Watch 15m tonnes of emissions vanish
In this week’s Forever Project climate column, Olivia Wannan explains how the failure of a “pollution auction” could be a good thing for the environment. Stuff also learns about the “remarkably massive” ozone hole this year, discovers who will represent New Zealand at global climate talks and introduces a company with a plan for tough-torecycle zinc.
On Wednesday, 15 million permits allowing greenhouse gas to be created will be up for sale, but they’re more likely to be destroyed than purchased. That will mean the country won’t create 15m tonnes of emissions in future – pollution equivalent to seven Huntly power stations running for a year.
Even with a new Climate Minister overseeing the show, experts don’t expect much to change.
Meanwhile, companies still plan to create plenty of greenhouse gas this year, from coal burned in massive boilers to the petrol and diesel combusted in nearly 6 million vehicles.
Petrol retailers and other large emitters need a permit for each tonne of carbon emissions they produce this year. The Government sells these consents at four quarterly auctions.
In the previous two years, the Government raised billions at auction – cash which funded EV subsidies, public transport and insulation for cold, damp homes.
But it failed to make any money at the first three auctions this year. Polluters also walked away empty-handed.
Incoming ministers shouldn’t count on any auction cash from 2023, experts warned. Under auction rules, just one lowball offer under the government-set secret reserve price is enough to void everyone’s bids. That’s designed to keep the financial cost of producing greenhouse gas from slipping too low.
When this occurred in March, June and September, all unsold permits were added into a larger pool at the next event.
Now December’s event has four times the number of units that are typically on sale, the chances of a low-ball bid tanking proceedings are even greater.
Nigel Brunel – a specialist in carbon trading at Jarden – doesn’t expect Wednesday’s auction to clear, even after a change in Government.
Climate Minister Simon Watts will have had a week and a half in his role by then, and holds some power to lower the secret reserve price.
By law, he can tell the Ministry for the Environment how to calculate it, but must take into account market circumstances and leave enough time to consult with his finance counterpart.
A minister isn’t able to set a reserve price for political reasons, said carbon market expert Christina Hood. “The minister would find themselves out of compliance with the law and potentially up for challenge.”
In opposition, the incoming Government had been vocal about allowing the market to operate without constraints, she said.
Hood also expects zero permits to be sold during Wednesday’s event.
Since this is the last auction of the year, there would be no carry-over. All unsold Emissions Trading Scheme permits are cancelled.
That wouldn’t be “a big deal”, Hood said. Big emitters wouldn’t panic. Pollution permits don’t have an expiry date, so companies are free to surrender units purchased in previous years.
Organisations have stockpiled a lot of spare permits – as many as 49m, according to experts.
Some of this excess came from auctions in 2021 and 2022, which were red hot. The 19m permits on offer sold out both years – as did a back-up pool of 7m, adding another 14m carbon units, Brunel said. “That swelled the market,” he added. Large polluters can also purchase permits from forest owners, who are issued carbon units for the emissions their trees absorb.
If this year’s 15m permits fail to sell, Brunel said, that would “rebalance” the extra units sold the previous two years.
Experts, including the Climate Change Commission, say a growing stockpile is risky, and could undermine the country’s climate goals in future.
Short-term pain
On the other hand, if all 15m permits sell at the going rate this week, the Government could raise more than $1 billion.
The National Party is planning to use auction proceeds to fund its $14.6b tax cut package. Its original calculations only counted on revenue from 2024.
Stuff asked incoming Finance Minister Nicola Willis if this remained the case after coalition talks. (The loss of the proposed Foreign Buyers’ Tax left a 20% shortfall.)
Willis didn’t answer this question, but said she was committed to restoring the stability of auctions.
“The Government will make separate announcements about the cost, funding, and implementation of its tax reduction commitments when Cabinet decisions have been made.”
Brunel thought a successful auction on Wednesday could ultimately be a “disaster”, leading history to repeat.
“It may mean that next year, we’re in the same situation as this year with a depressed price and auctions failing to clear,” he said.
But without 2023’s 15m permits, prices should rise steadily, Brunel said. “It’s better for the Government, because all of next year’s auctions will clear – almost guaranteed.”
Market spooked
The March auction, the first to sell no units, came three months after the Government chose to ignore advice from the Climate Change Commission.
The commission had observed that all permits in the back-up pool sold in both 2021 and 2022, even though this was only intended to be a rare occurrence. The independent body recommended that the price at which back-up permits could be purchased be raised significantly, from $78 to at least $171 per unit.
