The NZ Government’s decision to commit to the ETS and fulfil their obligations under the Paris Agreement will require the purchase of at least $1.7 billion NZD worth of international carbon credits by 2030. But is the Government’s commitment truly inescapable?
In an interview that spans the financial cost of the Paris Agreement, reflections on the Kyoto Protocol, and the complexities of our national reliance on dairy, we talk to two climate change experts, James Barton and Howard Moore, about this most unsettling balance transfer.
Balance Transfers: I’ve been online, I’ve read through the Ministry for the Environment’s web pages on reducing greenhouse gas emissions, and I admit that many things still don’t make sense to me. So to kick off, I’d like to ask you a big question: in plain English, what are New Zealand’s obligations to reduce greenhouse gas emissions under the 2030 Paris Agreement?
James Barton: What NZ has entered into at this stage is an international signal that we will reduce our emissions to 30% (below) 2005 levels, or 11% (below) 1990 levels by 2030. It’s going to be done within our own domestic circumstances and it doesn’t look like there will be any real international penalties imposed upon us if NZ fails to meet its commitments. But that’s at this stage, because some of the specific accounting rules, especially those relating to forestry and access to international carbon credits have yet to be worked out and agreed internationally.
Balance Transfers: The last time Howard (Moore of the NZFFA) and I spoke he mentioned that according to a recent NZ Government-led symposium, NZ was running well short of meeting its obligations under the Paris Agreement for 2030. Is this still the case?
James Barton: It will remain the same at this stage in the process because we haven’t really taken any actions to do anything different from what we have been doing before. There’s a shortfall of 218 million tonnes (in CO2 equivalent units) by 2030, and just using our existing policies, like the current NZETS, perhaps doing a bit more forestry planting and a growing movement towards electric vehicles, each of these, by themself is not going to be sufficient to meet the 2030 commitment. So the Government will be planning to meet that shortfall by buying credits offshore, if they become available.
Balance Transfers: I note that that document states even under the best of circumstances we will reduce emissions by just 31 million tonnes. Even then we would still be short 218 million tonnes.
James Barton: That appears to be the current situation.
Howard Moore: Basically, gross emissions are about 80 million tonnes per year. Over ten years 2020 to 2030, that racks up to about 800 million tonnes. Under the Paris Agreement, we are supposed to emit no more than about 600 million tonnes. The difference is what James is talking about – that what we have to do is reduce gross emissions by being smarter about how we do things; remove what we can by planting more trees and soaking up carbon dioxide, and then what’s left is the gap that we’re going to have to fill by buying some of the offshore credits because (overseas countries are) better at reducing gross emissions than we are. And that’s really where these numbers come from.
Balance Transfers: Sure. So what are some of the reasons for this, in terms of the shortfall? Why are we so far short of meeting our obligations?
James Barton: The primary reason is because we haven’t actually changed anything, except we’ve continued to have an increase in gross emissions through our transport emissions, and our agricultural sector emissions. Agriculture is excluded by the Government of today from GHG emissions reduction, even though it’s quite simple to reduce emissions from livestock – you just need to reduce livestock numbers, and that can be done with a sharp butcher’s knife.
Howard Moore: Our gross emissions are rising, our Paris target is falling, but agriculture still sits comfortably within the Paris targets. So there’s no imperative to do anything about agriculture, while the Paris target is still so high. If we did reduce agricultural emissions, obviously we’d have to buy fewer (carbon credits) from overseas. But there’s no imperative to do that. There’s a financial risk associated with buying them from overseas, but there’s a political risk in reducing agricultural emissions.
If we weren’t worried about emissions from other industries, then the Paris target would certainly cover all our agricultural emissions and some more. So there’s no pressure to reduce agricultural sector emissions, there’s pressure to reduce other emissions.
Balance Transfers: But the vast majority of current greenhouse gas emissions from New Zealand are agriculturally related?
James Barton: Nearly 50% of total gross GHG emissions.
Balance Transfers: My understanding is that one of the proposed shortcuts to meeting our obligations under the Paris Agreement has been to float the idea of purchasing international carbon credits. What is the story behind this?
James Barton: That’s assuming that we can’t get any deep reductions in emissions from agriculture. (In that case) the shortfall needs to be fixed up by credits from overseas.
