EnergyWatch The Journal of the Sustainable Energy Forum Inc

“Facilitating the use of energy for economic, environmental and social sustainability” Issue 45, August 2007 Published by The Sustainable Energy Forum Incorporated, PO Box 11-152, Wellington Email: [email protected] Editor: John Blakeley Web: www.sef.org.nz www.energywatch.org.nz ISSN: 1173 5449

A Conservation CONTENTS A Conservation Ethic is Essential...... 1 Ethic is Essential Editorial...... 1 Editorial Was Malthus Correct After All?...... 5 NZES/NEECS by October...... 6 Al Gore’s Inconvenient Truth On the same day as Al Gore’s movie An SEF Submission on NZ Energy Strategy.....7 Inconvenient Truth won an Oscar, it was Preamble...... 7 revealed that his household power bills last Executive Summary...... 7 year were more than 20 times the US average. Climate Change/Global Warming...... 10 A free-market think tank in Tennessee where Exaggeration of Climate Change Predictions?...... 10 the former US Vice-President lives, claims Are Carbon Credits Like Buying Indulgences?...... 11 that Gore’s 20 room, eight-bathroom home in Kyoto Protocol Issues...... 13 Nashville consumes more electricity in a month Carbon Trading...... 19 Carbon Neutrality/Carbon Credits...... 23 than the average American household uses in a Reducing Agricultural Emissions...... 24 year. Electricity Matters...... 26 The Tennessee Centre for Policy Research said Review of Electricity Market...... 26 that Gore’s house consumed nearly 221,000 Record NZ Electricity Demand...... 26 kilowatt-hours (kWh) of electricity during the Winter South Island Electricity Concerns...... 26 year - more than 20 times the national average. Huntly e3p Enters Electricity Market...... 27 The group quoted US Department of Energy More Electricity from Hydro and Wind...... 27 figures that showed the average American Contact to Spend $2 billion on Renewables...... 28 Wind Power Issues...... 29 household consumes 10,656kWh a year. John Key Supports West Coast Hydro...... 33 Smart Meters Can Save Power...... 34 However, according to bills received by The Demand Side Participation Trial...... 35 Associated Press spanning the period from 3 February 2006 to 5 January 2007, the Gores used about 191,000kWh in 2006, still more In his documentary film, Gore calls on consumers than 12 times higher than the typical Nashville to conserve energy by reducing electricity use. household which uses about 15,600kWh per As the credits are rolling at the end of the film, year. viewers are told of a number of ways in which as individuals they can reduce their energy use. A member of the group making the allegations said that as a spokesman of choice for the The group estimates that Gore paid nearly global warming movement, Al Gore has to be US$30,000 (NZ$40,000) in combined electricity willing to “walk the walk”, not just “talk the and natural gas bills for his 929 square metre talk” when it comes to home energy use. house and estate in Nashville last year. Energy Watch 45 1 August 2007 A spokeswoman for the electricity company said have generated more than 1500 tonnes of that Gore had been purchasing “green power” carbon dioxide in the past year according to an for US$432 a month since November 2006. A independent audit. spokeswoman for Gore said that his home was also under renovation to add solar panels. Prince Charles will this week announce that he and his household are carbon neutral - but Responding to the group’s claims, aides for campaigners claim that this is “greenwash” Gore said that Gore had signed up for 100% because, instead of cutting emissions, he is “green” power through a renewable energy simply paying to offset them. programme and also installed solar panels, compact fluorescent bulbs and other energy- The audit has been conducted by Jonathon saving technology at home. Porritt, his long-standing advisor. Reference: NZ Energy and Environment Digest, 21-27/6/07 “What Mr Gore has asked is that every family calculate their carbon footprint and try to reduce Where is the Real Environmental Benefit? it as much as possible”, a spokesman said. “Once The concept of carbon trading is developing they have done so, he then advocates that they into a contentious issue, which is likely to purchase offsets, as the Gores do, to bring their split opinions even more in the next few footprint down to zero”. years. Big business generally favours carbon Gore supporters said that the criticism was trading, arguing it uses the profit motive and the politically motivated and the research group, ingenuity of markets to find the cheapest way to despite claims of being independent and non- cut greenhouse gas (GHG) emissions. partisan, was “a strongly-leaning Republican Under the Kyoto Protocol, rich countries can organisation”. meet tough emissions limits by funding low- A spokeswoman for Gore said that to balance carbon energy projects in developing countries. out other carbon emissions, the Gores invested A condition is that the projects funded would money in projects to reduce energy consumption not have otherwise happened. In Kyoto jargon, around the globe. “For every tonne of carbon they must have “additionality”. they emit, he offsets that by doing investments But opponents see it as essentially a “smoke in renewable energy sources”. and mirrors” exercise. They believe that carbon Gore himself has since dismissed the group’s markets will create the illusion of action, while report which he sees as the “last gasp” of global the world carries on emitting more GHG. warming sceptics who have lost the debate so Nevertheless, momentum is building worldwide are now attacking their most effective opponent. for carbon trading, as business interests realise But he has not refuted the figures. that they could be on to a winner. Carbon is On the website for the movie, Gore says “we tipped to become the world’s biggest commodity have just 10 years to avert a major catastrophe market, and could even become the world’s that could send our entire planet into a tailspin” biggest market overall. and “humanity is sitting on a ticking time But the question remains: if an industry can bomb”. simply buy credits and keep emitting carbon References: NZ Herald, 1/3/07 and NZ Energy and Environ- dioxide in the same or increased quantities, ment Business Week, 7/3/07. where is the real environmental benefit?

… and Price Charles also Reference: NZ Energy and Environment Business Week, The Prince of Wales has been found wanting 27/6/07 in his efforts to save the world from global warming. Prince Charles and his royal household

Energy Watch 45 2 August 2007 Green Imperialism? from the 1970’s energy crises and the recessions “This is green imperialism” were the words of the Ford and Carter administrations. Carter used by Nor Mohamed Yakcop, Deputy Prime came on TV wearing a cardigan and asked Minister of Malaysia in arguing that developed Americans to turn down the thermostat and for countries are hypocritical because they complain a couple of years they did. about China’s rapidly increasing greenhouse But then the public grew impatient for cheap gas (GHG) emissions, while taking advantage energy to return. The national mood changed. A of that country’s cheap labour and production of consumption backlash, combined with national manufactured goods to obtain cheaper imports angst over the Iran hostage crisis, ousted Carter than available elsewhere. and brought in Ronald Reagan. Reference: Time Magazine, 9/7/07. As the “Great Communicator” proclaimed Note that China has surged past the USA to “morning in America” and enjoyed the become the world’s largest emitter of GHG, popularity that falling energy prices, freed beating predictions that it would take at least hostages and tough talk against the Soviets another year to outstrip the US. brought, he helped usher in two upbeat if ecologically deluded decades. The findings by a Dutch environmental agency, sharply raises the stakes as world leaders try They culminated in the dot-com revolution, to agree on a new climate change accord that the real estate boom and an explosion of global includes both China and the US. trade driven by big companies outsourcing their manufacturing to China. Australia, which is hosting the next Asia-Pacific Economic Co-operation (APEC) summit has Today when even liberals have come to believe been lobbying the US and China to strike a that greed is good - and they no longer question regional agreement on climate change in Sydney the mantras of free trade and endless economic in September 2007. growth - talk about “sustainable living” has moved far to the right. Reference: NZ Energy and Environment Digest 21-27/6/07. Conservation sill gets lip service in the USA here India has recently firmly rejected calls to reduce and there, especially “energy efficiency”, but the its GHG emissions, but is instead pressing real action today is about better living through for greater collaboration on clean energy business innovation and clean technology. technologies. Now environmental books are more likely to tout the benefits of a “hydrogen economy”, or India’s Environment Ministry in a statement some other way to preserve America’s current coinciding with the June G8 summit in consumer lifestyle than to say that we just need Germany, says to meet the demands of rising to cut back. living standards and providing electricity to more than 500 million Indian people who still Yet a new generation of activists, centred on lack this, the total emissions of GHG is bound the peak oil movement, has embraced Catton’s to increase in India. ideas, finding his focus on cutting back to be a compelling response to global warming and an Reference: NZ Energy and Environment Business Week, 13/6/07. energy constrained future. Indeed, in today’s global economy, Catton William Catton’s Views doesn’t think things have changed since the dark A recent interview with US author William days of the Cold War, when the US Government Catton noted that when his book Overshoot: seriously contemplated dropping thousands of The Ecological Basis of Revolutionary Change Sears catalogues instead of propaganda leaflets was published in 1980, the USA was still reeling on the poor people of the world.

