Did Rod Carr mislead the Environment Committee?

Yesterday, Rod Carr appeared before Parliament’s Environment Committee as Chair of the Climate Change Commission. Carr made the following statement (at 5:10):

I think the first thing to do is recognise not only as Chair but the Commission itself accepts that markets and prices will provide significant signals to producers, consumers and investors, that will play an important part in putting New Zealand on a pathway, which it is not currently on, to achieve the statutory targets for domestic emissions.

So, Carr told the Select Committee that New Zealand is not on track to deliver its “statutory targets for domestic emissions.”

There are two problems with his statement.

The first is that back in May the Climate Change Commission told the government that existing policies and an ETS price of $50 will deliver net zero emissions in about 2050.

Today, the ETS is at $68. At that higher price, the Commission’s models must show New Zealand getting to net zero emissions well before 2050.

I would say that puts New Zealand firmly on track to deliver statutory targets.

The second problem with Carr’s statement is his mention of “statutory targets for domestic emissions.”

What statutory domestic target?

The Climate Change Response Act defines net emissions as gross emissions minus domestic removals (for example, by forestry) minus offshore mitigation. The Act says emissions budgets must be met “as far as possible” by domestic reductions and domestic removals. But there is no “statutory targets for domestic emissions.”

I am perfectly willing to believe Carr misspoke, and that he meant “statutory targets.” But New Zealand is firmly on track to achieve its legislated targets.

So did Rod Carr mislead the Environment Committee by telling it New Zealand is “currently not on” track to deliver the targets Parliament has set?

Or did Rod Carr tell the Environment Committee New Zealand is not on track to achieve statutory targets which he invented?

My guess is that the unelected Carr is making an unstated political judgment about the acceptable level of tree planting. With its current settings, a $68 ETS is going to plant a lot of trees, probably more than Carr and the Climate Change Commission would like. Perfectly reasonable position for them to take.

But if that is Carr’s objection, he should be clear about it.

There is a world of difference between “more trees than we would like” and “currently not on [track].”

New Zealand is firmly on track, in the important sense that, according to the Commission’s modelling, it will achieve net zero emissions well before 2050 at an ETS price of $68.

Here is why Carr’s misleading statement matters.

If New Zealand is already on track to statutory targets, that is going to be relevant context for deciding whether the cost and pain of the upcoming Emissions Reduction Plan is really necessary.

Pretending New Zealand is off track is the foundation officials and ministers need to claim their draconian Emissions Reduction Plan is necessary.

It is not.

It is a choice. The trade-off is between a) willingness to pay more for a higher share of gross reductions in emissions, versus b) paying less and relying more on trees.

This is a legitimate political choice. That choice is pre-empted when unelected officials say New Zealand is ‘off track’ in order to maintain that their sweeping plans for how each of us lives is needed, as if we have no choice.

How much land do we really need to plant with trees?

Both the government and the Climate Change Commission have misrepresented how much land will be covered in forests in 2050 with current emissions policies.

In its final report, the Commission told the government the existing policies and the Emissions Trading Scheme at $50 will deliver net zero emissions in 2050.

That extraordinary finding put a significant dent in the case for the Commission’s plan which has us paying somewhere between $250 and more than $500 per tonne of emissions – not $50 – to achieve the same emissions goal.

The Commission needed a way to explain why we should not stick with existing policies, which its own modelling shows more affordable and as effective as their plan. Their primary argument is that existing policies plant too many exotic trees.

The Commission and ministers have made various statements to this effect. For example, back in June, James Shaw told Parliament’s Environment Committee this (at 44:07 and again at 44:22):

[T]he pathway to getting to net zero at the least cost… involve[s] converting virtually every farm in the country into pine forestry.

Shaw’s statement is not close to being correct.

In its final report, the Climate Change Commission says getting to net zero emissions with existing policies including the ETS at $50 will require an additional 1.24 million hectares of exotic forests to be planted by 2050.