Howard Moore: All the analyses show that we can’t reduce (emissions other than agriculture) sufficiently. Even if we switch our fleets to entirely electric vehicles and improve our industry efficiencies, we can’t bring our emissions down to the Paris line. (The NZ Government) can’t see that there are any options to reduce agricultural emissions, so they are saying that the only way that we can meet that shortfall is to buy (the offshore carbon credits). And they rationalise that by saying that other countries around the world will find cheap ways of reducing carbon emissions, whereas ours are all expensive ways. So from a planetary point of view as long as greenhouse gasses are reduced it doesn’t matter who we buy the carbon credits from and we’ll do it through bilateral trade. Buying them is not evil, necessarily. In a global economic sense, it makes sense to use the cheapest cost abatement rather than the most expensive cost abatement. They are rationalising the purchase by arguing the global benefits. However it does take pressure off domestic reduction.
James Barton: However there is another way that emissions from the agricultural sector could be reduced and that is by looking at different farming activities. It has been suggested that we could go in for more cropping in NZ, which is less greenhouse gas intensive (compared to dairy). But that would take some time. Over time we have reduced the number of sheep anyway from the very high levels in the 1970-80s. At present we have historically high levels of dairy cattle in NZ. They are up to around 5+ million heads, now, I think, and they used to be around 2.5-3 million cattle.
Howard Moore: The big issue with the agriculture land use change is that most of our export earnings come from dairy. And so there’s a huge question over how we would restructure our balance of trade, our export earnings, if we changed land use, given that dairy can pull in so many foreign exchange dollars per hectare per annum. Most alternative land uses don’t earn that much, so we would be taking a massive hit to our balance of trade. It’s unpopular, around the country, and it’s politically unacceptable.
Balance Transfers: Why is it politically unacceptable?
Howard Moore: Because we wouldn’t be able to buy enough cell phones.
James Barton: We wouldn’t have enough hospitals, better highways or more universities. And a lot of us wouldn’t be able to take as many overseas trips as we currently enjoy!
Balance Transfers: But isn’t it the truth that we’re really just reluctant to abandon an existing market rather than explore alternate opportunities?
Howard Moore: They are working to explore alternate opportunities. They have developed a range of grant schemes for exactly that purpose. There are definitely grants for investigating smarter ways of farming and alternative cropping systems. There is a big drive to find a quick and economic alternative to dairy. Partly it’s driven by environmental effects and partly by this need to quit land use in order to meet our climate change targets.
There’s the Vivid Economics report and the OECD report and the Royal Society before them, and they’re all saying that to get to a low carbon economy we need to think hard about how we manage our land use. That scale of land use change is going to be impossible to do in the short term. It’s going to take a whole attitude shift, an education shift, on what is the best thing to use that land for.
James Barton: But we do know that the world will be facing ever-increasing needs for food. A lot of the dairy land in this country is relatively fertile land, it’s well watered now, and it should be easy to convert to more cropping and horticulture activities. Other people in the world might want to eat NZ produced foods other than meat or milk from cows.
Howard Moore: There is a footnote though that due to cadmium poisoning in the Waikato, around half their land is not suitable for cropping, because of the heavy metal put onto the dairy country from superphosphate.
Balance Transfers: To sum up, in order to have a chance, the slightest chance, of meeting our emissions reductions target, we need to have a look at reducing our agricultural sector emissions substantially because our emissions from other sources won’t do it alone. However it is not in our financial interests as a country to look at reducing agricultural emissions.
James Barton: At this stage. But it’s not that many generations ago that we had the butter mountains in Europe and various other places, and we were producing far too much butter at very low prices. But that actually did lead to a shift in the economics of dairy, vis a vis sheep farming and we did see land use changes for agriculture.
Howard Moore: The conclusion you just came to when you phrased the question was the one that the Vivid Economics report came to after maybe a million dollars.
Balance Transfers: Great. That’s the beauty of writing a blog.
Howard Moore: It’s being debated in Parliament this afternoon between 3pm and 5pm that in fact there is no chance of us reaching our target with our current patterns of land use. There has to be a substantial shift in land use thinking and application between now and 2050. That has implications for balance of trade, hence exchange rates, hence levels of wealth of New Zealanders, and therefore has a political dimension. Because if the Government is pushing down land prices and our exchange rate goes out the back door, we’re going to vote against them.
