The Zero Carbon Act consequently requires net zero for greenhouse gases other than biogenic methane. And the Emissions Trading Scheme is meant to find the least-cost mix of emission reductions and removals for the sectors it covers.
In August, the Parliamentary Commissioner for the Environment released a report on the Emissions Trading Scheme and carbon forestry.
It argued that, even if carbon prices in the ETS dropped to zero, gross emissions in transport and non-transport energy would decline considerably between now and 2050. Its commissioned modelling suggests, without any changes in policy, the country’s net emissions will reach net zero before 2040, but with risk of emissions rising again from the mid-2050s.
In the grand scheme of things, it sounds like a win.
The report also pointed to some places where the accounting in the ETS could be improved. But rather than argue for improved accounting, the report suggested restricting forestry in the ETS or only allowing forestry to count against agricultural emissions.
It would be far better to make sure the ETS’s accounting is sound and to let emissions and sequestration find their own balance.
The ETS, overall, has one substantial overarching problem. In short, the government needs to legislate the number of carbon credits that the government is allowed to put up for auction or to allocate to industry between now and 2050, with no further issuance from that point.
I explained one way of doing it a few years ago. It can still be done.
Making sure that only a fixed number of units can be auctioned or allocated by the government between now and 2050 is part of getting the accounting right. Together with outstanding government-created units, that legislated total would put a hard upper bound on the country’s cumulative net emissions from the covered sector, from now on.
Two further aspects are worth keeping in mind before we turn back to the Commissioner’s report, if we get the bit of accounting above right.
First, the number of forestry units generated does not loosen the cumulative cap on emissions. They affect the carbon price, and the balance and timing of gross emissions and removals. A forestry credit represents a tonne removed from the atmosphere. If it is later surrendered by a company meeting its obligations for its emissions, the pair nets to zero.
Second, from the perspective of the atmosphere, the very best carbon credit is one that is never surrendered. And second-best is waiting for decades before using one. Carbon dioxide accumulates in the atmosphere. If I hold a carbon credit for a long time before creating emissions and surrendering the credit, atmospheric greenhouse gas concentrations are lower than they otherwise would have been over that interval.
If every carbon credit created by the government and allocated this year is not redeemed until 2080, that is better for the climate over the next fifty years than if they are used tomorrow.
The Commissioner’s report notes one minor accounting issue and a potentially larger liability issue affecting carbon forestry. And both can be fixed.
If your twenty-year-old carbon forest burns down, some of its accumulated carbon is quickly released into the atmosphere and some of it is released later as damaged material decays. The forest’s owner can choose whether to hand back the credits that were awarded while the forest was growing, or to replant the forest. If the owner decides to replant, atmospheric carbon dioxide will be higher than it otherwise would have been while the forest regrows.
The bigger potential problem is liability. Suppose that a company received carbon credits while its forest was growing, sold them, and has no assets when its forest burns down. If it then declares bankruptcy, surrender-or-replant obligations could go unmet.
The Commissioner’s report dwells on these risks, but does not seriously compare removing forestry from the ETS with mechanisms that would address these issues more directly.
In case of forest fire, the owner could be required to replant a slightly larger area or to surrender a small quantity of carbon credits in addition to replanting. As a very rough first approximation, a twenty-year recovery might warrant an extra surrender obligation of around one-tenth of the carbon that was temporarily lost. It is a minor and solvable accounting issue.
Ensuring that obligations are backed by a first-ranking statutory charge over the land, rather than remaining only with the company that received the credits, would help.
And where particular forests impose fire, erosion, or other local costs, those costs are better dealt with through regulations targeting risks directly rather than rewriting carbon accounting to pretend that sequestration has not occurred.
The report presents modelling work showing relatively high emissions in the near future, followed by a sharp drop to negative net emissions through the 2040s, and a rise to positive net emissions from the mid-2050s onward.
It shows that when sequestering carbon in forests is relatively inexpensive, carbon prices will be relatively low. The relatively high and steadily rising carbon prices that might drive the larger and earlier gross emissions reductions that the Commissioner prefers are unlikely. It then argues for a stronger focus on gross emissions while largely removing forestry from the ETS.
Those conclusions simply do not follow.