That is only 11% of the 11.7 million hectares of New Zealand farms which are not already forested. So much for Shaw’s “virtually every farm” claim.

Perhaps Shaw meant some time after 2050? So at what date could the last New Zealand farm be forested if we extrapolate from the rate between now until 2050?

On conservative assumptions, the earliest date exotic forests will cover the last New Zealand farm will be in the year 2250. That is about the same year the USS Enterprise from Star Trek is scheduled to launch.

But that date is based on the most conservative assumptions possible: gross emissions never fall from their current levels; all trees are only planted on farmland; agriculture pays a carbon price near zero; and zero access to offshore emissions units.

More realistically, the last farm land will not be forested until sometime after the year 2500.

Except the last farm will never be covered in trees – ever. We have land markets which mean trees will become an uneconomic way to capture and store carbon emissions long before the last farm is covered in pines.

In any case, the afforestation problem does not have to be solved today and certainly not by the central government. Local councils should be asked to do the job of capping afforestation in their areas, which has the advantage of being democratic and based on the circumstances which confront them in the future.

Remember there is a constituency for trees as well as against. Many landowners like trees because they are profitable. Funny how a carbon price helps do that.

The Commission’s main argument that existing policies will plant too many trees is almost equally applicable to its own plan.

The Commission’s modelling shows its plan will plant a further 4.4% of New Zealand’s total land area in forests. That compares to an extra 5.1% for current policies.

The Commission’s plan plants more native trees and fewer exotics, but this change in composition is hardly earthshaking. With current policies, exotics will make up 24% of all trees in 2050; under the Commission’s plan, 19%. Would anybody but industry insiders notice the difference?

See if you can spot the difference in outcomes between existing policies, which deliver net zero emissions in 2050 with an ETS price of $50, and the Commission’s plan, which has us paying between $250 and more than $500 per tonne of carbon:

By contrast to these minor changes in land use, households and businesses will not fail to notice the effects of the Commission’s plan on their cost of living. With carbon prices of between $250 and more than $500 per tonne, the Commission’s plan will profoundly affect the cost of everything, especially energy and travel. Its worst effects will almost certainly fall on low-income households.

As far as I can tell, the Commission has not considered the consequences of its ruinous plan for households and individuals living on low incomes. Its distributional analysis mainly considers effects across economic sectors of the economy – which is not really a distributional analysis at all. For all the talk about equity, it is not clear the Commission has checked what $500/tonne means for the price of bread, the cost of your daily commute, your power bill, or a flight to Auckland.

Another problem is that the Commission has presented existing policies as relying too much on trees and not enough on gross emissions reductions i.e. reductions at source.

But the Commission’s modelling shows existing policies do far more than just plant trees to lower emissions. Modelling for its draft report (it does not seem to have been repeated for the final report) showed that by 2075, 74% of the reduction in net emissions would come from lower gross emissions with existing policies including the ETS; only 26% from removals.

Is successful delivery of our emissions targets, but with a few more exotic trees and a somewhat more gradual transition in gross emissions, so bad as to justify paying between five to ten times more per tonne of carbon? Consider which option puts our emissions targets at greater risk.

Keep climate policy focused on the social cost of carbon

A new paper in the journal Climate Policy says “Keep climate policy focused on the social cost of carbon”. Its abstract:

In the context of climate change, the application of cost-benefit analysis to inform mitigation policies can help to achieve the best outcomes and avoid the worst: spending trillions of dollars but failing to get the job done.

The job, of course, is to cut emissions.

The costs of a climate policy are the abatement costs of reducing emissions of carbon dioxide (CO2) (or other greenhouse gases). The standard measure of the benefits of a climate policy is the social cost of carbon (SCC), which measures the avoided economic damages associated with a metric ton of CO2 emissions. Recently, however, there have been calls for an alternative approach to policy evaluation that ignores the benefits of avoided climate damages and instead focuses only on minimizing the compliance costs of a given, politically determined climate objective. We argue here that a shift from use of the SCC and cost-benefit analysis to an alternative approach for evaluating policy that focuses on costs alone would be misguided. Rather than advocate for alternative approaches, now is the time to support efforts to update the SCC and its application to official climate policy evaluation.[emphasis added]

I note the Climate Change Commission used neither the social cost of carbon, nor cost-benefit analysis, nor costs alone to inform each of its recommendations to the government in its final report.