Energy Watch 45 3 August 2007 The idea was to spread the American Dream of But Catton uses another concept that is a house full of appliances and a car in every well worth considering today as ideas gain driveway across the globe. “It seemed like a acceptance to sequester carbon dioxide emitted good idea at the time, but of course today this from burning coal and oil and thereby prevent would be our doom”. if from reaching the atmosphere and adding to the greenhouse effect. America is still trying to export its wasteful lifestyle to the rest of the world with the mantra “We should really call sequestering re- of economic growth and development. But to sequestering,” Catton says, taking exception to mitigate global warming and prepare for peak the idea that we can, confidently and on a large oil, we should be doing the opposite: we should scale, re-bury the carbon dioxide gas that we start conserving resources and helping poor have liberated from its more easily stored form countries to do the same. in solid or liquid hydrocarbons. Catton points the finger at the biggest offender, What advice would Catton give to his six- the Bush Administration in particular and the month-old great-grandson, when he is ready to American consumer lifestyle in general. hear it? Catton says that we need more international “Keep struggling for the downsizing of our co-operation to downsize. “And who needs the lifestyle. It’s the only way we can preserve our most downsizing? We do. And that’s why it’s civilisation. We’ve got to stop the increase in most unlikely to happen; the people who need to human numbers; we’ve got to stop the increase downsize have the least interest in downsizing in resource consumption and waste disposal; and - or they think that only India and China should we’ve got to stop the increase in inequality.” downsize”. “That’s partly what’s fuelling the increase in When asked for hopeful signs, Catton is use of resources. We act as if the developing heartened by the movement for clean energy, but countries have to develop up to our level. No: mostly because its “heart is in the right place”. we should downsize first so poor countries don’t Much of its thinking Catton finds flawed. get as overdeveloped as we did. Of course, that flies in the face of the assumption that the “The assumption that somehow clean energy American way is the example for the world to solves the problem is wrong. It somewhat follow.” ameliorates the problem, but it comes with problems of its own. For example, using corn Reference: SEF News Posting 4/3/07 from an interview with William Catton in a new magazine called Conserve to make ethanol has caused shortages of corn for Mexican tortillas. Machines have become our competitors for food. Conclusion Seeking to offset or reduce our carbon emissions For Catton, the most useful ecological concept on either a personal basis or a countrywide basis for people today is carrying capacity. by the purchase of carbon credits or by adopting “Once you really grasp the carrying capacity more energy efficiency and “clean technology” concept you can start making extensions and is not going to be sufficient to mitigate global get a whole different world view,” he says. “If warming and prepare for peak oil. we applied the same kind of thinking about We must also wholeheartedly adopt a deficits ecologically instead of just politically conservation ethic both as individuals and as and economically, then we would see that a nations and this will inevitably lead to lifestyle carrying-capacity deficit is more serious than changes for us all (including Al Gore and Prince a fiscal deficit. We’re spending the planet’s Charles). largesse much faster than the planet produces it”.

Energy Watch 45 4 August 2007 The IPENZ Code of Ethics adopted in 2005 Malthus lived for another 35 or so years after sums the situation up very well when it states he wrote the essay and appeared to be proved that one of the five fundamental ethical values wrong within his lifetime, as the great colonial of the Code is sustainable management and expansion of the nineteenth century gathered care for the environment. The guidelines momentum in Britain, along with rapidly suggested to achieve this goal include using advancing more efficient methods of food resources efficiently and recognising the long- production. term imperative of sustainable management throughout your engineering activities. However just over 200 years later, the debate begun by Malthus is now again coming to The guidelines note that “members shall prominence. The communiqué issued at the recognise and respect the need for sustainable conclusion of the G8 meeting in Germany in management of the planet’s resources and June repeatedly emphasised sustained growth. endeavour to minimise adverse environmental Commenting on this on SEF News, Professor impacts of their engineering activities for both Arthur Williamson said that any statement present and future generations”. emphasising sustained growth has to be unaware of what planet we are on (in regard Such an ethical guideline should not just apply to the concept of carrying capacity, referred to to professional engineers, but should apply to above by William Catton). us all in our everyday activities. Defining Sustainability John Blakeley Other SEF members have commented on the “disutility” of using nice-sounding but very Was Malthus Correct vague words. Environmentalists talk about “sustainable” and assume that it refers to an After All? ability to continue for ever and a day. Background But that is not what the general public understand In 1798, Thomas Malthus FRS (1766-1834), by the word “sustainable”. Not collapsing an English clergyman and economist, wrote immediately seems to be enough for them. a widely read essay entitled The Principle of Population, where perhaps he was the first One dictionary gives eight definitions for person to question whether we can continue to “sustain”, and hence for sustainable, and none of have economic growth and increase the world’s them contain any suggestion or sense of carrying population without causing damage to the on indefinitely. No wonder communication is environment and starvation due to insufficient such a problem. food resources. Another SEF member noted that from an His primary concern was for Great Britain, ecological point of view, sustainability means where he considered that if the population surviving in the long run - by leaving the tended to grow exponentially and the food environment in as good or better shape for future supply only grew arithmetically, starvation was generations, and even if peak oil and climate inevitable and imminent. change were not happening, a mass extinction of plant and animal species that is already under Malthus did not help his cause by advocating way is a biological wake up call that collapse what he quaintly called “moral restraint” to has already started. limit population growth, a concept as unpopular then as it would be today (even though today He commented on the fact that we are barely we do have reliable methods of contraception scratching the surface of the concept of available to most people, which were not sustainability to get to its real meaning, but available then). we must start soon to get to grips with the

Energy Watch 45 5 August 2007 mainstream insane attitude of “sustainable” He seriously believes that someone will extract meaning “business as usual” even if in a and burn every last tonne of fossil fuel if paid to greenwashed disguise. do so. Immediate individual benefit triumphs over future or collective disbenefit every time. The issue of different concepts of “sustainability” was thrown into sharp relief by the posting to An Alternative View SEF News of an article by Canadian economist Finally, Energy Consultant Murray Ellis Ross McKitrick of the University of Guelph, commented that the problem is general and not published in the Financial Post on 12 June specific to economists. which asked “Why not tie carbon taxes to the He noted that at the recent G8 meeting, world actual level of global warming?” leaders were struggling to agree with something Economists Need Educating? their predecessors agreed to 15 years ago (in In response to earlier comments, Dr John Peet the original agreement for the UN Framework noted that mainstream (mainly neoclassical) Convention on Climate Change). economists, and the politicians they advise, still The real problem is not with economists, really believe that the ideas of Malthus have but whether the human race is capable of been totally and permanently disproved. overcoming its self-interested tribalism and He said that in reality, if physics, let alone agreeing to anything significant? He suggested ecology is bought into the debate, sustainable that the track record of international agreements growth is indeed an oxymoron and although on just about anything that involves a substantial his arithmetic wasn’t correct, the basic ideas of number of countries and noticeable costs, is not Malthus were important. encouraging. Forestry Consultant, Piers McLaren, commented Reference: Various postings on SEF News, 12-15/6/07 that McKitrick’s “thought experiment” showed that economists are in “cuckooland”. NZES/NEECS by October He suggested that economists require a The Government’s timetable for delivery of compulsory education in the physical sciences both the NZES and the NZEECS has been before they are allowed to pontificate on this updated by Energy Minister David Parker. subject. Instead they regard their economic rules as being as fundamental as the physical The finalised versions of the NZES and laws such as gravity. NZEECS will be published in September and October 2007 respectively. This is to align with He asked whether anybody else shared his deep the decisions being taken on emissions trading. pessimism that the human race is capable of seriously addressing the issues of sustainability “We’ve had over 3000 submissions on the and climate change/global warming? He noted NZES, NZEECS and related climate change that there are plenty of theoretical technical policy documents,” said David Parker. “These solutions but that is not where the problem lies. submissions deserve careful consideration”. Instead the problem lies in social organisation. “It’s important that the NZES and NZEECS The human species has evolved a brain capable mesh with decisions on emissions trading. of making collective decisions of the level (at Policies in all these areas will complement best) of the tribe. After millions of years of one another and form an important part of the evolution, human beings have not yet come up comprehensive, whole of economy response to with an answer to the “free loader” problem, but climate change and energy policy issues. we are trying to solve it in diplomatic negotiations Reference: Government Media Statement, 5/6/07. between 180 self-interested nations.