The return to positive net emissions from the mid-2050s onward, in the modelling, comes from a few sources combined with declining forestry removals.
First, some long-lived agricultural emissions, mainly nitrous oxide, that count towards net zero but that are not currently included in the Emissions Trading Scheme. Agricultural nitrous oxide needs its own policy. It is not a reason to remove forestry from the ETS.
Second, the modelling has industrial allocations continuing until 2060 rather than ending in 2050. The government allocates those credits to domestic firms facing competition from offshore companies that are charged less, or not at all, for their emissions. Continuing those allocations after 2050 is a policy choice. The government could decide to end them by 2050 and to use alternatives like cash assistance, a carbon border adjustment, or a combination of both.
Finally, companies can bank units. Some carbon credits surrendered after 2050 will be units that the government allocated or auctioned before 2050. Others will have been earned through sequestration. Neither is a permission newly created to emit greenhouse gases after 2050. Using a banked unit after 2050 increases emissions in that year, but does not affect the country’s cumulative net emissions. A unit used after 2050 is a unit that was not used earlier.
Unfortunately, the Zero Carbon Act requires net zero in every calendar year after 2050. The requirement seems incredibly counterproductive, and at odds with how the rest of the ETS is meant to work.
Holding a carbon credit generated in 2040 until 2060 keeps atmospheric concentrations lower over those twenty years. And better to sequester the carbon decades ahead of any emissions rather than having both in the same year.
The requirement also shifts bureaucratic attention to year-by-year accounting that does not help the overall effort.
Strengthening the Zero Carbon Act to legislate the number of carbon credits that the government can auction or allocate between now and 2050, while ending the government’s issuance of new credits that are not backed by reductions or removals elsewhere after 2050, would do a lot of good.
Maintaining the ETS’s focus on net emissions while strengthening the accounting lets the system then find its own balance between reducing gross emissions and encouraging sequestration within the sectors it covers. The government does not need to predict how many forests will be planted. It also does not need to guess which technologies will become cheapest.
It sorts itself out, so long as the accounting is right. It isn’t hard to get the accounting close enough to right to get the job done.
The path to net zero will be an awful lot harder, and far more politically fragile, if the government abandons the lowest-cost way of achieving that goal.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
It argued that, even if carbon prices in the ETS dropped to zero, gross emissions in transport and non-transport energy would decline considerably between now and 2050. Its commissioned modelling suggests, without any changes in policy, the country’s net emissions will reach net zero before 2040, but with risk of emissions rising again from the mid-2050s.
In the grand scheme of things, it sounds like a win.
The report also pointed to some places where the accounting in the ETS could be improved. But rather than argue for improved accounting, the report suggested restricting forestry in the ETS or only allowing forestry to count against agricultural emissions.
It would be far better to make sure the ETS’s accounting is sound and to let emissions and sequestration find their own balance.
The ETS, overall, has one substantial overarching problem. In short, the government needs to legislate the number of carbon credits that the government is allowed to put up for auction or to allocate to industry between now and 2050, with no further issuance from that point.
I explained one way of doing it a few years ago. It can still be done.
Making sure that only a fixed number of units can be auctioned or allocated by the government between now and 2050 is part of getting the accounting right. Together with outstanding government-created units, that legislated total would put a hard upper bound on the country’s cumulative net emissions from the covered sector, from now on.
Two further aspects are worth keeping in mind before we turn back to the Commissioner’s report, if we get the bit of accounting above right.
First, the number of forestry units generated does not loosen the cumulative cap on emissions. They affect the carbon price, and the balance and timing of gross emissions and removals. A forestry credit represents a tonne removed from the atmosphere. If it is later surrendered by a company meeting its obligations for its emissions, the pair nets to zero.
Second, from the perspective of the atmosphere, the very best carbon credit is one that is never surrendered. And second-best is waiting for decades before using one. Carbon dioxide accumulates in the atmosphere. If I hold a carbon credit for a long time before creating emissions and surrendering the credit, atmospheric greenhouse gas concentrations are lower than they otherwise would have been over that interval.
If every carbon credit created by the government and allocated this year is not redeemed until 2080, that is better for the climate over the next fifty years than if they are used tomorrow.