Perhaps the authors of the Climate Policy paper could write a follow up piece called “At least do something, for goodness sake” and send a copy to the Commission.

Time to get real about emissions

It is nice to see others point out the consequences of an emissions cap. Thomas Lumley gets the logic of an ETS:

We’ve got a cap (more or less). One of the non-intuitive aspects of having a cap rather than a fixed price is that parallel efforts to reduce carbon emission don’t work the way you’d expect them to. If I replace my gas stove with an electric one, my kitchen will emit less carbon (modulo the impacts of making the new equipment). If everyone did it, everyone’s kitchen would emit less carbon (again, ignoring the impacts of making the new equipment). What would happen to NZ’s total carbon emissions? Nothing. We have a cap. Less of the cap would go on carbon coupons for burning natural gas; more of it would be available for cars or trucks or coal-fired power stations. The impact of our kitchen-renovation decisions would be cheaper emissions rights for other polluters, not lower emissions.

Well said, Thomas.

A commenter on Thomas’s post has some fairly standard objections to the argument:

First, the ETS was thoroughly undermined by the previous govt because the carbon price did not rise and companies were able to use dodgy offsets from overseas. If such a thorough undermining of a supposedly brilliant and effective self-regulating system could happen once, then it could happen again (with another change of govt).

This is solved by not opening the window to fraudulent credits. Or a commitment to make good on any credits which turn out to be fraudulent. Or both. That future governments might act in bad faith on emissions is an argument for the transparency of the sort an ETS provides.

Second, how high would the price of carbon have to go to shift people’s behaviour? And at that point is there the chance that you might get a general popular revolt that would undermine the political will to make the system to work as it should.

Good question. The Climate Change Commission says $50/tonne (p91). Basil Sharp et. al. say $85/tonne. In 2018, Concept Consulting, Motu and Public Policy Research said $76-$127/tonne. NZIER estimated far higher costs, also in 2018. None of this apart from NZIER looks scary with 29 years until the net zero deadline in 2050.

Anyway, non-ETS policies are far worse on a cost per tonne basis. Almost everybody acknowledges this. Cap and trade cuts at least cost. If your objection to the ETS is cost, you should be even more worried about other policies. As the joke goes, you do not have to outrun the bear to survive, you only have to outrun your colleague.

Officials have argued that the lack of transparency of non-ETS emissions policies buys enough cover to justify their higher costs. Except we have already had a public revolt mainly (though not entirely) against non-ETS emissions policies. I’d have thought is obvious that policies which add thousands of dollars to the cost of an imported car are going to be easy to spot. In any case, non-transparency is a non-argument for policies which have to work in the long run. Voters are going to it figure out eventually, and one might question the democratic merits of trickery.

Thirdly, there is the danger that emitters, rather than reducing emissions, basically rely on offsets. So, that will be great for increasing forestation, but it still might not change behaviour and reduce emissions

Which is just shifting the goal posts from emissions – you know, the thing that causes climate change – to changing behaviour and disrupting lives per se, which does not cause climate change. A tonne of emissions removed has exactly the same climate change benefit as a tonne reduced. From a climate change perspective, any distinction between reductions and removals is arbitrary. We should just do whatever combination of reductions and removals best helps the climate.

But try explaining to most environmentalists the idea that there is an emissions penalty that goes with arbitrarily insisting on reductions over removals, or domestic over offshore, or EVs over pretty much every other scalable way to avoid emissions. I cannot recall ever seeing an environmentalist say they are concerned we might lose 95% of the emissions benefits of a policy by insisting each tonne has to come from EVs and nothing else. The attitude seems to be who cares if we could have cut 20 times more emissions for the same cost?

