The ETS and re­al­ity

The Northland Age - - Local Life / Opinion - Cr John Vu­j­cich

I con­grat­u­late Shane

Jones on the progress in im­ple­ment­ing the vi­sion of the Pro­vin­cial Growth Fund, es­pe­cially the 3600ha of pine trees to be planted in the Far North.

The fund is in­tended to lift pro­duc­tiv­ity po­ten­tial in the prov­inces, cre­at­ing eco­nomic devel­op­ment op­por­tu­ni­ties, sus­tain­able jobs, en­abling Ma¯ori to reach their full po­ten­tial, and help meet New Zealand’s cli­mate change tar­gets.

This is truly an am­bi­tious goal, with many chal­lenges that will re­quire col­lec­tive wis­dom and skills of many in­di­vid­u­als and or­gan­i­sa­tions to achieve. Poli­cies and sys­tems will need to be in place to cre­ate in­cen­tives and op­por­tu­ni­ties that en­cour­age the de­sired out­comes of the fund.

One pow­er­ful mech­a­nism I wish to sug­gest is the Emis­sion Trad­ing Scheme. The cur­rent

ETS fo­cuses on cre­at­ing fi­nan­cial in­cen­tives for busi­nesses to re­duce emis­sions through the trad­ing of New Zealand emis­sion units (NZU). An emis­sion unit is one tonne of car­bon diox­ide, and the price can vary from year to year. In gen­eral terms, emit­ters of car­bon diox­ide are re­quired to pur­chase NZUs from the govern­ment, and in turn the govern­ment pur­chases NZUs from green­house gas ab­sorbers, like forestry.

The in­her­ent prob­lem I see is that it is a fi­nan­cial in­cen­tive scheme only, not nec­es­sar­ily con­nected with what hap­pens in re­al­ity. The sci­ence around how much car­bon is ab­sorbed by var­i­ous for­est stands is very good, al­low­ing for dif­fer­ent growth rates both in the age of the trees and soil fer­til­ity, tem­per­a­ture and the like. How­ever, when the trees are cut, it is gen­er­ally ex­pected that the ac­cu­mu­lated NZUs will need to be paid back.

In re­al­ity, when a tree is cut it does not pop like a bal­loon and turn into a cloud of car­bon diox­ide. The forester is paid for a very ex­act quan­tity of tim­ber and class, mea­sured in JAS cubes. Surely the forester should be re­quired to sur­ren­der only the NZUs left ly­ing on the for­est floor to rot, re­leas­ing meth­ane or other en­vi­ron­men­tal haz­ards. There will then be an in­cen­tive, equiv­a­lent to the cur­rent value of the NZUs, to col­lect the thrash and turn it into a mar­ketable prod­uct, plus a strong in­cen­tive to en­gage in forestry, and even to har­vest.

The same prin­ci­ple should ap­ply down the chain. Namely, the miller knows ex­actly how many JAS cubes of logs are pur­chased and ex­actly the JAS cubes of lum­ber he pro­duces. Like the forester, he should be re­quired to sur­ren­der the NZUs based on the dif­fer­ence, the waste cre­ated in pro­cess­ing the logs, giv­ing an in­cen­tive to re­duce milling waste and cre­ate op­por­tu­ni­ties for fur­ther pro­cess­ing of waste. It would also en­cour­age lo­cal pro­cess­ing of logs, as once a raw log is ex­ported then it is no longer part of the NZ ETS, and there­fore the ex­porter must sur­ren­der the NZUs to the govern­ment for the JAS cubes ex­ported.

Link­ing our ETS with what hap­pens in re­al­ity, backed by sci­ence, will cre­ate sta­bil­ity for in­vestors and en­cour­age be­hav­iour that is di­rectly con­nected to the de­sired out­come of re­duc­ing over­all green­house gas emis­sions.

"Link­ing our ETS with what hap­pens in re­al­ity will cre­ate sta­bil­ity for in­vestors and en­cour­age be­hav­iour that is di­rectly con­nected to the de­sired out­come"

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