The Commissioner’s report notes one minor accounting issue and a potentially larger liability issue affecting carbon forestry. And both can be fixed.
If your twenty-year-old carbon forest burns down, some of its accumulated carbon is quickly released into the atmosphere and some of it is released later as damaged material decays. The forest’s owner can choose whether to hand back the credits that were awarded while the forest was growing, or to replant the forest. If the owner decides to replant, atmospheric carbon dioxide will be higher than it otherwise would have been while the forest regrows.
The bigger potential problem is liability. Suppose that a company received carbon credits while its forest was growing, sold them, and has no assets when its forest burns down. If it then declares bankruptcy, surrender-or-replant obligations could go unmet.
The Commissioner’s report dwells on these risks, but does not seriously compare removing forestry from the ETS with mechanisms that would address these issues more directly.
In case of forest fire, the owner could be required to replant a slightly larger area or to surrender a small quantity of carbon credits in addition to replanting. As a very rough first approximation, a twenty-year recovery might warrant an extra surrender obligation of around one-tenth of the carbon that was temporarily lost. It is a minor and solvable accounting issue.
Ensuring that obligations are backed by a first-ranking statutory charge over the land, rather than remaining only with the company that received the credits, would help.
And where particular forests impose fire, erosion, or other local costs, those costs are better dealt with through regulations targeting risks directly rather than rewriting carbon accounting to pretend that sequestration has not occurred.
The report presents modelling work showing relatively high emissions in the near future, followed by a sharp drop to negative net emissions through the 2040s, and a rise to positive net emissions from the mid-2050s onward.
It shows that when sequestering carbon in forests is relatively inexpensive, carbon prices will be relatively low. The relatively high and steadily rising carbon prices that might drive the larger and earlier gross emissions reductions that the Commissioner prefers are unlikely. It then argues for a stronger focus on gross emissions while largely removing forestry from the ETS.
Those conclusions simply do not follow.
The return to positive net emissions from the mid-2050s onward, in the modelling, comes from a few sources combined with declining forestry removals.
First, some long-lived agricultural emissions, mainly nitrous oxide, that count towards net zero but that are not currently included in the Emissions Trading Scheme. Agricultural nitrous oxide needs its own policy. It is not a reason to remove forestry from the ETS.
Second, the modelling has industrial allocations continuing until 2060 rather than ending in 2050. The government allocates those credits to domestic firms facing competition from offshore companies that are charged less, or not at all, for their emissions. Continuing those allocations after 2050 is a policy choice. The government could decide to end them by 2050 and to use alternatives like cash assistance, a carbon border adjustment, or a combination of both.
Finally, companies can bank units. Some carbon credits surrendered after 2050 will be units that the government allocated or auctioned before 2050. Others will have been earned through sequestration. Neither is a permission newly created to emit greenhouse gases after 2050. Using a banked unit after 2050 increases emissions in that year, but does not affect the country’s cumulative net emissions. A unit used after 2050 is a unit that was not used earlier.
Unfortunately, the Zero Carbon Act requires net zero in every calendar year after 2050. The requirement seems incredibly counterproductive, and at odds with how the rest of the ETS is meant to work.
Holding a carbon credit generated in 2040 until 2060 keeps atmospheric concentrations lower over those twenty years. And better to sequester the carbon decades ahead of any emissions rather than having both in the same year.
The requirement also shifts bureaucratic attention to year-by-year accounting that does not help the overall effort.
Strengthening the Zero Carbon Act to legislate the number of carbon credits that the government can auction or allocate between now and 2050, while ending the government’s issuance of new credits that are not backed by reductions or removals elsewhere after 2050, would do a lot of good.
Maintaining the ETS’s focus on net emissions while strengthening the accounting lets the system then find its own balance between reducing gross emissions and encouraging sequestration within the sectors it covers. The government does not need to predict how many forests will be planted. It also does not need to guess which technologies will become cheapest.
It sorts itself out, so long as the accounting is right. It isn’t hard to get the accounting close enough to right to get the job done.
The path to net zero will be an awful lot harder, and far more politically fragile, if the government abandons the lowest-cost way of achieving that goal.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
1 comment:
there is no such thing as Climate change.
it is really odd for those who are promoting it that they haven't stopped flights around the world or rocket launching though
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