Controlling emissions
There are two basic ways a government can put downwards pressure on carbon emissions and let consumers find the best ways to adapt. One is to charge a fixed tax per kg of CO2 equivalent, the other is to fix a total cap on emissions and let consumers bid for the rights to use it. There’s a sense in which these are equivalent: if the price in a cap-and-trade system ends up being $X per kg, the emissions will be the same as if the government charged $X per kg and didn’t have a cap. A sufficiently flexible and adaptive version of either one could match the other. In reality they aren’t quite the same because governments want a simple and relatively predictable price or cap.
We’ve got a cap (more or less). One of the non-intuitive aspects of having a cap rather than a fixed price is that parallel efforts to reduce carbon emission don’t work the way you’d expect them to. If I replace my gas stove with an electric one, my kitchen will emit less carbon (modulo the impacts of making the new equipment). If everyone did it, everyone’s kitchen would emit less carbon (again, ignoring the impacts of making the new equipment). What would happen to NZ’s total carbon emissions? Nothing. We have a cap. Less of the cap would go on carbon coupons for burning natural gas; more of it would be available for cars or trucks or coal-fired power stations. The impact of our kitchen-renovation decisions would be cheaper emissions rights for other polluters, not lower emissions.
In principle, I could keep buying emissions rights for the natural gas I wasn’t using. That would turn my lower emissions into reductions for NZ as a whole. Or, the government could monitor the sales of induction cooktops and withdraw emissions rights to compensate (or, more realistically, track kitchen conversions through some sort of subsidy). But if nothing happens to the total ETS carbon budget, nothing will happen to total emissions. A big enough change in demand could change emissions — if cars were suddenly banned, the government might not be able to sell all its ETS coupons — but a modest change won’t.
When the government says that new subsidies for low-emissions cars will reduce carbon emissions by some large number, there’s a gap in the explanation. Having more low-emissions cars will lower carbon emissions by cars, but unless the government withdraws the corresponding emissions rights from the carbon budget, it won’t reduce carbon emissions in total. The reduction will go to lowering carbon costs for other polluters.
This, in itself, doesn’t mean the policy is bad; it just means the policy needs to be evaluated in some other way. Maybe subsidising electric cars will lower the cost of future emissions reductions. Maybe it will improve the political feasibility of reducing the total emissions budget. Maybe there’s some other big benefit that I haven’t seen. But it is a problem that the policy is being sold on emissions reductions and that there doesn’t seem to be media or political reaction asking exactly where these reductions are coming from given the ETS cap.
Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »
Yes, there is an issue here. I find it hard to get my head round it, and I am sure most NZers do too. The NZ Initiative is very much of the view that we should let ETS work its way through and that any govt interventions are nonsensical given the self-regulating logic of the system.
Given that it was NZI advocating this, I had my suspicions, but even without that I still have reservations. First, the ETS was thoroughly undermined by the previous govt because the carbon price did not rise and companies were able to use dodgy offsets from overseas. If such a thorough undermining of a supposedly brilliant and effective self-regulating system could happen once, then it could happen again (with another change of govt). Second, how high would the price of carbon have to go to shift people’s behaviour? And at that point is there the chance that you might get a general popular revolt that would undermine the political will to make the system to work as it should. Thirdly, there is the danger that emitters, rather than reducing emissions, basically rely on offsets. So, that will be great for increasing forestation, but it still might not change behaviour and reduce emissions – in which case it is self-defeating because we would still be barrelling towards 1.5C plus, while thinking we had a self-correcting system that was reducing emissions when it in fact was not.
For these and other reasons I think we have to have a mixed approach where we still have ETS, but also regulatory and other interventions of a more directive kind. And we still have to account for the fact that we have to get kiwis out of cars and farmers to reduce cows!
3 years ago
Maybe, like pokie machines numbers, the intent is to have a sinking cap.
3 years ago
I’m afraid the premise of this article (like much commentary on the ETS) is fundamentally incorrect. Paying money for a permit to emit CO2 (i.e buying a unit in the ETS) may ‘price’ that unit of emissions but it does nothing to avoid emissions. Just because a ton of CO2 has been priced does not mean in the slightest that it is not being emitted. Its being emitted with a small charge associated with it, which in the case of petrol of diesel, is completely irrelevant to consumer behaviour. The price of an NZU would need to be in the hundreds of dollars a ton to impact the price of petrol enough to reduce vehicle kilometers travelled. The Newsroom article you quote explains this – very few of the NZUs in the scheme represent actual emissions reductions (i.e only those associated with permanent forest sinks), the rest are just an accounting mechanism, and the water has been sufficiently muddied by policy choices such as free allocation and prior use of bogus international units etc to make it irrelevant.
3 years ago