Balance Transfers: How well are these problems understood by the typical politician?
James Barton: I think they’re becoming much better understood.
Howard Moore: On a scale of 1 to 10, I’d say 6. They are far better understood now than in the early days of Kyoto. Amongst the officials that are dealing with this directly, amongst academics, amongst economists, I’d say 7-8 out of 10. Amongst the man in the street, probably 3 out of 10.
Balance Transfers: Would it be safe to say that short term financial interests are more likely to win the day, as opposed to longer term land use changes to meet emissions reduction targets?
Howard Moore: They always have in the past.
James Barton: And we’re not renowned for our ability to look ahead more than a couple of electoral cycles.
Howard Moore: I guess really, I’m being unfair. There have in the past been strategic investments by the Government into the future of New Zealand. There have been Governments in the past who have faced future problems and dealt with them in a positive way. And they deserve credit for what they’ve done. In my view, the latest Government has been largely ignoring the problem. They’ve been trusting or believing that it isn’t really important, or that somebody else will fix it after they’ve been tossed out.
Balance Transfers: So yes, basically.
James Barton: Yes, Government did take some action to get us through the global financial crisis relatively unscathed. The global financial crisis was actually the very thing that enabled many countries to meet their Kyoto Protocol targets because of the slow down in industry and their emissions.
Balance Transfers: So again focusing on international carbon credits, approximately how many international credits is the NZ Government looking at purchasing from overseas?
Howard Moore: 218 million. One credit per tonne.
Balance Transfers: What would be the cost to acquire such a large number of international credits in present value dollars?
Howard Moore: $4 billion NZD.
James Barton: And there’s an expectation that the price of carbon will rise through time, too.
Balance Transfers: Has the Government proposed how it intends to finance this purchase $4 billion NZD of international carbon credits?
James Barton: Sell a few more assets perhaps.
Howard Moore: I think that they feel NZ’s economy is strong enough to build up the cash surpluses they need to accommodate $4 billion worth of expenses without too much trouble.
Balance Transfers: I’m just going to fight you on that because this is $4 billion worth of taxpayer money.
James Barton: In a small open economy, we have to trade. So trading by buying carbon units from overseas fits fine within the NZ market driven model. This is why we want to trade international carbon credits.
Howard Moore: I think the Government is conscious that right now carbon credits are 5 or 6 Euros, they are not anything like NZ’s $18 (per unit). Vivid Economics report says that by 2050, carbon prices will be in 3 digits. They’ll be over $100 per tonne.
Balance Transfers: So let’s be clear here because we’re muddying the waters. NZ’s carbon credit pricing is (at the time of writing) around $18 per tonne, and international carbon credits are around 5 to 6 Euros in current prices. So the reality is 218 million tonnes times by say 6 Euros is only about 1.3 billion Euros or $2.6 billion NZD. It’s still a lot of money though. When is the proposed timing for such a significant purchase of international carbon credits? (In actual fact the amount is $1.7 billion NZD, calculated after the interview, based on an exchange rate of $1.51 NZD per Euro, a spot price of 5.18 Euros per international credit, and 218 million credits required, correct at the time of writing.)
Howard Moore: The last possible moment.
Balance Transfers: And when is that?
Howard Moore: 2030.
Balance Transfers: Surely the Government must have a defined date.
James Barton: I don’t know whether the Government at this stage will have actually thought through when exactly they want to make the purchase, because they will be looking at how the various trading regimes develop.
Howard Moore: They haven’t even decided who will be offering them. They are still discussing among themselves, who should they set up these bilateral agreements with. How reliable will their carbon credits be, how can we verify that. If the Chinese Government says ‘these are bona fide reductions’ and we don’t believe them, what’s our strategy? Do we challenge them on it? Do we buy them anyway and hope everyone believes them too? So they are working through those delicate questions.
Balance Transfers: We’ll come to that in a bit more detail in another second. I just want to know are there other countries who have signed on to the Paris Agreement who are likely to follow a similar strategy of waiting to the last minute to purchase international carbon credits?
Howard Moore: 196 signatories, aren’t there. Probably 195?
Balance Transfers: So 195 countries waiting until the last minute to purchase international carbon credits. I suppose that would have an impact on the price of international carbon credits?
James Barton: No, the law of supply and demand doesn’t really operate like that because of lags and leads in the markets.
