energy | Deirdre Kent

Tradable Energy Quotas or Tradable Emissions Quotas? – our discussion rages on

When you fill up with petrol you would surrender TEQ units.

We have now had three online meetings of those wanting to promote TEQs as described by Dr David Fleming and summarised by his colleague Shaun Chamberlin here.

The last discussion was very stimulating and it was hard to sleep that night. Five good brains agonised for an hour over whether to make the unit energy or emissions, but still no conclusion. It isn’t any good launching a campaign until we are clear in our minds of what it would be called, how it is designed and how, if at all, it would work alongside the ETS structure or replace it.

First let’s look at the history. TEQs were designed as applying to energy. Dr David Fleming wrote about managed energy descent and invented this tradable quota system to ensure a smooth descent rather than a chaotic one. But on the website the Parliamentary report of 2011 states on P47 that it could be designed for emissions. It’s just that we can’t see the second design and it is far from simple to figure out what it would be.

Fleming, who died in 2010, didn’t include non CO2 emissions in his Tradable Energy Quotas and I would imagine he didn’t envisage that a country like New Zealand would have half its emissions in agriculture in the form of methane and nitrous oxide.

Josh Floyd the Melbourne researcher from the Simplicity Institute had tentatively suggested to us in an email that we use TEQs for fossil fuels and use the ETS for other GHGs. But there would be different prices for the units coming from two different systems. Someone argued that is logical because they are different gases. I don’t know the answer.

We then asked where is the public now in their thinking? Will they want to reduce their fossil fuel energy? We think they will know they have to reduce their emissions yes. Would they be more on board if the unit was emissions? Probably.

Jack brought up the idea of what happens to a society during a big disruption as he had read that research shows altruism dominates the responses during big disruptions. (Think Christchurch earthquake and the 2020 lockdowns). Then someone asked if we could somehow use the pandemic issue to edge into the campaign.

Every time we talk to someone new about whether we want Tradable Energy Quotas or Tradable Emissions Quotas they answer the latter. But let’s think a bit more.

Ideally it seems people would like it to be Tradable Emissions Quotas (TEQs). As yet we not really sure whether the data is there for making this feasible. TEQs were originally designed to be Tradable Energy Quotas, but since in New Zealand half our emissions are from methane and nitrous oxide from agriculture, and we know we need to reduce all the greenhouse gases, we instinctively choose emissions as the unit.

But let’s suppose the technology and the data is now available to make the unit for the quota “emissions” and see what happens.

There are two ways of measuring emissions – production based and consumer based.

The IPCC has asked countries to use the production-based as the way to count our emissions. In the case of Aotearoa New Zealand we import manufactured goods with embedded carbon dioxide and we export food with embedded methane and nitrous oxide emissions. Using the the IPCC method means we must measure all our emissions from agriculture and waste as well as from industry and transport. And that is why, when we try to invent a Tradable Emissions Quotas and plan to do it on consumption data it just doesn’t work.

And the design still has to be worked out. In the case of Tradable Energy Units the TEQ scheme only wants us to surrender units when we buy fossil fuels or energy. The units go up the chain to the producer or importer and then to the registrar. When we buy items of services with embedded emissions we don’t surrender units, as the price is already reflecting the embedded emissions. In the case of emissions being the unit, there is nothing comparable to fossil fuels.

Also you can think of it this way:-

If we bring down energy use, we will bring down emissions too.

But if we bring down emissions there is no guarantee we will bring down energy use and this will lead to ecological disaster. In fact Dr Rodney Carr in answer to a question on a Climate Commission webinar said our energy would be the same in 2050 as it is now. And our GDP would have increased by 73% with all the material throughput that implies.

I have been reading the chapter in Jason Hickel’s book Less is More called Can Technology Save Us? There was lots of data and science reported. He eventually dismisses green growth as a fantasy.

We’ve had ETS since 2008 but how much has it affected you?

I can’t believe it. We’ve been discussing Emissions Trading Scheme since 1993 in New Zealand and I still didn’t know how to explain it. Although I consider myself a responsible citizen who keeps up with the news I somehow managed to escape from having to learn.

You see I didn’t need to know. Oh well unless I was a politician, a government servant, a Parliamentary staff member or a consultant involved with ETS. Although I had been in climate change groups we had never discussed it because we were in the process of persuading government to do something about climate change. In my case it was local government.

Then, because I was interested in Tradable Energy Quotas (TEQs) as a framework to reduce emissions, I finally thought it necessary to understand ETS. I discovered that only larger land owners and businesses were involved.

Then I read a paper that reviewed the scheme in late 2019 by Catherine Leining, Suzi Kerr and Bronwyn Bruce-Brand.