Energy Watch 45 6 August 2007 SEF Submission on the NZ Energy Strategy - and related documents Preamble

Note: This submission includes contributions the overarching task of Government energy, from many members of the Sustainable Energy land use and climate change policy should Forum. It has been compiled by Tim Jones, SEF be to design an environmentally, socially and Convenor. economically sustainable energy system that can operate within these constraints, The five energy and climate change policy documents released by the Government in Thus, in addition to commenting on the December 2006 represent a major and very objectives and proposals contained in the draft welcome change in NZ’s approach to energy: NZES and NZEECS, this submission proposes the first official proposals for reducing energy strategies to enable such a transition. use, instead of merely hoping to lower the rate of growth. SEF appreciates the effort that has While 30 March 2007 is the end of the been put into these documents by Ministers, submission period, it is only the beginning of officials, and others involved with the process. the process of consultation and engagement. To be effective, these strategies must be revisited, Nevertheless, the suite of documents represents revised and updated frequently, in consultation an inadequate response to the scale of the with stakeholder groups. energy and climate change problems which face us. A more ambitious and comprehensive Executive Summary set of energy and climate change policies is achievable; increasingly politically acceptable; Introduction and necessary to: This submission seeks to build on the change in direction represented by the Government’s draft • meet the environmental and energy supply energy and climate change policy documents. challenges which are before us; Since the draft documents were released, the economic, scientific and political landscape of • maintain NZ’s international standing and energy and climate change policy has changed competitiveness in a world in which lagging significantly, meaning that more ambitious the field on climate change will increasingly policies are not only possible but necessary. have economic as well as political repercussions; This submission outlines a set of policy proposals which take account of this new reality, • provide opportunities to develop efficient focusing on the NZES and the NZEECS, but and environmentally sustainable processes, also extending into climate change and land technologies and products. use policies. It calls for specific, measurable The New Zealand Energy Strategy and related absolute greenhouse gas (GHG) emission documents should embody a transitional reduction targets, and other subsidiary targets, strategy, designed to manage our energy and puts forward policies designed to achieve system’s transition to one that is appropriate for them. Both the transport and stationary energy a carbon-constrained world. These constraints sectors are discussed in detail, and a range of apply to both the supply of carbon – in proposals put forward in each, designed to particular, the future supply of fossil oil – and to achieve the transition to a sustainable, low the ecosystem’s ability to absorb the byproducts carbon energy system within the timeframe of the consumption of carbon. Therefore,

Energy Watch 45 7 August 2007 required to meet the constraints imposed by the This target can be modified in the light of future Earth’s biophysical systems. international agreements. Summary of Proposals Pilot projects in managing biosphere carbon This section includes the broad proposals made stocks should be supported by the Government in this submission. and should begin as soon as possible, so that the effectiveness, benefits, and difficulties of this Goals approach can be better understood. Five goals for a New Zealand Energy Strategy are proposed: The long-term economy-wide emissions reduction target should be an 80-90% reduction 1. Reduce GHG emission levels through in NZ’s GHG emissions, compared to 1990 reducing fossil fuel consumption and levels, by 2050. This target should be subject adapting land use practices to reduce and/or to both revision and an increase in precision as offset emissions. understanding of the risks of both abrupt and 2. Institute rational economy-wide carbon gradual climate change increases. pricing and stable regulation promptly, The following subsidiary targets should be so people and businesses can invest with adopted: confidence. 1. A 20% reduction in NZ’s GHG emissions, 3. Minimise the risk of the disruption or failure compared to 1990 levels, by 2020. of stationary energy and transport systems by increasing their resilience. 2. A target of moving to a close-to-100% renewable stationary energy system by 4. Promote the transition to lower-emissions 2025. or no-net-emissions alternatives in both the stationary energy and transport sectors. This 3. A target year should be set for NZ’s peak will need a mixture of regulations, incentives fossil energy use: that is, the year after which and pricing. total fossil energy use in NZ must decline at an agreed rate. This year should initially be set 5. Ensure that any regressive social and as 2015, with provision to revise this towards economic effects of the above policies are 2010 if it becomes clear that ‘peak oil’ has mitigated for those least able to afford them. arrived sooner than the International Agency expects. Targets and Data Issues The first binding emissions reduction progress An important early step in implementing the target should be set down for 2012. NZES and related documents should be to review the current data and modelling capacity, determine the gaps between what exists and Land Transport what is required, and devise and implement The following land transport emissions a plan to fill these gaps and create a data and reductions goals should be set: modelling infrastructure which can operate at • A 15% reduction in net transport carbon the required level of both thoroughness and emissions on 1990 levels by 2025 sophistication. • A 50% reduction in net transport carbon The draft NZES and related documents should emissions on 1990 levels by 2040 adopt a maximum global greenhouse gas concentration target of 450ppm CO2 equivalent, • A 90% reduction in net transport carbon designed to avoid a warming of the atmosphere emissions on 1990 levels by 2050 of more than 2o C above pre-industrial levels.

Energy Watch 45 8 August 2007 NZES Transport Objective 1 should be reworded teleconferencing and internet-based as “Continue to provide access to the services communications wherever possible. presently provided by transport”. 4. Work towards establishing a GHG emissions Five principles should be used to guide the transition cap for international transport to and from to a resilient, low-carbon transport system: NZ, this cap to reduce over time. 1. Reduce the demand for motorised transport 5. Encourage research into environmentally more sustainable alternatives to present 2. Where motorised transport is needed, methods of air and sea travel. encourage alternatives to private road transport 6. Encourage the tourism industry to prepare for the risk of a future in which fewer tourists 3. Provide transport energy in ways which have visit NZ, and those that do, stay for longer. a low net emissions profile and use the minimum possible quantity of fossil fuels Stationary Energy 4. Where fossil fuels are being used for The NZES principle “to invest in energy transport, use them as efficiently as possible, efficiency whenever this is cheaper than the and with a low net emissions profile. long run marginal cost, including externalities, 5. Ensure that fossil fuel prices remain high of new generation” should be reworded as “to enough to encourage the transition to lower- enable consumers and suppliers to invest in emission alternatives. improved energy efficiency whenever this is cost-effective for them”. The NZES should include strong support for the Air and Sea Transport NERI initiative and should avoid the creation The NZES, NZEECS and climate change of a redundant sustainable energy research and documents should be amended to give education centre. substantially more coverage to air transport (and also sea transport), and that the following The following six principles should guide steps be taken: the transition to a sustainable, low-emissions stationary energy system: 1. Ensure that the necessary data collection 1. Invest in energy efficiency whenever this is facilities are in place to be able to do full more cost-effective than new energy supply. lifecycle emissions accounting for air and sea transport to, from, and around NZ. 2. Recognise multiple benefits of local energy resources. 2. Play a positive part in international negotiations to ensure that emissions from 3. Use “engineering efficiency” and “ecological international travel are included in efficiency” as the main criteria for assessing international accounting for GHG emissions, priorities for action. and that the factors which exacerbate aviation’s climate effects (such as the 4. Invest in the transition towards formation of contrails, and the height at sustainability. which emissions are released) are taken into 5. Fund low carbon policies. account. 6. Focus research, development, and resource 3. In parallel with greater support for teleworking assessment on technologies and skills to and telecommuting within NZ, provide achieve early results. support and incentives for international Reference: The full submission can be viewed on the SEF business travel to be replaced by website at www.sef.org.nz

Energy Watch 45 9 August 2007 Climate Change/Global Warming

Some Exaggeration of Climate Change Predictions?