Balance Transfers: That’s sarcasm. What could that mean for the future price of international carbon credits?
Howard Moore: We don’t know how many countries will be seeking to buy (international units to meet their Paris Agreement obligations). It’s still very much in the air how seriously (other countries) take the Paris Agreement, what their domestic opportunities are for reducing gross emissions, the level of political stability in their countries between now and then, and the level of assistance from overseas countries in assisting them to meet their obligations. For example, NZ could go to Chile and say: “We’ll help you build more geothermal power stations. We’ve got technology and skills in geothermal power.” Chile builds geothermal power stations, phases out coal fired stations, hence earns carbon credits, which are then offered to NZ because we helped assist them to earn those credits. So there’s a whole technology transfer, investment transfer, paradigm going on behind the political and domestic circumstances.
Balance Transfers: Ok. So you think there might be a way out of a huge spike in carbon credit prices?
Howard Moore: (pause) No.
Balance Transfers: James?
James Barton: Well, I’m still cogitating on that one. I think if we get ourselves into a situation where we’re forced to buy on spot prices nearer the time, it could really come home to us, and we’ll probably say “oh well we tried our best” and we’ll carry on as per normal.
Howard Moore: That’s the likelihood. That we simply renege and say “no, it’s too expensive, we’re not going to do that”.
Balance Transfers: So if the price of these international units went from say 6 Euros to 60 Euros per unit, how much would that increase the liability that the Government would need to fund?
Howard Moore: Sixty Euros is about six times what they are now in NZ dollars.
Balance Transfers: Presumably the price of NZ units would also increase if these international units increased in price that dramatically as well?
Howard Moore: Not essentially, no. The two prices aren’t joined at the hip.
James Barton: And NZ won’t have any AAU or RMU units to sell this time around.
Howard Moore: NZ has still got a domestic carbon price in order to change behaviour in NZ. But that is not necessarily linked to any international carbon price. International carbon prices may be lower than ours or higher than ours. It doesn’t necessarily relate at all to the NZ price.
Balance Transfers: Not necessarily, but it’s likely there will be a correlation given that the NZ Government would probably prefer to purchase NZ carbon credits over international ones.
Howard Moore: No, the Government doesn’t “purchase” NZ carbon credits. It issues them and gets them back from emitters. It supplies the NZ market at a price, and emitters have to surrender them back. Through that transfer of money from emitters to the Government via carbon credits, it puts a price on carbon and changes the behaviour of the emitters. The rate at which you want to change the behaviour of emitters in NZ can be determined by the NZ carbon price. Separate entirely from NZ’s obligations overseas under the Paris Agreement.
Balance Transfers: I see. Thanks for pointing that out.
Howard Moore: We have to show that we have reduced our overall carbon emissions by “x”. If we fail to do that, we can either renege and say ‘too bad’, or we can buy overseas credits to satisfy our international obligations.
Balance Transfers: I want to go back to the question of how much it would increase the liability of Government because we didn’t quite answer that question. If the price of international carbon credits went from 6 Euros up to 60 Euros at the last possible moment, then that would take our obligation from around $1.7 billion NZD to around $17 billion NZD, is that right?
Howard Moore: Would we pay that, you’re asking.
Balance Transfers: Has the Government discussed an upper limit to how much it would be prepared to pay in such circumstances?
James Barton: We’re not privy to that information.
Howard Moore: There may be treasury papers discussing that, but I think you wouldn’t get a decision before the election. (And you probably wouldn’t get a decision after the election.)
Balance Transfers: Does that mean that NZ’s exposure is potentially unlimited?
Howard Moore: Yes, but there is no way of internationally enforcing our obligations.
Balance Transfers: From where are these carbon credits to be sourced?
James Barton: It will be from any other country which ends up with surplus credits, providing those credits are of high integrity and tick all of the right boxes that they are in fact genuine reductions other than what would have happened anyway.
Howard Moore: If you want a list of names of countries, we can’t give it to you. What we do know is that it will be from countries with whom we have established bilateral relations, with whom we have established that the carbon credits have integrity, with whom we want a continuing relationship. Those countries will be ones which have implemented greenhouse gas emissions reductions policies which have resulted in real credits. And so they will be countries that are probably at the moment quite intense greenhouse gas emitters. You might think for example of India, where they are phasing out coal powered power stations and phasing in solar power. That’s the sort of technology shift that will determine which countries we can trade with.
