Kennedy Graham

“People … may have been caught out…I just hope he gets his projections right in the future…” – The Groserian theory of emissions reductions

by Kennedy Graham

Every now and then, things emerge in the give-and-take of daily life that illuminate insights with a deeper, underlying significance.   Such was the case yesterday.

Some of us around the planet harbour a passing concern that dangerous, and perhaps catastrophic, climate change is likely if global greenhouse gas emissions do not begin to reduce very soon.

To prevent that, the UN Framework Convention (1992) requires all countries, starting with the rich developed ones, to reduce emissions.  Under the Convention’s  Protocol, they agreed on a flexible mechanism to ensure reductions within quantitative capped budgets.

The central mechanism is emissions trading schemes.  The EU kicked off with a pilot in ’05, and fleshed their trading scheme out properly in the 1st commitment period: 2008-12.  They renewed their targets for 2020 and refined their ETS in 2013.

New Zealand started its ETS in 2008, but only with forestry for the first two years.  Actual trading came in with obligations on energy and industry in 2010.  The price of a domestic unit (NZU) started at $22.  It quickly zeroed down over two years to bottom out at $3.

There are ways in which a government can adjust policy settings to influence the price for the market to respond. John Key’s Government influenced the price down, not up, through halving the surrender obligation for emitters, handing out free units as if they were lollies, and allowing in cheap foreign offsets that emitters can purchase more cheaply than the domestic NZUs.  ERUs from Eastern Europe continue to come in at around $0.20.

In this situation, NZ foresters, planting for carbon sequestration with a view to earning NZUs which can then be sold in the ETS to emitters, are undermined.  Result: afforestation stops, deforestation sets in, seedlings are destroyed.  Leithfield Nurseries in Southland recently destroyed 700,000 seedlings, Appleton’s Nursery in Nelson 300,000.  New Zealand, which scraped through its 1st Kyoto Commitment through net sequestration from forestry (our gross emissions actually increased) is soon to witness its forests turn into a carbon source.

Enough is enough, when it comes to farce.  The Iwi Leadership Forum plans to lodge a claim against the Government for $600 m. for lost value of their carbon forests.

This is the antithesis of the objective of any economic instrument whose job it is to reduce emissions.  The NZ ETS is not achieving its goal – our emissions are projected to soar from 32 million tonnes in 1990 to 98 m.t. in 2028 – and it is largely because the Government refuses to influence the price.

Why is the Government so determined not to intervene?  I asked the Minister, Tim Groser, yesterday: how can the ETS be seen to be working when this is all happening?

Mr Groser resorted to a peripheral, and near-irrelevant, sermon about forest cycles – oblivious to the requirement that planned and sustainable forests are not vulnerable to timber price fluctuations but respond to a stable and predictable carbon price signal.

We have become used to Groserian irrelevancies as the months have gone by. But what took the public’s breath away yesterday, what was so astonishing, was his callous disregard for the human dimension of the situation that he and John Key display.

In responding to my question, the Minister recalled the increase in seedlings over 4 years, then announced an expectation of a ‘market correction’:

“So the market has turned and people who overstocked may have been caught out by it”.

“I am very sorry for the company concerned and I just hope that he gets his projections right in the future.”

“Markets go up, markets go down’.”

This is extraordinary.  The Minister misperceives the point of an ETS.  It is to reduce emissions, and a carbon price is the selected economic instrument.  What the Key Govt. has done is drop the policy objective, and focus exclusively on the trading mechanism as if it is an end in itself.  Uncontrolled Groserian wizardry went further yesterday – reinforcing this worldview by merging timber prices and the carbon price of wood as if they are mutually-tradable market factors.

Through the commodification of carbon, the Key Government has lost the plot.  It has lost sight of the purpose of an ETS.  It has swapped a political goal – reducing emissions to prevent dangerous climate change – with a commercial gain – except that, in this case, it is a loss.  It is a loss for the Government.  It is a loss for the foresters.  And above all, it is a loss for the next generation.