by Dr George Preddey
[Ed: The Morgan Foundation today released a report examining New Zealand’s use of “fraudulent” carbon credits purchased from the Ukraine. This piece from physicist Dr George Preddey pre-dates the release of the Morgan Foundation report but covers the same ground and comes to the same conclusions…]
It is self-evident to this physicist that applying a market solution to the “greatest … market failure ever seen” is unlikely to succeed despite the faith of neoliberal free market believers in it. Put succinctly, “emissions trading is unfair, it is unethical, and it just doesn’t work“.
Pre-eminent climate scientist James Hansen told a carbon trading conference in New York that carbon trading is “a path focussed on corporate greed”.
It increases the cost of energy for the public, as utilities and industries purchase the right to pollute, with one hand adding it to fuel prices, while with the other hand taking back most of the permit revenues from the government. The costs and profits of the trading infrastructure are also added to the public’s energy bill.
The risks of emissions trading are exacerbated by the rise of truly transnational capital and a new global production and financial system into which all nations and much of humanity has become integrated. A world economy in which countries and regions were once linked to each other through trade and financial flows in an international market has been transformed into a global economy in which countries are linked through the trans-nationalisation of production, finance, and capital accumulation.
No single nation-state can now remain insulated from the global economy nor prevent the penetration of the social, political, and cultural infrastructures of global capitalism. This raises the spectre of 21st century fascism.
The rise of carbon trading
The basic mechanisms for carbon trading were outlined in the 1997 Kyoto Protocol, a climate agreement adopted by 192 countries. Currently there are more than 60 existing or planned carbon trading schemes worldwide. The World Bank valued emissions trading in 2012 as a $176 billion industry despite the imperative to reduce carbon emissions, not trade them.
With so much at stake, it was inevitable that carbon trading would attracted a new class of criminals. In the EU system, $20 billion was lost to carbon fraud between the system’s launch in 2005 and 2011. According to Interpol, possible carbon crimes include stealing and reselling credits, tax and securities fraud, transfer mispricing, money laundering, phishing, and identity theft. In 2014, prosecutors in Italy investigated a $1.4 billion carbon trading scam that funded terrorist groups operating in the Middle East.
However the worst crimes from an environmental perspective are sales of non-existent credits where polluters, commonly in the developed world, pay for carbon emission offsets generated elsewhere. George Monbiot compares carbon offsets to indulgences sold centuries ago by the Catholic Church i.e. cash for forgiveness.
In 2007, the Vatican received a certificate declaring the Holy See to be the world’s first carbon-neutral sovereign state made possible by offsets promised by a reforestation project in Hungary. Not a single tree of the “Vatican Climate Forest” was ever planted. The inherent flaw in carbon trading lies in the difficulty of substantiating transactions that involve nothing palpable. Interpol identifies a risk that the carbon market can be exploited by a single significant vulnerability distinguishing it from other markets – the intangible nature of carbon emissions.
What’s wrong with the NZ ETS in particular?
The NZ ETS is described as the Government’s principal policy response to climate change by “supporting global efforts to reduce greenhouse gas emissions while maintaining economic productivity”. New Zealand risks achieving pariah status in “supporting global efforts” when its indicative commitment of 11% reduction below 1990 levels by 2030 is compared with the commitments of the European Union to a 40% reduction, the United States to a 28% reduction, and China to a 20% reduction.
Despite having an ETS, New Zealand’s net emissions (including forestry offsets) increased by 111%, between 1990 and 2012, the 5th highest per capita increase among OECD countries. New Zealand has a non-binding unconditional target to reduce its net emissions to 50% of 1990 emissions by 2050. During his successful election campaign in 2008, PM Key loudly promoted a ‘Fifty by Fifty’ slogan but has been conspicuously silent about this broken election promise since then.
Indeed under current policy settings, New Zealand’s net emissions are officially projected to increase by 159% by 2030 relative to 1990 levels, rather than reduce by 11% required to meet its INDC target tabled at Paris (see fig [e], p1). I am old-fashioned enough to believe that politicians should be held accountable for broken election promises.
‘Shameful’ climate response
Despite having an ETS, New Zealand has acquired a shameful international record on its response to climate change. For example New Zealand’s climate change protection policies rank fourth worst among 60+ countries according to a reputable international Climate Change Performance Index (CCPI). Arguably more relevant for this submission, New Zealand’s ETS ranks 25th of 26 countries in a 2014 World Bank review of emissions trading schemes. Not many voters in the 2014 election were aware of that despite my best efforts.
In my perception, political machinations have fatally flawed New Zealand’s current ETS. Its reported objectives are “supporting global efforts to reduce greenhouse gas emissions while maintaining economic productivity”. Any reduction in greenhouse gas emissions implicitly implies quantified emission reduction targets, for example specified as Mt CO2-e (megatons of CO2 emissions including other greenhouse gas emissions expressed as CO2 equivalents). Targets should be based on climate science that can predict the implications of carbon emissions targets for future mean global temperature.
There is no apparent link between New Zealand’s carbon emissions targets and its ETS. The parameters of New Zealand’s ETS and indeed its emissions targets implicit in its Intended Nationally Determined Contributions (INDCs) have been determined politically without reference to any supporting science. Two examples of this ad hoc political approach are outlined below:
Firstly, New Zealand’s ETS explicitly exempts agriculture that contributes 50% of this country’s carbon emissions. The decision to exclude agriculture, including dairy emissions, is entirely political and is not supported by rational scientific argument. Accordingly it immediately ensures that New Zealand’s ETS is a half-baked scheme that subsidising agriculture at a cost to the rest of the economy.