Balance Transfers: So you mentioned the words ‘integrity’ and ‘trust’ – in general, what is the reliability of carbon credits sourced from these countries? Are there any questions surrounding the legitimacy, the integrity, or the trust in these carbon credits sourced from these countries?
Howard Moore: Of course.
Balance Transfers: Can you be more specific?
Howard Moore: Without naming the countries, no. You’d have to talk to somebody who’s involved in (the Ministry of Foreign Affairs and Trade) who understands the diplomatic and technical situation these countries are in. We’re just guys watching from the outside – we’re not privy to all of the information. You’re asking us to name names and we don’t know who the people are.
Balance Transfers: I’m not asking you to name names, I just want to know –
James Barton: Just an observation, you will look at the changes that China has made. It has done tremendously well in a comparatively short period. Both China and India have taken strong leadership positions in negotiations for the Framework Convention on Climate Change (UNFCCC) and the Inter-Governmental Panel on Climate Change (IPCC). They’ve both been heavily involved in that. So if we looked at China and India and found that their credits weren’t up to scratch, I think they would suffer a severe loss of face, internationally.
Howard Moore: In the first instance we’d be looking to our existing trading partners, because they’re the countries we have relationships with, and understand something of their politics and reporting systems… as well as the level of corruption or abuse within their political systems. We’d prefer to work with those ones we know than set up whole new relationships with countries we haven’t dealt with in the past. We have six trading partners, and China is implementing policies that are leading to real reductions. And so the likelihood is we will look to China for some of these carbon credits. And I expect that by 2020 we will have established with China systems for confirming the veracity of those greenhouse gas emissions, which will satisfy the Paris Agreement.
Balance Transfers: Ok. I see where you are coming from. So in the future we will have these relationships that will enable us to have some sort of framework to validate the carbon credits. What I’m trying to get down to is how much confidence can, not economists, not politicians, not even farmers, but the average person on the street, have that one international carbon credit is actually worth one tonne of emissions?
James Barton: (There is) very little understanding. I think the younger generations are now more interested in climate change, and they will be looking hard at whether these are real GHG reductions and whether they will in fact make a difference.
Balance Transfers: Would you invite the public to scrutinise the purchase of international carbon credits?
Howard Moore: I would recommend that the systems we have for choosing those international carbon credits are so transparent that they are apparent to the person in the street, whether they choose to scrutinise them or not, they should be open and clear. Historically, the trade in international carbon credits has earned a very bad reputation. Two things: One, they were too generous in their allocation of free credits (particularly in Europe) before the global financial crisis. And so Europe became awash with surplus carbon credits, which pushed the price of European carbon credits down to around 20 Euro cents. (The price) hasn’t really recovered significantly since, because of the overhang unloading of billions of units in the European (market). The second major problem platform was of course the Assigned climate Amount Units under Kyoto given to countries like Ukraine, which had a heavy industrial base. With all of the reforms and it splitting off from the USSR, it had all of these units and its industry collapsed. All of a sudden you had vast unemployment and lack of industrial production, which meant that all of these units were also surplus, and so they ended up in the market at 15c NZD. We imported those quite happily under our National Government and used then used them for all sorts of things that pushed the NZ carbon credit unit price down from $20 NZD to $2 NZD.
That experience has made people very cynical about trade in international carbon credits. To re-establish a trade in carbon credits under the Paris Agreement, we’re going to have to demonstrate that we’ve learned the lessons from the problems that arose under Kyoto.
Balance Transfers: Yup. So what we need is a global economic collapse so that we can buy carbon credits on the cheap.
James Barton: It could happen again…
Howard Moore: I wouldn’t recommend it, but…
Balance Transfers: So what I’m trying to get down to is for the average person on the street, not the farmer, not the politician, not the economist, but the average person walking down Courtenay Place on a Tuesday afternoon, is there any chance that they could feel that NZ is spending however many billions of dollars on something that is ultimately just bullshit, just a worthless piece of paper?
Howard Moore: You can’t believe it’s bullshit. If we believed it was bullshit we’d all go out and shoot ourselves. You’ve got to believe in the ability of us all to get through this whole exercise. You’ve got to believe that if the NZ Government is going off track or not taking it seriously, that between now and 2030 the public will exert enough pressure to make the Government take it seriously. If you don’t believe that, then you might as well go off and shoot yourself.