Views of Two British Scientists In the previous issue of EnergyWatch (Issue ice age, the scenario dramatised by the filmThe 44, pg 5), comment was made about two Day After Tomorrow. British scientists being concerned that the over- Professor Hardacker said that scientists had emphasis of the likely effects of global warming, to be more honest about the uncertainties especially in the near future, is harming the surrounding climate change prediction to avoid credibility of the arguments being advanced. losing public trust. Further information on this is provided in an Two examples quoted in the Sense about article in the Observer newspaper in the U.K. Science report are: which quotes Professors Paul Hardaker and Chris Collier of Britain’s Royal Meteorological Claim: Global warming will lead to more Society as saying that scientists, campaign groups, frequent El Nino events. politicians and the media are now suggesting that Reality: catastrophic events are more likely to happen El Nino is a warming of the tropical when this could not be proved by scientists. Pacific Ocean that occurs every three to seven years. The cause of El Nino is not fully They also criticised the tendency to say that understood but its frequency is not linked to individual extreme events - such as typhoons or global warming and it has been documented floods - were certain evidence of climate change. since the 16th century. Media coverage of the recently-released IPCC Claim: Global warming will mean that extreme report was also criticised, especially the use weather events such as the two one-in-400 year of words like “catastrophic”, “shocking”, floods within one year in 2004 in Boscastle, “terrifying” and “devastating” which are not Cornwall become more and more frequent. actually used in the IPCC report. Reality: It may sound alarming to know that a A report Making Sense of the Weather and major flood such as this may happen two years Climate was launched at a conference organised running, but that translates into a 0.25% chance by the charity Sense about Science. The authors of such a flood happening in any one year; and said they firmly believe that global warming the chance remains the same whatever happened was occurring and man-made emissions of in the previous twelve months. greenhouse gases were partly to blame. Reference: NZ Herald 19/3/07 Some scientists also acknowledged that dramatic Footnote: Although it may be possible to warnings about climate change had helped to reasonably accurately predict floods with generate public debate and support for action. relatively short return periods (50 years or less) with a century or so of historical records, to But Professor Hardaker warned that exaggeration predict accurately a 1 in 400 year flood would of the problems confused the public and made require a much longer period of historical it easier for sceptics to argue that the scientists records than a century or less. were wrong. For example, a very low-probability event given too much weight was the risk of the Gulf Stream, Sea Level Rise “As High as a Bottle of Twink”? which keeps the North Atlantic relatively warm, The above theme was taken up by commentator “switching off” and plunging the region into an Jim Hopkins on National Radio’s “The Panel” Energy Watch 45 10 August 2007 during April in response to a recent statement The first half of that statement is correct, but by the Insurance Council of NZ that coastal where on earth did she get the figure of 25 property will become harder to insure. metres from? The actual figure according to the IPCC predictions should be somewhere around The Insurance Council said that insurers are 25 centimetres over the next 40 years. set to take a tougher line on providing cover for coastal properties (and those in flood and Either Francesca Price has put her decimal point in erosion-prone areas). the wrong place and she is out by a factor of 100, or she is talking about a most extreme view of the The Insurance Council CEO, Chris Ryan warned possibility of rapid climate change.(Al Gore’s film that insurers will be asking much harder questions and book only suggested a 6 metre rise with the in future when people come to insure their melting of a large part of the Antarctic ice shelf homes, particularly in areas of high risk. But the and/or the Greenland ice shelf!) real impact of climate change on property prices is still likely to be several decades away. Note that during the whole of the twentieth Reference: NZ Energy and Environment Business Week, century, global temperatures rose by about 0.6 18/4/07 degrees C and average sea level rose by about 18 centimetres (7 inches). In response to this, Jim Hopkins pointed out that the latest IPCC Report said that sea level may only rise by about 70mm between now Is Purchasing Carbon and 2030, which in his estimation was about the Credits (or Offsets) Like height of a bottle of Twink (correcting fluid). He asked Chris Ryan whether the Insurance Buying Indulgences? Council was seriously suggesting that a sea Background level rise of this magnitude would seriously affect coastal stability around NZ? Martin Luther (1483-1546) was leader of the Protestant Reformation in Germany. He was Chris Ryan sounded rather embarrassed by this ordained as a priest in 1507 and taught at question but pointed out that climate change might Wittenberg University and preached in the town also increase the frequency of floods and storms. church. Until 1517 he was an orthodox Roman Catholic. His first idea of revolt occurred Footnote: Key predictions for NZ in the IPCC when he saw indulgences being sold for the Report include a sea level rise of between forgiveness of sins, a practice which he openly 190mm and 590mm by the year 2080, so the condemned. figure of about 70mm rise by 2030 seems quite reasonable in that context. For this he was excommunicated and summoned before the Diet of Worms where he made a An Extreme View! memorable defence (Here I stand. I can do no Writing in the NZ Listener (14 July) “Ecologic” other). column, Francesca Price said that she had spent a rather sobering weekend listening to Luther began with the support of the peasants an array of international experts talking about who were genuinely shocked at the abuse of climate change at Otago University’s Foreign indulgences and other matters. He lived to Policy School. She quotes climatologist Blair see the principles of the Reformation widely Fitzsimmons, who co-wrote the NZ and established. Australian chapters of the latest IPCC report, A View in Time Magazine as having stated that even if we start reducing our carbon emissions right now, NZ’s sea levels During a recent coach tour of Europe, I travelled will continue to rise for the next 40 years - some close to the town of Wittenberg and privately, I say by as much as 25 metres. had since compared the practice of purchasing

Energy Watch 45 11 August 2007 carbon credits (or offsets) to that corrupt practice some green absurdity, but the very core of the in the Middle Ages of purchasing indulgences capitalist economic system: a free exchange of for the forgiveness of sins. To my surprise I goods and services. saw the same idea being developed in a recent issue of Time magazine by Michael Kinsley Kinsley says that if a deal is voluntary, then entitled “Credit for Bad Behaviour. If buying by definition it leaves both parties to it better offsets can excuse excessive carbon use, why off otherwise they wouldn’t do it. Put all these not other irresponsible acts?” deals together and - with a few exceptions - you have free-market capitalism and prosperity! Kinsley points out that if you wish, when you buy a plane ticket, the airline will figure out The genius of carbon credits is that it opens how much carbon dioxide your trip will be up a whole new inventory of things that adding to the atmosphere and charge you for it people can buy and sell. And there is no (for Boston to Los Angeles, around 5,000km, it reason that the principle should be limited to comes to about US$9 per person). environmentalism. The money goes to non-profit groups that either As an example, Kinsley (with his tongue plant trees to absorb the carbon or produce an firmly in his cheek?) suggests a “bad parenting equal amount of energy in an eco-friendly way surcharge” which would introduce a market in (using wind turbines and such). child-abuse credits, whereby poor parents who would otherwise do so, would refrain from In this way, you are still increasing the carbon hitting their children in exchange for being able dioxide in the air, but someone else (thanks to you), to sell a credit for this to parents who want to is reducing it by an equal amount. The net effect: hit their children. no additional carbon dioxide in the atmosphere. Kinsley says that in the world we are living in, Similar deals are also available for other eco- the greater the gap between rich and poor, both embarrassments and it has recently been said that domestically and globally, the more a rich person carbon credits can be uncharitably compared to will pay and the less a poor person will require. the medieval practice of selling indulgences for the forgiveness of sins. The usual objections will arise such as “why should such people be able to buy their way out of But indulgences are apparently misunderstood. environmental guilt, or their short fuses in dealing The Catholic Encyclopaedia states that an with their kids, when poor people can’t?” indulgence “is not a permission to commit a sin, nor a pardon of future sin”. Kinsley suggests that if you are telling a rich person this is one thing he or she cannot buy, Rather than fully endorsing the use of then you are also telling a poor person that this carbon credits, I have no doubt that most is one thing he or she cannot sell. environmentalists would wish to apply similar Reference: Time Magazine, 2/7/07. reservations about the criteria that these carbon credits must meet in order to be acceptable: John Blakeley they should not be a gift certificate or get-out- of-jail-free card for would-be polluters. Kyoto Protocol Issues Kinsley suggested that maybe, if the idea The End of the Kyoto Protocol? weren’t so closely associated with “hippies” John Blakeley like Al Gore, America’s conservatives might see carbon credits for what they also are: I do agree that increasing greenhouse gas a brilliant next step in the development of (GHG) emissions must be controlled and then capitalism. What conservatives are finding reduced but I absolutely disagree that Kyoto is offensive about carbon credits is actually not the most appropriate vehicle to do this. Surely