But after accusations the move could in turn significantly increase household energy bills as the cost of living spiralled, the Labour government baulked.
Big emitters and carbon traders responded by placing fewer bids at the year’s first auction, reflecting the tumbling cost to buy permits.
A group of climate-concerned lawyers successfully fought the government’s decision in court. Ministers then chose to implement the spirit of the commission’s advice in July.
Prices rallied.
But by then, the excess of units made a successful auction an increasingly remote possibility.
Brunel said, “in a perverse kind of way”, Labour’s missteps earlier this year should produce a good outcome: 15m fewer permits sold, restoring balance to the Emissions Trading Scheme.
“The Government will make separate announcements about the cost, funding, and implementation of its tax reduction commitments when Cabinet decisions have been made.” Finance Minister Nicola Willis
Old and new ministers head to global summit
This week, incoming Climate Minister Simon Watts will join diplomats in Dubai for the yearly summit of 198 countries to discuss the (real, but insufficient) progress the world has made fighting climate change.
Watts also invited his predecessor, James Shaw. Although it’s precedent to invite someone from the opposing benches, the Labour Party said it wasn’t consulted on this decision.
The Green Party co-leader is a veteran of these talks. Watts told Stuff it was sensible for Shaw to attend to ensure “continuity of relationships”.
Asked about whether diplomats still have authorisation to advocate for the phase-out of fossil fuels, he said “international climate commitments remain in place”.
Ozone hole ‘remarkably massive’ this year
You’ve probably heard that the ozone hole is slowly healing, after the world took action to phase out the CFC chemicals. These degrade the layer protecting life from health-harming ultraviolet rays. But University of Otago researchers warn the hole is “remarkably massive” this spring – and has been similarly large the previous three years.
Natural disasters, including large climate-fuelled wildfires and volcanoes, are thought to be at least partially responsible. These events release tiny particles into the upper atmosphere that act as a platform for CFCs to release ozone-depleting chlorine atoms. When spring arrives to the Southern Hemisphere, the chlorine starts rampaging: one activated atom can destroy more than 100,000 ozone molecules.
But Kiwi scientists think something else is also going on. Typically, descending air carrying chlorine-nabbing substances interrupts ozone depletion in late spring, allowing the annual recovery to begin. They theorise this air descent has changed – meaning the ozone hole stays open for longer. They’re currently using observations and computer models to try to figure out what’s going on and why.
While the ozone hole can contribute to higher temperatures in Aotearoa, the researchers said people shouldn’t be exposed to extra UV from the larger and deeper hole, as it’s located mostly over Antarctica.
Kiwi carbon credits get the snub
After multipleexposés highlighting the flaws of many carbon credit schemes, a leading certification body announced it won’t accept any from New Zealand from next year.
Toitū Envirocare measures companies’ carbon footprints, oversees reduction efforts and provides certified carbon offsets. As part of the last step, businesses could support New Zealand forests by purchasing credits from two governmentrun schemes.
Recently, a new global system, run by an independent Integrity Council for Voluntary Carbon Markets (ICVCM), was set up to filter out credit schemes that sell “hot air” – offsets that don’t make an additional and permanent difference to the planet. Toitū wants all its offsets to be ICVCM certified from 2024. But currently, the organisation isn’t aware of any Aotearoa-based carbon credit projects set to achieve that bar.
Businesses that want to go beyond offsetting (to be “climate-positive”) could buy some Kiwi credits, Toitū added.
Green shooters
This week’s shout-out goes to the team at startup Zincovery. When co-founder Jonathan Ring was a Master’s student at the University of Canterbury, his professor, Aaron Marshall, suggested a thesis project on better ways to recover the metal zinc, which is often used as a protective coating on iron and steel as well as in rubber and even medication.
As we shift to a circular economy, it’ll be increasingly important to reuse materials. But zinc is a tough nut – typically requiring lots of energy and carbon emissions to recover and purify it, more than simply extracting it from the ground.
Four years after Ring finished his studies, the team has developed a novel method that uses hydrogen to chemically “decompose” and more easily extract zinc. The process – which produces up to 95% less greenhouse gas – is now being used to recycle pure zinc from the ash produced by a Christchurch bronze-making factory, which can then reuse the metal.
So far, more than 100kg of metal has been cleanly recovered. Now, Zincovery is aiming to set up a large demonstration plant in Christchurch, and from there build overseas recovery plants near major sources of zinc ash.