Balance Transfers: That’s perhaps a topic for another blog. If we are looking at somewhere in the range of $1.7 billion NZD and $17 billion NZD, couldn’t this money be used for alternate purposes? I mean, how many hospitals could that build?
Howard Moore: Hospitals don’t stop climate change. It’s an emotive argument, it’s not a logical argument.
Balance Transfers: With respect, importing international carbon credits doesn’t solve climate change either.
Howard Moore: No, so what the question should be is, why don’t we put more effort into actual greenhouse gas reductions? Could this money be better spent in reducing greenhouse gas emissions by introducing smarter technology?
Balance Transfers: I understand, but for the average person on the street there might be concern that that amount of money is being spent on something that is unnecessary. But we’ll leave that to the side for now. We’ve talked about how the NZ Government pursued the strategy of purchasing international carbon credits under the Kyoto Protocol in the past, and you’ve already given me some comment on that. Is there anything you want to add on the Kyoto Protocol and whether or not you felt that was a successful strategy?
James Barton: I still think that we were somewhat naive with the approach to the Kyoto Protocol. It was the first international agreement of its type, and it was really “suck it and see”. Is it really going to work, what are the shortfalls… and we found them by – doing it. It was very much a global learning exercise. From NZ’s perspective, we had to work pretty hard to get forestry removal units accepted, and the bookkeeping or accounting rules relating to that. It was a very hard effort for the NZ negotiators but they were able to do it in the end.
Howard Moore: In a way, yes, it was actually quite a success. And set aside the fact that it didn’t result in any significant greenhouse gas reductions, but what James says is that it focused everyone’s attention around the world on the same thing, and it did create a global consensus, in that a lot of countries signed up for it. And that was a huge step forward. It did create a set of international rules that everybody tried to apply. That too was a huge step forward. It did create an awareness in the public that this was a serious issue, and it started to get a lot of press. And that too was a success. You won’t get an attitude shift until you’ve got public information out there, until you’ve got an education uplift, and people start talking about climate change and the impacts of it. Kyoto achieved that.
It failed because of the way in which carbon credits were issued and priced. It failed to deliver the market signals that we were looking for, that we really wanted to make the behaviour changes in industry. It succeeded in almost everything else, but as a tool for generating market signals for industry change, we let it down. It would have been a lot simpler to introduce a carbon tax which would have given us a strong market signal easily controlled by the Government. There was no political will to do that, partly because they believed in the whole international ideal of a trading system around the world, that Kyoto promised. I think they sincerely believed that that was the way to go.
Also, of course, on a more cynical note, if you introduce a carbon tax, it’s clearly a tax. It’s a Government imposed burden. But an international trading system is driven by the market, not by the Government. Any pricing signal arising from that is not something the Government has imposed on industry. And so the Government, by adopting Kyoto, in effect distanced itself from being the implementer of pain.
To the extent that Kyoto brought a common understanding to everyone in the world to what was going on, it was a huge success. The whole Paris (Agreement) is arising as a result of that. And Paris is even wider than Kyoto. It takes into account all the lessons we learned in Kyoto.
James Barton: And it certainly led to an understanding of the difficulties of measuring greenhouse gas emissions. It led to the whole scientific and statistical activity which we now call ‘greenhouse gas accounting’. When I spoke at a statistics conference last decade, I said it was very similar to the situation that arose immediately after the Second World War when countries set up their systems of national accounts to estimate GDP etc. People knew what money was and it was simply bookkeeping to estimate GDP. But attempting to measure increases or decreases in GHGs we can’t see or can’t grab is a much more difficult exercise. There is a whole lot of methodology that goes into it, not to mention issues of verification and transparency.
Balance Transfers: I’m going to give a very cynical “devil’s advocate” summary of what was just discussed. On the one hand the Kyoto Protocol was effective in terms of bringing awareness across the table by encouraging different countries to work together on a similar system for reducing carbon emissions. But the reality is, in terms of how effective it was at actually incentivising countries to reduce their carbon emissions, it really just led to flat speculation during periods of economic bust by allowing them to acquire carbon credits to meet future obligations.