I do. And when the rubber meets the road, so will voters. Time to get real.

Forest fires and the power of emissions accounting

It seems forest fires on the west coast of the United States are threatening access to carbon offsets used by BP and Microsoft among others.

Source: Carbon News/InsideCLimateNews.org

Some have claimed forest fires mean the carbon captured in forests could be less than permanent. Here is the Climate Change Commission in their final report (p65):

Climate change exacerbates forest fires, strong winds, storms, droughts, pests and pathogens – so there are also risks associated with the permanence of using forestry to remove emissions from the atmosphere, as these emissions are released if the forest degrades or is destroyed.

But it is easy to make carbon removals by forests permanent even with forest fires. Simply oblige forest owners to report fires and make them responsible for re-capturing each tonne of carbon released into the air, either by replanting the forest or some other offset.

In practice, this is a matter of assigning accounting liability to the forest owner.

Measurement might be complicated in the detail, but the principle is simple: the forest owner is only rewarded for the emissions they capture.

Responsibility for the emissions component of the risk of forest fires should sit with the forest owner, on the principle that risk and control should sit in the same place.

The New Zealand ETS assigns responsibility for the emissions from forest fires to the forest owner. Good. My understanding is that after changes last year, a forest owner has four years to replant their forest after a fire. After that, the owner is assigned an ETS liability equal to the emissions released from the fire. That obligation means the owner must purchase and surrender emissions units back to the government, which effectively funds emissions reductions elsewhere in the economy.

I have used the example of forest fires to demonstrate how an emissions accounting system can make impermanent carbon stores permanent. All that is required is that emissions are measured, surrender obligations are enforced, and there is a system in place to keep track of obligations over time. These do not seem like difficult problems to solve. Where these requirements are met, as they appear to be in New Zealand (at least for the forests in the ETS), forest fires have no effect on overall emissions.

The same logic applies, or can be made to apply, to other problems like pestilence that affect carbon capture and storage of forests.

There does not even need to be a cap on overall emissions. It is enough to just make owners responsible for recapturing emissions or offsetting elsewhere to turn flammable forests into permanent carbon stores.

That is the power of emissions accounting.

So how did the experts at the Climate Change Commission fail to take liability rules into account, especially in their final report after their public consultation had almost certainly alerted them to the idea? How could the Commission not have noticed fires lead to obligations for owners and the consequences of those obligations for emissions?

Here is a presentation I gave on this in March to the Waikato Economics Forum.

“Urgent”

Carbon News reports:

Research commissioned by Beef + Lamb New Zealand has found that about 26,550 hectares of farmland has been sold to “carbon-only” entities since 2017…
“Without urgent action, the sale of sheep and beef farms into forestry will only accelerate as the carbon price increases…”

According to Stats New Zealand there were about 11.7 million hectares of farmland in 2019, not counting the 1.9 million hectares of forests, which Stats also counts as farming.

I have plotted the 26,550 hectares of farmland sold to “carbon-only” entities since 2017. If you look closely, you can see the 99.8% of farmland that was not sold to such entities since 2017 in blue.

And just a reminder that the most significant opponent of forestry – probably the most cost effective and scalable technology we have to capture and store carbon dioxide and make progress towards our emissions targets – remains the Climate Change Commission.

Says it all, really

The Gisborne Herald reports:

Mr Robertson described the report of the independent Climate Change Commission as “the most important document of my political lifetime”.

Robertson is talking about a report that says we should spend 5-10 times more than necessary to cut emissions, threatens our emissions targets, is filled with untruths and rhetorical tricks, and all based on a strategy that does not make sense when the government has already capped emissions.

That’s the most important document in his political lifetime?

Well, it’s only important if people believe it. If you think the Climate Change Commission is independent, I have a bridge to sell you.