To my amazement there was a table of climate change policy milestones in New Zealand from 1993 to 2019. 42 lines of actions were listed over those 26 years. Every sector seems to start for a few years with voluntary obligations and then it becomes mandatory. The sectors are forestry, transport, waste, synthetic gas, agriculture. I can’t imagine the number of work hours that everybody has put into this. We know how to measure emissions now for those sectors. Well done.

You can see the political wranglings as the Labour and National Government gain and lose power. But even after all that work, the fourth page says, “As of November 2019 the system applies unit obligations to approximately 52% of New Zealand’s gross emissions.” Agriculture is the biggest political football and so far the industry seems to have persuaded the government to wait and wait.

Then I flip to the end of the article to look at the conclusion. I notice a mild little sentence which says, “While it constitutes a functional cross sector market, the NZ ETS has not significantly reduced emissions to date” Oops! It then goes on to say something quite extraordinary:- “The NZ ETS was not designed to achieve specific targets for domestic mitigation.” Wow.

While things are due to improve with the new Government and the Climate Commission (they finally start auctioning the units in March this year) there is still no reason for you or me to understand the ETS. We aren’t involved. We just see the result – a net increase in emissions. A pity, considering all that work has gone into it…

We are not involved because we aren’t part of the scheme. That is where Tradable Energy Quotas (TEQs) are different. Units are given to the downstream consumer, not bought by the upstream emissions producer. TEQs are denominated in quantity and, unlike ETS, they involve every citizen. The climate emergency can’t be addressed by upstream systems because it doesn’t guarantee emissions decline and it doesn’t involve energy users like you and me and require us to play an active part.

Sustainability and Money

Sustainability and money Deirdre Kent Nov 2020

A few months ago I gave this presentation to a climate change group. Hope you enjoy it. Well it’s not actually enjoyable to know that energy use and economic growth are so closely linked. As Naomi Klein said “The economy is at war with the climate”. We are going to need all our collective intelligence to downshift without chaos. Can we manage an energy descent without it being haphazard and dangerous socially?

That is why I got to be studying Tradable Energy Quotas (TEQs) which set the scene for a well managed transition to a low energy economy. I even wrote a blog on it recently.

Economic reality strikes – growth is ending

Of late the Opposition has been pointing out that business confidence is declining. NZIER had released a survey saying business confidence is at a seven year low. The Government has been quick to dismiss it as a political bias by business – as something they always opine when a Labour Government comes in. And the Asian stockmarkets are currently looking wobbly. RNZ’s long term economic commentator Patrick O’Meara talked of softer demands, slower growth, lower investment intentions. He talked of the looming US-China trade war has attributed that to the fact that on Saturday Trump’s tariffs on Chinese goods begin. It may also affect markets in Europe, Canada and Mexico.

The trend started well before Trump appeared.
But because of declining net energy, worrying trends happened decades before Trump’s tariffs kicked in. Let me explain declining net energy. Whereas in the mid 20th century if you spent one unit of energy to extract oil, you would get 100 units of energy back, nowadays because it takes more energy to extract fossil fuels from deep sea wells and from fracking, the energy left for the economy is progressively declining. Since net energy available is closely correlated with economic growth we would expect economic growth to decline. Moreover productivity will decline. Productivity is an economic measure of output per unit of input and input includes energy.

Is it time for Nafeez Ahmed to be taken seriously?

British investigative journalist Nafeez Ahmed has written a great article explaining the gradual decline of both economic growth and productivity in the UK economy. He concludes, “In other words, trying to keep the growth machine growing when the machine itself is running out of steam is precisely the problem — the challenge is to move into a new economic model entirely.”

He quotes from a piece of research for the government by Professor Tim Jackson giving graphs of declining economic growth and productivity. Jackson says, “In 1996, the trend rate of growth in the global GDP was 5.5%. By 2016 it was little more than 2.5%”. From 1971-2016 productivity growth dropped from over 3% to just 1%. We must have similar graphs in New Zealand.

Economist Michael Reddell says on his website “Over the last five years there has been only about 1.5 per cent productivity growth in total.”

Ahmed himself is well ahead of others in the way he puts together and explains the connection between many serious global issues –fossil fuel depletion, climate change, finance, geopolitics, terrorism, food security, political instability.

Trump is just a symptom

Trump’ regime is picked to promote business as usual

Ahmed wrote on Inauguration Day 2017 that “Trump is not the problem. Trump is merely one symptom of a deeper systemic crisis. His emergence signals a fundamental and accelerating shift within a global geopolitical and domestic American political order which is breaking down.” He talked of the elephant in the room being the global net energy decline that drives all this.

Less than a month later he penned a chilling analysis of Trump’s regime. Half of them are now gone, having resigned or been fired by Trump. He grouped them under five headings – money monsters, fossil fuel freaks, black ops brigade, Ku Klux Klan and the guru gang – saying that was the perfect combination required to keep the old model working. Business as Usual must proceed. Drill baby drill. Increase funding for the military. If things look bad financially try riskier and riskier financial instruments.