Howard Moore: That was one of the outcomes. But another of the outcomes is that because of that lift in public awareness, countries are introducing emissions reductions policies irrespective of the carbon market. So it doesn’t matter what carbon prices are, they’re replacing coal-fired power station with solar panels. They are doing all sorts of things that are conscious reactions to carbon emissions. And even if carbon markets disappeared around the world, those changes are continuing and gathering pace. And so in the sense that Kyoto was important for raising awareness, and bringing the criticality of the issue to the world attention, that totally outweighs the carbon trading implications of it.
Anything you do, some smart guy will find a way to rort it. And these smart guys found a way to rort it. I mean, when various economies collapsed, all sort of things went on because there was some instant money to be made. And that’s just human nature. But Kyoto succeeded in saying “we’ve got a global crisis, and we’ve all got to do something to fix it”. And that was taken to heart.
A lot of countries have taken some very serious steps to fixing their emissions. NZ has decided it’s all too hard, we’ll introduce a carbon trading scheme, and then position it so that it has no effect whatsoever. And it happens that the last 10 years have been a waste of time, as far as carbon trading in NZ is concerned.
Balance Transfers: So are you saying that in actual fact NZ is way behind the pack?
Howard Moore: Yes.
James Barton: I don’t know if we’re way behind the pack, but we’re a little behind. We haven’t done that much to change from our business-as-usual setting. Carbon trading brought up these ideas like changes from “business-as-usual”. I’ve never heard “business-as-usual” said, apart from you keep your shop doors open on Good Friday. It introduced new concepts into people’s thought process. But we did waste a lot of time getting there. We should have done more in the last decade than we’ve actually done.
Howard Moore: There was a sense of complacency in that electricity generation was largely renewable anyway. So we don’t have to do much about that, we can relax on the power generation. Our transport emissions – we can’t do much about them because we are a long strung out country, and our likelihood of reducing them is likely to be pretty small. And, let’s face it, our big emitter is dairy cow emissions, and there’s no technology to fix that. They understood all that at the beginning – that there wasn’t a lot of “low-hanging fruit”, stuff we could actually do. And so the tendency was to wait until we were clear about what we could do – to wait for technology to catch up, to wait for the carbon price to rise, wait to see what everyone else around the world did, and in places around the world the wheels fell off. The global financial crisis meant that Europe went into a spin. Carbon credits were everywhere. Carbon trading became unimportant. People had much bigger issues than ours, and so there was no imperative to tidy up the bach. We were more focused on the housing crisis. Greenhouse gas emissions are not one of NZ’s headline problems.
Balance Transfers: It sounds like we have learned something, I mean it’s debatable as to how much effect it has had, but we have learned some things from the Kyoto Protocol and the outcomes there. What do you think will be the difference this time around with the Paris Agreement?
Howard Moore: Are you asking us to envisage what things are going to be like in 2030? In terms of public attitude?
Balance Transfers: What I’m asking is how will this change our strategy? How will we apply what we’ve learned?
James Barton: Probably the need to move quicker on technological changes. I can see the NZ vehicle fleet changing quite dramatically by 2030. We may be looking at alternative land use in areas where it’s practical. I think the concerns about how hard we are working our land will have grown by that time. I think we will be changing our appreciation of critically important land use in this country, to get the balances right. And of course, dare I say it, we’ve lost a couple of folk heroes (Murray Ball and John Clarke) who helped us understand what this country was like in the ’60s and ’70s. It was totally different, and we had a far better understanding of the rural sector. We are now one of the most urbanised countries in the world and we don’t understand many farming activities.
Howard Moore: In the headlines today, we have fresh water, dirty dairying, housing crisis and tourism. Most of the money NZ makes comes from dairy exports and tourism. There is a growing sensitivity that both of those industries are at risk from us polluting the environment. Dairying is getting an increasingly bad press, simply because the public mood is swinging. All of these issues hitting the headlines – are not really to do with GHGs. But the confluence of environmental impacts on our major earning industries here and greenhouse gases, is in land use. That’s where the two issues start to rub together. And if we can fix greenhouse gases by changing land use, we solve both problems. But greenhouse gas emissions (alone) is not driving fixing those environmental problems. Right now, there’s no market signal today to make farmers change land use.
Balance Transfers: Another “devil’s advocate” question. Do you think that our tolerance for these environmental problems has been affected by the fact that we were able to speculate our way out of our obligations under the Kyoto Protocol?
