Thursday, April 06, 2006

Brian Fallow: Wallowing in the carbon sink

In the fog which occupies the space where a national climate change policy should stand a couple of indistinct shapes can be made out.

Some kind of graduated charge, possibly levied at registration time, to penalise owners of gas-guzzling vehicles seems to be on the cards.

That would arguably send a clearer signal than a 4c a litre carbon tax on petrol and diesel, which would have been inaudible against the noise from rising world oil prices and a plummeting dollar.

And a narrow-based carbon tax on large industrial emitters and fossil fuel-burning power stations was an option left conspicuously on the table when the original carbon tax was axed before Christmas.

That would at least give the smokestack industries an incentive to move to world's best practice in energy efficiency and emissions in order to avoid the tax, and it would build a price of carbon emissions into consumers' power bills.

Officials were sent back to the drawing board after the Government bulldozed the foundation of its 2002 policy, a tax on the carbon content of fossil fuels. They are due to report to the Cabinet this month. Not with a new policy, you understand, but with suggestions for further work programmes aimed at developing one.

It is less than two years before the Kyoto Protocol's first commitment period begins, and there is a rapidly widening fiscal hole as estimates of national emissions are increased and offsetting forest sinks decreased.

In the circumstances such tardiness on the policy front makes any suggestions that New Zealand is "getting ahead of the pack" fatuous indeed.

Frustrating for a business sector looking for certainty and predictability is the absence of anything like cross-party consensus on climate change policy.

One of the reasons adduced for dropping the carbon tax was that National opposes it and to be effective in changing people's behaviour they had to be convinced it would be a permanent, and increasingly onerous, feature of the landscape.

National's "policy" does not seem to have advanced from its late 2004 position: wait to see what the United States and Australia (the coalition of the unwilling) do, and a vague preference for emission trading down the track.

But if you want to see what a serious climate change policy might look like, the Green Party's proposals (released last week in a document called Turn Down the Heat) are instructive.

The Greens' policy includes:

* Paying the owners of Kyoto forests - those planted since 1990 on land not already forested - for the carbon sequestered in their trees, while penalising deforestation.

* Requiring increases in livestock numbers to be offset by projects that reduce emissions.

* Capping emissions from domestic air travel, requiring carbon offsets for any increase from 1990 levels.

* Aiming for a fully renewable electricity generation system.

* Aiming for a 15 per cent improvement in the fuel economy of the vehicle fleet by 2012.

The Government's 2002 policy package was predicated on the assumption that continued afforestation, which gives rise to credits under Kyoto's rules, would more than cover the growth in gross emissions over the treaty's first commitment period, 2008 to 2012, at least.

But emissions have grown faster than first thought while forest planting has dwindled and deforestation has increased, to the point where last year there was no net increase in the forest estate.

While that is mainly a matter of relative prices, with dairy products paying a lot better than forest products, the Government's decision to retain ownership of (or swipe, as the forest owners would say) the forest sink credits have proven seriously counter-productive.

The Greens advocate a "carbon storage payment" to the Kyoto forest owners. It would be less than the value of the carbon credits engendered by those forests, to reflect associated costs borne by the state like measuring the carbon, insurance against fire, pests and diseases, and management of international carbon trading.

Kyoto forests felled and not replanted would incur a corresponding penalty.

Nearly half of national emissions come from the agriculture sector, arising largely from the bodily functions of cattle and sheep.

The Greens say farmers should take responsibility not for total on-farm emissions - a whopping subsidy from the rest of us would continue - but for increases from today's levels.

Increases in stock numbers would require a "carbon offset" in the form, for example, of producing biogas from farm wastes, planting forests on farm land or funding forest planting by others.

They propose a register of offset projects in which farmers could invest if they did not wish to develop projects on their own land.

In the transport sector the Greens propose a raft of measures including:

* Minimum fuel economy standards for imported vehicles

* A requirement that companies selling petrol and diesel source 5 per cent from biofuels by 2010, and higher proportions later as the technology develops.

* Completing the electrification of the North Island's main trunk railway line and then requiring Toll New Zealand to use electric locomotives.

* Spending more on pubic transport.

* Faster broadband to make it easier to work from home.

Unusually for a developed country, electricity generation accounts for only 8 per cent of greenhouse gas emissions, reflecting the importance of the hydro-electric system.

But in spite of increased investment in geothermal and wind energy the proportion generated from fossil fuels has been rising by about 1 per cent a year. The Greens want that trend reversed and the objective of a wholly renewable electricity system adopted.

But even if demand growth was halved to about 1 per cent a year that would take until 2040.

And it runs up against the problem that there is limited inter-seasonal storage in the hydro lakes, especially given the variability in rain and snow fall from one year to the next, as the current fears about power shortages this winter attest.

An exception should be made, the Greens concede, for some fossil fuel plants on stand-by for exceptionally dry years.

They like the German policy which gives new renewable sources such as wind farms priority in the system, so that they automatically run when they are available, and command a premium price, albeit one which reduces over time.

They would also cap carbon emissions from the sector, so that new thermal plants could only be built to replace existing ones.

For the residential sector they favour upgrading as soon as possible the building code's requirements on insulation, glazing, water heating and lighting.

Most of these changes would cost money and, as Telecom likes to say about the Kiwi Share, it is hard to compete with free.

So there continues to be a case for putting into the economy a price for "carbon" or the right to emit greenhouse gases, to acknowledge the fact that there are some pretty grave global environmental costs associated with business as usual.

The short-term political and commercial attractiveness of continuing to shovel those costs on to poorer countries and future generations remains. But that cannot last.

Pick what holes you like in the Greens' policy. At least they have one.

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