism, was important to attract capital investment especially for high- carbon resources" - Bill English talking about Lignite in Southland

The ETS is to attract capital for high emission projects?...???

http://www.stuff.co.nz/southland-times/news/3857264/Govt-to-aid-viable-l... The Government would look favourably at helping fund Solid Energy's multimillion-dollar lignite projects in Southland as long as they were commercially and environmentally robust, Deputy Prime Minister and Finance Minister Bill English

 

by Petone on January 12, 2011
Petone
by Claire Browning on January 13, 2011
Claire Browning

While the PCE was primarily focused, in her examples, on the lignite-to-diesel plants, here is a September 2009 press release from the Sustainability Council, making the same point about lignite to urea fertiliser.

Here is a post from Hot Topic's Bryan Walker, describing his correspondence with Gerry Brownlee, about the lignite proposals:

The Minister goes on to say the ETS is the Government’s principal policy response to climate change. It puts a price on greenhouse gases, he explains, and provides an incentive to reduce emissions and to encourage tree planting. He then adds that it does not provide a cap for existing (or future) emissions and hence is not prescriptive about what developments should or should not progress. This strikes me as a very clear admission that the ETS may not, in fact, result in any reduction of emissions at all. It is a remarkable act of faith in the power of incentives, and an abdication of responsibility for the outcome.

That abdication becomes clearer as the letter proceeds. It is admitted that lignite developments of the scale being investigated by Solid Energy will create significant greenhouse gas emissions, depending on the particular projects chosen. However any development will be “carbon compliant” with New Zealand’s greenhouse gas emission management frameworks. That looks like meaning that Solid Energy will pay whatever is required under the ETS to cover the cost of its emissions, and if the project remains profitable under such a regime it will go ahead whatever the level of its emissions ...

by Save Happy Valley on January 13, 2011
Save Happy Valley
L and M and Greywold Gold also want to chase lignite projects in Southland and Otago... the total emissions would be more than New Zealand's total domestic emissions... Are Nick Smith and Tim Groser asleep???
by Simon on January 13, 2011
Simon

Claire,

Great post and some good tag-team commenter contributions too! Mr Magoo "tweets" it pretty accurately. The 2009 NZETS amendments (such as the change to intensity or production based  allocation of free emission units to trade exposed emissions intensive industry) very much facilitates the lignite proposals. The one grace of the 2008 NZETS is that it although it too was uncapped and it too would gift ALL the NZ emissions units to current emitters, is that new carbon-intense proposals, would at least not be eligible for any free allocation.

It add more plausibility to Geoff Bertram's view that one logical explanation of National's approach in redesigning the NZETS is that they expect the UNFCCC process to completely fail to set any further binding limits on emissions. And so Smith can woefully note that our trade partners don't have an ETS ( the USA...China) so  the NZETS will be withdrawn before a realistic price signal has effect on carbon-intensive industry.

In other words, Solid Energy see the NZETS as just a 5 or 10 year phase where they will be say 90% protected from a carbon price by free allocation of credits. The same logic probably applies to Todd Energy's 100 megawatt gas thermal proposal (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1069...)

English's comments noted by SVC, well they are gobsmacking. I would say. Brownlee seems to be saying 'energy policy has nothing to do with emissions policy'.

My bet would be that Groser will either ignore Colin James' comments or claim he was speaking only in an international context, not a domestic context. He will simply worm out of any interpretation that he was commenting on the lignite proposals.

I am still weighing up whether it is cognitive dissonance, doublethink, or whether Key, Smith, English and Brownlee are "climate zombies" (to borrow a term from Joe Romm).

The difference being that unlike the US Republicans, being outright 'deniers'  does not really wash well with the NZ sense of fair play. Smith and co do appear to be happy to be 'delayers'. And delayers are now a much bigger problem for taking action than the NZ deniers. Smith praised the Cancun agreements as 'saving the process', presumably so it can continue for another 17 years without having any impact on growth of emissions.

Thanks to all.

 

by Claire Browning on January 13, 2011
Claire Browning

My bet would be that Groser will either ignore Colin James' comments or claim he was speaking only in an international context, not a domestic context. He will simply worm out of any interpretation that he was commenting on the lignite proposals.

Of course he will, since plainly, he wasn't commenting on the lignite proposals, and was speaking about his Cancun initiative. However, either he called the meeting and pushed "for cuts in national subsidies for fossil fuels", or he didn't. I assume Colin James, of all people, is not going to make a basic mistake of fact like that, or misreport Groser about it. 

I am just inviting the Minister or any of his colleagues to explain what looks like a gap between the domestic policy and the international one; and since it seems Mr Groser finds unconvincing what are bound to be similar excuses from all the other governments, Petone's succinct effort in the meantime is probably as good as any.

by Petone on January 18, 2011
Petone

I recently came across a blog from Roger Kerr highlighting another quote of Tim Groser's:
http://rogerkerr.wordpress.com/2010/09/22/protectionism-in-our-backyard/


Perhaps a new poster is called for around Welly:
"It is ridiculous and incoherent to negotiate cuts in emissions while also subsidising them."               - Hon. Tim Groser
Yes, Minister.

One wonders of Rog will follow up with another post  .. /doublethink-in-our-backyard

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