Energy Watch 45 12 August 2007 it must be crystal clear from what happened at it will be a new agreement and therefore unlikely the G8 meeting in June 2007 that it is almost a that Kyoto requirements will retrospectively certainty that Kyoto will be dead at the end of apply to it. (How if new countries joining this 2012. agreement do not have to pay for any past deficits, could countries now in Kyoto be bound by those The existing developed country signatories to past deficits?). It is very noticeable both at the Kyoto will never agree to it being extended G8 meeting and everywhere else, that people without the USA, China and India being are now talking about either “Post-Kyoto” or involved, because they are the three major “Beyond Kyoto”. Nobody is now talking about emitting countries which now collectively Kyoto being extended. produce more than 50% of the world’s man- made GHG emissions. The signatory countries I am sure that politicians in all Kyoto signatory are simply not going to endure any economic countries are now very well aware of this hurt from binding GHG emissions targets as situation even if they would never say so long as those three countries are not involved. publicly. That will be one reason why although New Zealand is now showing in its forecast On the other hand, it is very clear that the USA accounts a financial liability in 2012 of NZ$557 will never agree to join Kyoto and if they won’t, million (or thereabouts) and National politicians there is no way that China and India will be and the Greens are saying the figure should be persuaded to join Kyoto. (At the moment, the NZ$1.7 billion, there is absolutely no move refusal by the USA to act on controlling GHG now for the NZ Government to purchase any emissions makes it easier for India and China to carbon credits in anticipation of needing them. “hide behind” America). It is merely there on the Government’s books as So a new agreement will have to be forged to a future liability. take over from Kyoto in 2013 and that is what Kyoto has become very much a European all the talk was about at the G8 meeting. There agreement with which we are tagging along. It in a television interview with President Bush is only the Europeans that are taking Kyoto standing alongside him, I heard Tony Blair commitments seriously. Canada has already said saying that they hoped to have a new agreement that it will not meet its Kyoto commitments and on the table by the end of next year. Blair has is developing a “made in Canada” local approach up till now been seen as the champion of the to reducing GHG emissions. Canada is also European position on climate change/global supportive of the Asia-Pacific Partnership on Clean warming so if he is saying that, it is most Development and Climate although it is not yet unlikely that his fellow European leaders will a member. Japan is a member of that agreement take a contrary view. and if push comes to shove, is much more likely If that new agreement does not include binding to go with the Americans in that agreement than targets for GHG reductions (but only “best continue with Kyoto. Russia is only in Kyoto efforts” intentions, as in the 1992 Framework because of the massive amount of carbon credits Convention on Climate Change), then the it has because of the “accident of history” of the present Kyoto targets go out the window collapse of the Soviet Union in 1990 being in the because when Kyoto ends in 2012, the countries same year as the base year of Kyoto. with deficits will simply roll them over into the So as I see it, Kyoto continuance would only second commitment period (as the present Kyoto possibly be supported by the Europeans (and New agreement allows them to do as a default position) Zealand?). Even within Europe, information and if there is no second Kyoto commitment suggests it is only well supported in Northern period, then there is no penalty for doing this. Europe, with both Southern European countries Even if the new agreement does involve binding such as Italy and Spain (because they are targets (in my view, unlikely, but it could happen), already greatly exceeding their Kyoto targets)

Energy Watch 45 13 August 2007 and Eastern European countries objecting to its NZ’s financial liabilities under the Kyoto treaty commitments being imposed through the EU. by more than NZ$1 billion. As far as our own politicians are concerned, the The National Party’s climate change spokesman, latest IPCC Report shows clearly that although Dr Nick Smith says that the deficit is higher global warming will cause very serious effects in by about $1 billion than the deficit of around many parts of the world by the year 2100, there NZ$600 million admitted by the Government will not be a very serious change from the present in its 2006 financial statements and that the before about 2030. This is not only “Not in My country now faces a NZ$1.7 billion deficit on Term of Office” but also “Not in my Lifetime” the five-year Kyoto commitment period (from as far as most politicians are concerned. So it 1 January 2008 to 31 December 2012). is quite feasible for John Key to suggest a target Editor’s Note: of 50% reduction in NZ GHG emissions by the EnergyWatch 42, page 23 noted year 2050, or for Helen Clark to suggest carbon a Government estimate of NZ$656 million neutrality as the target with no time frame for deficit during the Kyoto commitment period but achieving it. However a target for emissions the Minister of Finance, Dr Cullen had pointed reductions by 2012 as in Kyoto is causing out that the liability number “keeps bouncing extreme discomfort for politicians worldwide. around like mad”. Reference: SEF News posting by John Blakeley, 8/6/07 Dr Smith’s views are supported by the Green Party who consider that his estimate of NZ$1.7 G8 Deal Paves Way for Kyoto Successor? billion may be too low. An agreement at the G8 meeting on cutting At issue is the way in which the Treasury is greenhouse gas emissions has breathed new calculating the liability. Dr Smith has asked the life into the search for a follow-up to the Kyoto Auditor-General to investigate this because he Protocol (which is under the auspices of the thinks that the price of carbon being used in the United Nations). calculation is too low and the liability is based on But emerging (developing) nations are insisting an old deforestation policy which the Government that any new pact against global warming has not yet passed into law. He also said that must allow them the “flexibility” they need to forecasts of deforestation have gone up but this keep their economies growing. (This is a code hasn’t yet been factored into the calculations. for advocating no binding GHG emissions Dr Smith said that the official estimated deficit reductions targets for them). is based on projected deforestation of just In the Baltic Sea resort of Heligendamm, leaders 26,000 hectares, yet MAF papers now estimate at the world’s wealthiest countries produced a that 47,000 hectares of deforestation will occur declaration setting the goal of “substantial” cuts during the Kyoto commitment period. This in global heat-trapping emissions and vowing change alone will increase NZ’s carbon deficit to “seriously consider” Europe’s aim of halving from 41 million tonnes to 59 million tonnes. man-made greenhouse gas emissions by 2050. The liability is calculated using projections for This declaration paves the way for talks starting what will happen in particular areas such as in Bali, Indonesia in December 2007 to find a energy, waste, agriculture and deforestation. successor to the Kyoto Protocol. The present Treasury estimate is that NZ faces a Reference: Sunday Star-Times, 10/6/07 liability of 41.2 million tonnes of carbon dioxide equivalent. A price is then attached to that and in Are NZ’s Kyoto Liabilities Bigger than February 2007, the price being used by Treasury Estimated? was NZ$13.76 per tonne of carbon dioxide. Both the National Party and the Green Party are accusing the Government of underestimating