Howard Moore: I don’t think there’s that level of connectedness in people’s thinking. What they see is the pollution in the rivers. That’s led them to start to question the way that dairy farming works. Nothing to do with Kyoto.
Balance Transfers: Are there any alternatives being considered to the NZ Government investing billions of dollars into international carbon credits?
James Barton: If there are, I haven’t heard of any!
Howard Moore: It’s inevitable. There are no alternatives. We’re going to invest billions of dollars into overseas carbon credits. That’s just the way it is.
Balance Transfers: What about a strategic default on the Paris Agreement?
Howard Moore: Nobody’s talking about that, because you don’t want to send that signal well in advance.
Balance Transfers: So nobody’s mooting this discussion whatsoever?
Howard Moore: Not that we’ve heard. You wouldn’t want to talk about it, because you’d reduce the confidence of your trading partners that you’re actually going to pull your weight under this Paris Agreement.
If we renege on the Paris Agreement, what’s going to happen is, our trading partners are going to look at us and say “why aren’t you guys doing your bit?” And all of a sudden the people we trade with will stop trading with us. That’s the cost. That’s why the Government’s going to spend billions of dollars. Because it doesn’t want its trade shut down.
Balance Transfers: So there’s no other alternatives in terms of people actually taking steps to meet our targets?
Howard Moore: Oh, we’re all crossing our fingers.
And we’re putting money into it. And we’re hoping that there will be technological fixes to a number of these problems, that might have an impact sooner to help us out of this shit. Vivid Economics talks about four scenarios for getting to net zero emissions by 2050 and it rules out three of them. The scenario that seems to work is if we get a methane inhibitor as a vaccine for cows. Right now they are investing in the technology but they haven’t found anything. However, the scenario is that by 2050 if we’ve found it, we’ve developed it, we’ve implemented it, then we’ve cut emissions from cows by about 30%. We’re hoping with our fingers crossed that that’s actually going to happen. But we don’t know if it will.
James Barton: And then we’ve got to worry about nitrous oxide, which is a far more potent GHG than methane.
Balance Transfers: Well, that pretty much covers my questions.
Howard Moore: It’s not good.
Balance Transfers: No. It’s totally bleak. So, here’s a summary statement, or question, however you want to read it. According to the Statistics NZ website, there’s 1,718,500 households in NZ. Under a best case scenario, where NZ invests roughly $1.7 billion NZD in international carbon credits, that would result in approximately $1000 per household, best case scenario, of public debt. Does that sound like an accurate figure?
Howard Moore: Well, if you do the maths it must be accurate.
James Barton: But it wouldn’t all fall in any one financial year. Of course there would be population growth in the interim to spread the costs.
Balance Transfers: But that is the cost per household of meeting our obligations.
Howard Moore: That is another almost irrelevant calculation.
Balance Transfers: I just wonder how fair is it that the carbon emission comes from the dairy industry …
Howard Moore: And everybody pays for it. Yes. There are privatised benefits and socialised costs. This is a long term argument.
James Barton: And of course, how many of the benefits that we currently enjoy originate from dollars earned by the dairy industry?
Howard Moore: It’s difficult to compare it at all. To look at the number of households versus the amount of our international carbon credit purchases, you’re pulling two bits of data out of a far bigger equation. And it’s perfectly true, but irrelevant. The problem is so complex, and the comparisons are so infinite, that choosing this pair to look at is a matter of personal choice.
About the Interviewees
James Barton is now retired, but in the past worked for Ministry for the Environment as the Programme leader for the Carbon Monitoring System for Indigenous forests, shrublands and Soils which became, after the Kyoto Protocol entered into force, the Land Use change Accounting System (LUCAS). He was also a Lead Author (Chapter 3) for the Intergovernmental Panel on Climate Change (IPCC) publication: Good Practice Guidance for Land Use, Land Use Change and Forestry. He was recognised for contributing to the Awarding of the Nobel Peace Prize to the IPCC in 2007.
Howard Moore is a member of the New Zealand Farm Forestry Association, New Zealand Institute of Forestry, and the Forestry Reference Group for the ETS review. He is also an industry contributor to the Vivid Economics report, “Net Zero in New Zealand”.
What do you think about the NZ Government purchasing international carbon credits? Let us know in the comments below!
