Yesterday the New Zealand Government released its proposals for reforming the price settings on the NZ Emissions Trading Scheme in 2020.
Major changes to pricing levels are proposed, see Figure 3 above.
These price control changes will act to "supercharge" the NZETS, as the price ceiling will be set at $50, the Government fixed price option will go to $35, and there will be a price floor of $20.
This potentially increases carbon credit values by 140%-200%.
There will also be a price effect on rural forestry land values - we are working on what this increase might be with associates in the rural property sector.
Consultation closes on 28 February 2020, with legislation changes proposed in mid 2020.
This morning the NZ carbon market has reacted by not trading NZU futures contracts.
We will be separately contacting our clients to advise on how the market is reacting, and how much more we calculate their carbon portfolio may be worth in 2020.
Good news for those foresters with trees in the ground registered in the NZETS! More needed!
We are very pleased that our advice on future NZETS structures and price trends has proved accurate (!).
We are now analysing other parts of Government NZETS and Zero Carbon Bill announcements, and we will be incorporating the proposed changes in our MyCarbon computer model of yields, risks and revenues from the carbon business.
A recent article in The Guardian reports that climate change denial is changing tack from outright denial to a clever 'deflection' campaign. This focuses on making individuals feel guilty about their food and travel choices, and then descends into 'doomism', which leads to hopelessness and inaction. In this way, society is misled into failing to deal with the main cause of climate change - fossil fuel use.
Global greenhouse gas (GHG) sources are usually quoted at around 70% from fossil fuel use (energy production), agriculture 24%, industry, buildings and waste disposal the remaining 6%.
New Zealand's GHG profile is quite different from the global profile, with energy production 41%, agriculture 48% (sourced mainly from animals belching methane), industry and waste 11%.
Recently the issue of methane emissions from farm animals has been controversial in New Zealand. The Agriculture sector has pointed out that methane is a short-lived GHG (about 14 years), while others have countered that it has a high Global Warming Potential (GWP), 25 times stronger than carbon dioxide. The New Zealand Government has agreed to the sector's proposal to leave agriculture out of the New Zealand Emissions Trading Scheme until 2025, giving the sector until 2022 to come up with methods for reducing farm emissions.
One way to reduce farm emissions is to reduce the number of animals farmed. Leaving aside land use stocking and water quality issues, it would seem extraordinary that a food producing nation would be asked to consider reducing its production levels in a world that needs more food, not less. And this from a pasture-based farming system in New Zealand that has a much lower overall environmental footprint (GHG plus everything else) and animal welfare footprint than barn-based intensive stock feeding regimes overseas.
So are methane emissions from farm animals really a problem locally or globally, compared to fossil fuel emissions? Take a quick look across the latest science and we find:
Globally methane is 16% of all GHG;
Methane disappears from the atmosphere in about 14 years;
Modelling of methane's global warming effects from 1900 show a small decline relative to carbon dioxide;
World methane emissions have increased about 25% from 2005-2018. This is thought to be from frozen wetlands melting (as the northern hemisphere warms), natural gas production, and livestock, although the global cattle population has increased only 0.6% in that time;
Fossil-fuel sourced carbon dioxide is about 80% of all GHG;
Carbon dioxide takes 20-200+ years to transit out of the atmosphere;
Recent studies show fossil-fuel sourced carbon dioxide is now about 86-87% of global carbon dioxide emissions;
World fossil-fuel sourced carbon dioxide increased 50% from 1990-2015, increases in India (7.2%), Russia (3.5%), China (2.9%) and the USA (1.5%); and,
Emissions from New Zealand Agriculture 1990-2017 rose 13.5%, due to a near doubling of the dairy herd and 650% increase in use of nitrogen fertiliser. New Zealand's cattle population is about 0.1% of the global cattle population.
There are some significant changes to note:
(1) Fossil-fuel sourced carbon dioxide sources have increased to 87% of global carbon emissions in the last ten years, so that they almost completely dominate the global GHG cycle;
(2) Global methane emissions over time have had no impact compared to fossil-fuel sourced carbon dioxide (so far);
(3) Global methane emissions are recently up from permafrost melting and natural gas production;
(4) Globally, New Zealand's cattle populations and their emissions do not register at all on any statistic; and,
(5) Local increases in New Zealand's dairy herd and their emissions have impact in New Zealand alone.
And so what to conclude?
Methane emissions from pasture-based farm animals are a "green herring" in New Zealand, and most probably globally.
The reduction and reversal of global warming depends almost entirely upon reducing fossil fuel use. Switch away from fossil fuels and the job is mostly done. Reducing animal farming in New Zealand will make absolutely no difference to world GHG levels, and would be a pointless exercise in climate guilt. Another 'deflection' away from dealing with the real problem.
Because of the structure of the Paris Climate Agreement and New Zealand's unusual GHG profile, the nation could be held fiscally responsible for methane emissions that are just a very few cattle breaths in reality, with no global impact. There could, however, be a very high impact on the nation's pocket if the situation isn't shrewdly managed.
And one wonders...how many more green herrings are out there?
I've been a bit bemused to read media coverage lately about some parties complaining that the Billion Tree Funding Programme (1BT) and the NZ Government's changes to the Emissions Trading Scheme (NZETS) are leading to an exodus from hill country farming. Apparently, large numbers of farms are being sold to overseas interests so that forests can be planted on them. As a result, it is alleged, more NZ land is going into overseas investors' hands, and the local rural community and rural schools are being emptied of jobs and children.
So, I've done a quick fact check and find:
70% of NZ's commercial forests are already overseas owned - so sorry folks, the horse has already bolted; and,
Yes, a few farms have been sold to overseas interests for forestry development, but the trend is no more than usual (so far). The sales have had to go through the Overseas Investment Office (OIO) approval process, so if there is concern about how many farms are sold to overseas buyers, the place to change the policy settings is at the OIO; and,
Growing trees on marginal hill country and other "badlands" for wood and carbon credits still provide better economic and environmental returns than any other option.
As far as I know, NZ is the only country with a Billion Tree Blessing where land owners are given (that's given, not lent) money by the Government to plant trees that can become part of an ETS, and earn carbon credits (NZU) for their owners. Creating two revenue streams where before there may have been none, or not much, or a loss.
So what does the Billion Tree Blessing give to rural land owners and the rest of NZ?
A gift to plant trees on land that's not producing anything except rates and fencing bills;
Another gift in carbon credits that can be easily sold in the carbon market (with the surrender requirement gone), or kept as a valuable futures stock;
'1BT' and 'Join ETS' application preparation fees at least partly covered by the grant, with both being tax deductible; and,
More NZ-owned marginal country turned into forestry, increasing the percentage of commercial forests owned by New Zealanders, and starting to bring back into NZ ownership the revenue, jobs, erosion control, and climate change benefits of beautiful trees.
The Billion Tree Blessing is a gift - why wouldn't you take it?
*Declaration of interest - yes, my family earns part of its' living from trees - we love 'em.