Energy Watch 45 14 August 2007 Both Dr Smith and the Greens co-leader, Editor’s Note: To date the NZ Government Jeanette Fitzsimons says the price of carbon has not actually purchased any carbon credits will be much higher than the price which in anticipation of needing them, but is merely Treasury is using, and they cite international regarding this as a future liability. Because of projections of closer to NZ$30 per tonne. uncertainty over the future international price of carbon credits, it is most unlikely that the Ms Fitzsimons said that the Government’s Government will actually make a move to current liability figure was “unrealistic” and a purchase any of these credits until 2012, the carbon price of at least NZ$30 per tonne should final year of the commitment period under the be used. Kyoto Protocol. Dr Smith has suggested that the Labour Party The price of carbon credits in that year will is embarrassed by having initially promised depend very much on the course of events that NZ would make hundreds of millions of which unfolds over the next five years. dollars out of the Kyoto Protocol during its first commitment period and that they are deliberately If the present forward European price of carbon under-estimating the scale of the deficit. (from 2008 onwards) holds up till then, the estimate of NZ$1.7 billion being required may But Climate Change Minister, David Parker, well be correct to meet NZ’s Kyoto Protocol said that Dr Smith’s claim that the liability commitment. could be as high as NZ$1.7 billion was “absolute nonsense” and that there is no way However it must be borne in mind that Russia those figures are correct. and some eastern European countries (including the Ukraine) are holding a very large quantity Mr Parker said that the Treasury figure was not of carbon credits. As stated earlier, this is an based only on a European price for carbon on “accident of history” because the base year for which Dr Smith has based his claims. the Kyoto Protocol is 1990, the same year as the Reference: NZ Herald, 20/4/07 and NZ Energy and Environ- Soviet Union empire collapsed, as a result of ment Business Week 25/4/07 which many very dirty and inefficient industries went out of production. The price of carbon from 2008 to 2012 will have a big impact on NZ’s Kyoto liability. When it ratified Kyoto, Russia must have The current price on the EU market for the assumed that the USA would be a potential December 2008 year is around 17.5 euros purchaser of most of those credits it was holding, (NZ$32) per tonne. but with the USA making no move yet to sign up to Kyoto, and with most countries now thinking This price is not to be confused with the ahead to the period from 2013 onward as being December 2007 price on the EU market “beyond Kyoto”, there may not be a purchaser which has collapsed to less than 1 euro per for nearly the amount of credits which Russia tonne due to over-allocation of permits by EU is holding, in which case it could “flood the Governments. market” in 2012 if it chose to put those credits up for sale, dramatically lowering the market The December 2008 forward contract is where price of carbon credits. most of the European carbon trade now is. This is the second stage of the EU market, If that happened the NZ Treasury estimate of coinciding with the commencement of the NZ $656 million or an even lower figure may Kyoto five-year commitment period. be appropriate. Reference: NZ Energy and Environment Business Week, 25/4/07 The situation will be further complicated if a number of countries (e.g. Canada) which have ratified Kyoto decide to either withdraw before

Energy Watch 45 15 August 2007 2012 or else exercise the default option. Under The problem with cutting output is that profits this option, the emissions deficit on their Kyoto would also be cut. Many firms would be target up to 2012 is added on to the amount unable to improve their energy efficiency in of reduction of greenhouse gas emissions time to meet the Kyoto deadlines. Therefore, demanded in a post-2012 agreement requiring the default option for most businesses will be compulsory emissions targets (if any such carbon trading. agreement is reached). While Business NZ acknowledges in its Such actions before or during 2012 from Kyoto discussion paper that its figures may not be as signatory countries could further limit the total “refined” as those available to the Government, amount of carbon credits being purchased by and are likely to be debated “for many reason”, countries in 2012, resulting in a lower price for it says that its aim is to prompt further discussion these credits. on the issue. Business NZ says Kyoto Liability Could be It assumes that Treasury officials are wrong More than $3 billion…. to estimate the costs of carbon credits at Business NZ has released a discussion paper around $13 per tonne. It notes that the present which suggests that businesses might have to international price is around NZ$30 per tonne stump up nearly NZ$3 billion more than is and some experts have even suggested that the currently being estimated by analysts for the price could rise to NZ$60 per tonne over the Government to cover the liability during the next five years. five-year commitment period of the Kyoto Protocol (1/1/08 to 31/12/12). (If the $686 million Treasury estimate is multiplied by 60/13, it becomes $3.175 The suggested total liability could be as much billion). as seven times the $537 million provided for the Government’s current balance sheet. Finally, the Business NZ discussion paper notes that the impact on the NZ economy of Business NZ says that this is because individual businesses having to purchase carbon credits businesses do not have the international will be greater than the cost of purchasing the purchasing power on the world carbon markets credits. This is because (for example) increased that the Government has in buying carbon electricity prices resulting from purchasing credits. If businesses are forced to meet the carbon credits, will be applied across the board liability themselves, they will simply pass the to all forms of electricity generation and not costs on to their customers. just to the thermal power stations burning fossil fuels which produce carbon dioxide emissions. The Kyoto Protocol deal NZ agreed to (and ratified in late 2002) is to cut emissions to 1990 Reference: The Business, NZ Herald, 25/6/07 levels starting in 2008, and any amounts over this between 2008 and 2012 have to be offset …But the Minister Disagrees by buying carbon credits. on Radio NZ’s “Morning Report” on 25 June, it was noted that Business NZ is suggesting that carbon Business NZ have estimated that the deficit trading will add significantly to the cost of living in may now be about $686 million over the five NZ by up to $3.5 billion in the next five years. year period if the Government picks up the tab. The Government’s carbon trading proposal is that If forced to pick up the tab themselves, individual businesses and other organisations will businesses have three options. They can have to purchase carbon credits for themselves cut output, introduce new energy efficient which will at least partially offset the Government’s technologies, or buy carbon credits. obligation under the Kyoto Protocol to purchase these carbon credits by 2012.

Energy Watch 45 16 August 2007 In response to the Business NZ discussion reality, especially considering the rapid growth paper, Climate Change Minister, David Parker, in GHG emissions in recent years?) said that they were “scaremongering” and he Reference: NZ Energy and Environment Business Week, 27/6/07 believed that the Treasury estimate of a NZ liability of about NZ$600 million (about 0.1% …and the NZ Listener Says of GDP) is likely to be “about right” because the What is more interesting is the “story behind the international price of carbon credits is likely to story”. Business NZ’s real game in publishing be a lot less (about NZ$13 per tonne?) than the its NZ$3.5 billion Kyoto price tag was to flush present price per tonne of around NZ$30 on the out whether David Parker is planning to forge European carbon market. Treasury had referred ahead with a narrowly-based emissions trading him to a recent article in “The Economist” scheme next year, under which at least some of magazine which supported this view. the nation’s Kyoto liability would be devolved The presenter pointed out that Business NZ has to individual businesses. also claimed that it would be better for the The answer they got was “Probably”. Government to purchase these credits on international markets than for individual Possibly as early as next year, some sectors - such companies to do so, because of the Government’s as electricity and energy-hungry industries like much increased negotiating powers due to cement making - are likely to be corralled into the much larger quantities which would be a cap-and-trade scheme that will gradually be involved. extended to include all sectors of the economy. In response to this, David Parker said that he The central point of conflict is that Parker wants felt that Business NZ should stick to its earlier to get a trading regime up and running as soon position that markets are the best way of handling as possible, while the business lobby wants these issues, rather than the Government being the Government to take its time in developing involved in footing the bill and seeking to limit a detailed scheme that wouldn’t become GHG emissions through regulations. operational until after 2012, until which time Business NZ considers that the Government David Parker has also recently said that he is should carry the cost of the Kyoto deficit. confident of pegging back NZ’s GHG emissions by about 20 million tonnes (of carbon dioxide On the other hand, Parker wants the cost of equivalent) during the first Kyoto period from carbon to start filtering through the economy 2008 to 2012, with proposed initiatives to be - therefore creating an economic incentive to announced late in 2007. reduce GHG emissions - as soon as possible. The Ministry for the Environment’s (MfE’s) Business NZ, while accepting that companies latest projection is for NZ to exceed its target and organisations will eventually have to pay by 41 million tonnes during the five-year the price of their GHG emissions, worries that Kyoto commitment period. This would cost if NZ rushes ahead of major trading partners the country about NZ$537 million based on such as Australia, exporting companies will be Treasury estimates. seriously disadvantaged. David Parker said that in the short-term, the Reference: NZ Listener Editorial, 7/7/07. MfE’s estimates of NZ’s Kyoto liability may continue to rise as the economy keeps growing Business NZ Kyoto Cost Estimates Wrong? and deforestation continues. But from next year on, once Government policies on energy and A leading European carbon advisory service climate change “start to bite” he expects that has refuted claims by Business NZ that a figure to drop back to around 20 million tonnes carbon trading scheme would increase NZ’s over the Kyoto target (a triumph of hope over Kyoto compliance costs. The European Carbon