Over the past two decades, dairy production in New Zealand has intensified requiring increased external inputs of fertiliser, feed, and water. Intensified dairying has massive impacts not paid for by dairy farmers. These “negative externalities” are left for the wider population to pay for, economically and environmentally. They are also counter-intuitive because the dairy industry itself relies on New Zealand’s “clean green” image to maximise its returns. Recent peer reviewed research* shows that the total external costs of intensive dairying caused by nitrate contamination of drinking water, nutrient pollution to lakes, soil compaction, and greenhouse gas emissions exceeds total dairy export revenue i.e. on rational economic analysis the costs of intensive dairying exceed its economic benefits. Exempting dairying from the ETS exacerbates this massive market distortion.
Secondly, prior to the summit meeting in Paris in December 2015 that decided the future of Earth’s climate, countries were required to prepare their INDCs that indicate their proposed emissions reduction targets. The process followed by (then) Climate Minister Groser was to:
- invite the public to make submissions on INCDs to take to Paris giving them just four weeks to respond;
- publish a pseudo-econometric consultation document that overestimated the costs of action and underestimated the much larger costs of inaction; and
- conduct rushed consultation meetings around the country at which no Ministers fronted.
Dispensing with peer-reviewed scientific research, Minister Groser’s discussion document provided a plethora of excuses for Government inaction: “why we should wait and see; action will cost New Zealanders dearly; much of our energy is renewable already; requiring farmers to pay for emissions will lead to global starvation; anything New Zealand does will make very little difference”; and – most execrable of all – “we are committed to doing our fair share and taking responsibility for our emissions”.
Pariah status confirmed
After receiving 17,000 submissions, mostly from “uninformed climate activists”, the Minister predictably exercised his prerogative to ignore almost all of them including one from the Royal Society of New Zealand (RSNZ) that represented the consensus view of New Zealand’s top climate scientists and was based on peer-reviewed science. In its submission, the RSNZ reasserted that the world must restrict global warming to 2°C to avoid droughts, temperature extremes and wildfires wreaking havoc. “Significant action must be taken as a matter of urgency”, the RSNZ warned.
Furthermore “as one of the globe’s highest per-capita emitters of greenhouse gases, New Zealand has an opportunity to demonstrate leadership in reducing its emissions”. The RSNZ recommended a target for New Zealand of 40% reduction in net emissions (below 1990 gross emission levels) by 2030, a target supported by most of the other submissions.
Displaying not-uncharacteristic arrogance, Minister Groser tabled New Zealand’s INDC for an emissions reduction target of merely 11% below 1990 levels with no scientific justification whatsoever, thus confirming New Zealand’s pariah status in its response to AGO as reflected by its international rankings.
Evidence for fraudulent trading under the New Zealand ETS
In late 2015, the Government released climate change reports on its obligations under Kyoto Protocol CP1 and also CP2 (to which New Zealand is no longer a party). It has been alleged that these documents expose fraudulent trading that would further discredit New Zealand’s already tarnished climate change policy.
Under the Kyoto protocol, New Zealand has accepted a target of limiting its net average emissions over the 2008 – 2012 period to gross 1990 levels, that in practice meant a target of 309 million tons over five years. However New Zealand’s emissions continued to actually increase by 20% over this period, but could be covered by forestry offsets reductions. By this means, New Zealand could meet its CP1 target fairly within the (broadly accepted) Kyoto rules. According to these rules, any surplus could be banked against targets for later commitment periods.
However according to New Zealand’s CP1 reporting, a substantial volume of actual emissions were paid for using international units. Most of these were ERU’s under Kyoto’s Joint Implementation mechanism, including:
- 86 million tons from Ukraine where massive credits were found to be issued fraudulently as part of an international criminal scam;
- 16 million tons of Kyoto Certified Emissions Reductions (CERs) issued under the Clean Development Mechanism. CERs are also hugely problematic: about half of them were issued for the destruction of refrigerant gases manufactured solely to be destroyed to claim carbon credits. For this reason, CERs are no longer accepted and cannot be used in Kyoto’s second commitment period CP2.
But Kyoto CP1 Assigned Amount Units (AAUs) can be used. By paying for CP1 obligation with dubious and probably fraudulent credits, New Zealand acquired a surplus of 124 million tons of AAUs, equivalent to about two years’ worth of real domestic carbon emissions. Predictably New Zealand is using this banked credit to meet its self-imposed CP2 target reductions.
Summarising, New Zealand has allegedly bought fraudulent credit in CP1, laundered them into AAUs, and has effectively used these AAUs to meet this country’s CP2 reduction targets. New Zealand will undoubtedly attempt to carry over that surplus, plus any other fraudulent credits it is able to launder, to meet its (self-imposed, not legally binding) INDC target of 11% by 2030 offered at Paris. In the interim, New Zealand’s carbon emissions will continue to rise.
As a scientist I find these allegations are not only credible but also deeply disturbing. If verified, then New Zealand’s climate change policy is based on an outright scam which would speaks volumes about the honesty and commitment to real change of this country’s political and economic leaders who collectively are responding totally inadequately to anthropogenic global overheating.
TOMORROW: A science-based carbon budget
Dr George Preddey is a retired upper atmosphere physicist, DSIR scientist and advisor to the Ministry of Education. You can read this piece, which was originally written as a submission to MPs, in full here,
*Foote KJ, Joy MK, Death RG. New Zealand dairy farming: milking our environment for all its worth. Environmental Management, 22 April 2015. ISSN0364-152X, ISSN1432-1009. Springer US.