Energy Watch 45 17 August 2007 Investors and Services Association (ECIS) If this does happen, it will radically change the describes figures quoted by Business NZ that economic competitiveness of carbon-emitting NZ’s Kyoto liability could blow out to NZ$3.5 technologies. billion in 5 years, as “off the mark”. Reference: NZ Energy and Environment Business Week, 13/6/07 ECIS says that emissions trading has been demonstrated in Europe, Japan and the USA to be This information suggests that the Business NZ a cost-effective way of meeting environmental view on NZ’s future liabilities under the Kyoto targets and the same will apply in NZ. Protocol may be “closer to the mark” than the view of the ECIS. Business NZ have suggested that the NZ Government can buy cheaper carbon credits … and the Key Unanswered Question Is than the private sector, but in reality many It now seems highly likely that the Kyoto governments have already discovered that they Protocol will be dead on or before 31 December have to compete with the private sector on 2012. It will collapse either when a number the same footing. But ECIS says that figures of signatory countries withdraw because their quoted by Business NZ that carbon credits will financial liability under Kyoto is much higher cost NZ$35-50 (19-27 euros) per tonne are than they anticipated, or because with Kyoto “way out of line with reality”. being replaced in 2013 by a different type of agreement which probably will not include Broker quotes for Kyoto-compliant carbon binding targets, these and other countries will credits suggest that these can be bought in the 4 exercise the “default option” to transfer their to 15 euro range (NZ$7-27 per tonne). financial liability into a non-existent Kyoto ECIS notes that Europe’s credits tend to be the second commitment period. most expensive in the world because of specific As Massey University Energy Researcher Dr conditions in the European Trading Scheme but Peter Read has recently stated, still cost one third less than the lower end of the Business NZ esimtates. “NZ is not alone in failing to meet its Kyoto targets. As it seems that everyone else is also Reference: NZ Energy and Environment Business Week, 4/7/07 falling down on their 2008-2012 commitment, there is going to be rather a shortage of carbon Editor’s Notes: the above information from credits to buy at any price, so the shortfall is ECIS is at odds with earlier information that the not going to be met by expensive purchase of futures market in Europe is signalling a price of credits on the world market. No doubt NZ, around US$33 per tonne (NZ$42 or 23 euros) along with everyone else that continues to when the second phase of the EU carbon market participate, will roll over their commitments in opens next year. mutual non-compliance, and incur the relevant While the first phase of trading on the EU carbon slap on the hand”. market has been a “disaster”, with carbon Reference: SEF News posting by Dr Peter Read, 16/6/07 being worth almost nothing because of an over- allocation of credits, the second phase looks to So the key question is ……What will happen be more successful, with prices high enough to to international carbon trading if and when the stimulate investment in cleaner technologies Kyoto Protocol “falls over”? (under the CDM). Does Kyoto provide the essential underpinning The third phase of the European market will to enable such carbon trading to continue open in 2013 (post-Kyoto) and analysts are and to grow rapidly, so that without Kyoto picking a carbon price around US$66 per tonne or an equivalent successor being in place for (NZ$84 or 46 euros). the foreseeable future, the price of carbon on international markets could collapse?

Energy Watch 45 18 August 2007 Or has international pressure of public opinion An important aspect of the Government’s reached the stage by now that carbon trading carbon trading proposal is that initially, it may can continue to flourish despite the likely not include transport fuels, which presently forthcoming demise of the Kyoto Protocol? comprise 16.4% of NZ’s total GHG emissions Only time will tell. for road transport, plus another 2% for other transport (rail and domestic sea and air). If from next year the NZ Government forces companies and organisations to purchase carbon It is also not yet clear how carbon trading will credits to offset their GHG emissions over and be applied to methane emissions from ruminant above a set limit, and the international carbon animals (31.5% of NZ’s total GHG emissions) market subsequently collapses before 2013, and nitrous oxide from the agriculture sector these companies and organisations may be left (17.5% of NZ’s total GHG emissions). holding on to worthless pieces of paper for which they have paid many millions of dollars On the other hand it is proposed to apply carbon - and would the Government then accept any trading rigorously from sometime next year to liability? the “stationary energy” sector, and particularly to electricity generation (10% of NZ’s total At least with the now-abandoned carbon tax GHG emissions in an average year or up to 12% proposal, the Government would be holding on in a dry year) and to large industries. to the money collected, presumably with the intention of using it to partly pay for its own The application of the Government’s carbon purchase of carbon credits in 2012 if Kyoto has trading proposal therefore appears at least survived till then. initially, to be quite selective. Under the Government’s likely carbon trading proposal, all this money to purchase carbon Carbon Trading credits will have disappeared by then, into the hands of sellers of carbon credits - probably Widespread Failings in Fledgling UK Carbon mainly offshore. Market Recent experience with carbon trading in the Footnote: UK should sound a warning note for NZ as the “Cap and Trade” means that the Government Government looks set to announce plans for a puts an upper limit on the greenhouse gas cap-and-trade system here in NZ. emissions which individual companies and other organisations will be allowed to emit without A Financial Times investigation shows that charge. Any emissions above this level must be UK companies, and also individuals and balanced out by the purchase of carbon credits. organisations wishing to “go green” have been The key issue in the cap and trade arrangement spending millions of pounds on carbon credit is to set the cap at the appropriate level, which projects that yield low, if any, environmental will be very difficult to judge. benefits. Obviously if the cap is set too high, the The newspaper has uncovered widespread Government will pick up a larger share of the failings in the new UK carbon markets, NZ financial liability under the Kyoto Protocol suggesting that some organisations are paying and GHG emitting organisations will have to for emissions reductions that do not take place. purchase less carbon credits than otherwise. Other organisations are meanwhile making It is expected that at least initially, the cap will big profits from carbon trading for very small be set at different levels for the different sectors expenditure, and in some cases for efficiency responsible for producing NZ’s greenhouse gas gains that they would have made anyway (that emissions. is, there is no “additionality”).

Energy Watch 45 19 August 2007 Other findings from the investigation include: A company that goes over its limit might also be able to earn or purchase credits in another • Companies setting up as carbon off-setters area, such as forestry. without appearing to have a clear idea of how the markets operate. A lot has not yet been decided about emissions trading in NZ, including where the cap will be • A growing number of carbon brokers providing set for different emitters, which industries will services of questionable or no value. have their allocation handed to them and which • A shortage of verification, making it difficult will have to buy into the system, and how long to assess the true value of carbon credits. industries will have to make the transition. • Companies and individuals being charged It is expected that for agriculture, which accounts “over the odds” for the private purchase of for just under half of NZ’s GHG emissions, the EU carbon permits, which have plummeted in trading entity would be dairy companies rather value because they don’t result in emissions cuts. than individual farmers. HSBC, the UK’s largest bank, which went The co-leader of the Green Party, Jeanette carbon neutral in 2005, has become so Fitzsimons welcomed Mr Parker’s statements, disillusioned with the UK carbon market that but said that the hard decisions on how to it has decided to fund its own carbon reduction allocate emissions permits had not yet been projects directly. made. “If they are given to those who currently emit carbon, it will give a windfall to the worst Reference: NZ Energy and Environment Business Week, 2/5/07 polluters and stifle innovation”. Government Plans Local Emissions Trading National Climate Change Spokesman, Dr Nick A domestic GHG emissions trading system Smith said National remained open to talks on the designed to help NZ meet its Kyoto Protocol targets issue with the Government, but with the Kyoto will be phased in from next year, Climate Change Protocol coming into effect on 1 January next year, Minister, David Parker indicated in early May. climate change policy “remains in a vacuum”. Mr Parker said that final decisions on the trading Prime Minister Helen Clark is in no rush to put system will not be made until September this year, a target year on when NZ should reach the goal but it is clearly now the Government’s preferred of “carbon neutrality”, as Norway has done by option, after its earlier preference for a universal setting a date of 2050. carbon tax fell over through lack of support. Helen Clark said that she would like NZ to Mr Parker believes that emissions trading achieve carbon neutrality before Norway. “I’d would involve less than 100 companies in like to see the policy path leading us to say a date major emissions areas such as transport, energy, that is feasible, rather than plucking something deforestation and agriculture. Each is to be out of the air” she said. given a limit on its allowable emissions - yet to Reference: NZ Herald, 9/5/07. be worked out. Permits to emit are created within the cap, Electricity Generators and Industries Face and large businesses within each industry area Emission Caps assigned a certain volume of permits. NZ power producers and major industries may have their emissions capped as early as next A company that emits below its permitted year under Government plans to encourage entitlement is able to sell its excess permits to greater use of non-polluting electricity sources a company that goes over its limit. The market and better energy efficiency. will determine the price.

Energy Watch 45 20 August 2007 Energy Minister, David Parker said in early the carbon trading regime, and the stringency of May that the Government will spend the next the emission caps which they would face. three months designing a system to limit GHG emissions and to allow trading of surplus Parker said that Treasury estimated that the emissions entitlements (above the limit). impact of GHG emissions trading on economic growth through to 2017 would be negligible. Over time, industries including dairy and meat Reference: NZ Herald, 9/5/07 companies will be included, based on their ability to reduce pollution at least cost. David Carbon Trading Salves Guilty Consciences? Parker said “If this proceeds, trading would Landcare Research administers a carbon credit start next year for some sectors”. scheme and pays land owners NZ$15 per tonne Parker added “Some sectors can do more of carbon dioxide sequestered in land set aside because they have more cost-effective choices”. for reforestation. He refused to say which industries would be Although the Landcare scheme appears to included first. be reputable and is subject to monitoring and At present, about half of NZ’s GHG emissions auditing, other carbon offset schemes - involving come from the agriculture sector while only everything from planting trees in Uganda to about 10% come from electricity generation. buying low-energy light bulbs for distribution Even though this 10% figure is a low in developing countries - don’t fare so well. proportion of total GHG emissions, Parker had Planting trees, for example, to offset air travel previously advocated a carbon tax on electricity emissions will work but it can take up to 100 years generation. or more for the trees to grow enough to recapture Parker has said that no new work is being done the carbon dioxide emitted by that air flight. on that carbon tax plan, because it would have It is easy to see why many say that the logic of unfairly focused on the electricity industries offsetting is fundamentally flawed. Rather than when all parts of the economy needed to bear reducing emissions, offsets simply defer the the cost of their GHG emissions. problems. Carbon trading is an economically NZ’s GHG emissions rose by 24.7% from 1990 expedient game to salve guilty consciences. through to 2005, as the expanding economy Anne Smith of Landcare Research agrees that increased energy and transport use, and a slump offset schemes that are not tied to actual emissions in forestry earnings reduced planting of trees, reductions are little more than throwing money which absorb carbon dioxide emissions. at a problem to “balance the books”. Parker said that fewer than 100 companies are To counter “greenwash” - including the forward likely to be directly involved in trading. This buying of carbon credits in schemes which fail or will include major companies like Fonterra and don’t materialise - Anne Smith says that there must Rio Tinto’s Tiwai Point aluminium smelter. be science and third party auditing on both sides Under the earlier and now-abandoned carbon of the balance sheet.Dr Susan Krumdieck, SEF tax plan, exporters including the aluminium member and mechanical engineering associate smelter and the oil refiner NZ Refining were to professor at the University of Canterbury believes be granted exemptions to protect their economic that there is another better way of offsetting carbon competitiveness. dioxide emissions, and that is to measure the fossil fuel content of products. Parker said that exemptions were unlikely under the now-proposed carbon trading system, and She says that a “carbon footprint” tells you what risk to industry would instead be reflected by happened as a consequence of fossil fuel use, the timing of the entry of some companies into but not how to fix it. “What you really need to

Energy Watch 45 21 August 2007 know is how much fossil fuel you are using and requirements, so that given an assumed constant what you can do to use less”. amount of hydro capacity in the system overall, should an increase in wind generation capacity Susan Krumdieck advocates a label that uses need to be balanced by an equivalent additional megajoules to show the fossil fuel used in making capacity of additional thermal power generation? a product, in a manner similar to the calorie content information shown on food labels. My view would be that on a country basis, Reference: NZ Herald, 7/7/07. NZ should be able to account for wind power generation credits in its electricity generation Should Carbon Offsets from Wind Farms be system as far as Kyoto Protocol liabilities are Permitted? concerned, because the NZ Government can give a complete statement of overall electricity Dr Susan Krumdieck said that building wind generation and a breakdown of types of farms in NZ doesn’t reduce the amount of gas electricity generation in the overall figure. and coal we burn to generate electricity. She points out that even the most efficient wind However it is debatable whether or not farms in NZ operate efficiently for only about developers of new wind power projects should 50% of the time. be able to claim carbon offsets for the renewable electricity generation produced, without She also points out that for every 600 megawatts accounting for how back up generation will be (MW) of wind generation of electricity, provided when the wind is not blowing. engineers know that they need to have 600MW of thermal power generated from gas or coal. UN Defends Kyoto Carbon Offsets (This statement must assume that there will be The United Nations is fighting back against no further development of hydro-electric power claims of fraud involving projects to offset GHG generation in NZ). emissions under its Kyoto Clean Development Mechanism (CDM). She says that this is because of the continuously increasing demand for electricity in NZ, The environmental group WWF claims that the coupled with the thermodynamic reality of UN process is allowing projects to fraudulently running thermal power stations, which are not “cash in” on the new trade, even if they don’t easily turned on or off (depending on whether meet the criteria. the wind is blowing or not blowing). But a UN climate change chief says that unscrupulous Reference: NZ Herald, 7/7/07. projects falsely claiming to cut GHG emissions are isolated incidents, if they exist at all, and that this is Editor’s Note: The above argument is a long part of the teething pains of the new market. standing one about the effectiveness of new wind farm projects in reducing carbon dioxide Explanatory Note: emissions. A condition of projects funded under the CDM is that they would not have happened otherwise (in The counter argument is that in NZ, we have a Kyoto jargon they must have “additionality”). substantial amount of storage in our hydro lakes which can act as a “battery” being charged The problem is that developing countries are when the wind is blowing and hydro generation already trying to rort the system. is lowered, but then discharged when the wind There is strong evidence that project developers in stops blowing and hydro generation has to be India routinely fake documents to make projects increased again. appear as if they only happened because of the The basic issue is that the capacity of the NZ Kyoto CDM. And this kind of fraud is sure to electricity system is energy constrained rather get worse, given the nature of human greed. than (normally) being governed by peak load Reference: NZ Energy and Environment Business Week, 27/6/07

Energy Watch 45 22 August 2007 Carbon Neutrality/Carbon This argument over carbon credits for forests has been going on since 2002 when the Government Credits opted to retain them rather than distributing Carbon Neutrality requires More Forests them to owners of forests planted post-1990. If the present Government is serious about The simmering anger over what these forest moving towards its ultra-ambitious goal of owners claim is the theft of their property rights making NZ carbon neutral, then it is going to found an outlet with the release in December of need the planting of massive amount of trees to the draft sustainable land management strategy absorb the quantities of carbon dioxide required and the calling for submissions on it. to get net emissions of GHG down to zero. This discussion document appeared to raise However merely talking about carbon the possibility of a deforestation levy and the neutrality will not be enough and neither will suggestion was made that land owners would the “tokenism” of a handful of Government be penalised by up to $13,000 per ha if they cut departments becoming carbon neutral. down trees and turned their land to new uses. (Note that this would likely apply to all trees According to the Ministry of Agriculture and and not j