Never before has there been such an environmental crisis where our emissions are making our habitat more and more inhospitable with floods, fires, droughts and the accompanying food insecurity. Never before have we seen governments like ours desperate to solve child poverty throwing money at them. We have even got a superannuitants winter energy payment. Yet homelessness and poverty continue.

The tragedy is that while the current government has its heart in the right place – to end poverty and preserve our environment – it is hamstrung. It is damned if it does and damned if it doesn’t. Political instability is becoming inevitable. Will New Zealanders after the hope of Jacinda Ardern be doomed to see in a Trump like government within five years? Nigel Farage is coming to our country soon. If we don’t find a new economic model that is not dependent on growth, we will come nowhere near a just, sustainable economy. That is the tragedy.

The price of petrol and climate action

Climate change groups were noticeably absent from the recent public discussion about the rising price of petrol. Nobody was saying publicly that if we are to turn emissions around, we have to make it more expensive to drive. Not the Greens, not Generation Zero or 350.0rg. Nobody. It had been a unanimous outcry of pain against high petrol prices. Why? Surely lower petrol prices would clog up our roads, get people off public transport and adversely impact our emissions?

Here was a discussion about how the margins had increased in Wellington and the South Island yet nobody had said we should drive less so use petrol and reduce our carbon footprint. Nobody came out with a comment that the oil companies have a growing debt burden because it is getting more and more uneconomic to get oil out of the ground, so it is not surprising. They have been binging on debt and are struggling to pay dividends and find new barrels. The big four doubled their net debt between 2014-2016.

The public debate was started by Judith Collins the Minister of Energy and Resources after a report came out, and Labour’s Stuart Nash praised her for ordering the report. Labour’s Stuart Nash praised her for ordering the report.

So how important is petrol to us? The average Kiwi family spends $42.30 a week on petrol – only $8 less than their average weekly spend on meat, fruit and veggies. That is mighty close. It won’t take much for petrol to be a bigger part of the budget than food. And to complicate it, when petrol costs rise food costs mostly get passed on to us.

But then I thought of the implications. The gross profit margin on fuel at the pump had doubled to about 30 cents a litre in Wellington and the South Island over the past four years and gone up by 5c a litre elsewhere. It has something to do with Gull only selling petrol north of Levin, but it is more than that.

The petrol retailers Z Energy, BP, Mobil, Caltex and Gull all defended their positions. Maybe the companies are suffering from their growing debt burden so increasing their margins are the only way to stay solvent.

Ten years ago when many environmentalists were involved with peak oil we would argue that the price of oil will one day be over $100 a barrel. It hasn’t turned out that way because we didn’t factor in debt or falling interest rates. As actuary Gail Tverberg says, the economy was far more complex than the original model assumes. “When interest rates fall, this tends to allow oil prices to rise, and thus allows increased production. This postpones the Peak Oil crisis, but makes the ultimate crisis worse.”

We all remember that the economy slowed right down when the price of oil spiked in 2008. That showed us how critical the price of oil is. High prices on energy products ripple through the economy is many different ways. Just thinking about the price of petrol gives a misleading impression. Tverberg says, “Because interest rates, debt, wages, and oil prices (and, in fact, commodity prices of all kinds) are linked, the system is much more complex than what most early modellers assumed was the case.”

Not all of us can get a handle on the huge complexity of it all and I am no exception. But I know Tverberg believes the price of oil will not rise beyond about $50 a barrel because consumers can’t afford it.

Environmental commentators are faced with several problems. First they are unlikely to have an understanding of the complexity of the peak oil problem and secondly because they know that saying petrol prices should rise (through increased taxes) will be unpopular. The petrol price components vary.

What should happen of course for climate change purposes is for the Government to increase taxes on petrol, diesel etc. The fact that the oil companies have been the villain has excused the government for inaction. Now we can cry together that the oil companies are a greedy, conniving cartel. I am not sure that does much to reverse climate change trends.

Back in 2015 the IMF issued a warning that permanently low fossil fuels are choking off investment in renewable sources of energy and hindering the fight against climate change. A year later after a big study, the World Bank chimed in.

Summary of The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System

The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System by Deirdre Kent

This important little book is a very dense read. The current growth-dependent economic system is not only broken must be completely replaced with a new paradigm.

This is now critical. Conventional oil peaked in 2005 and unconventional oil peaked in 2015. It takes energy to extract energy so the global net energy is inexorable decline. Therefore the economy can’t grow with less energy from fossil fuels to drive it. Therefore the economy can’t grow without more and more debt.

Based on the discussions of the New Economics Party of 2011-2015 to develop policy, the author argues that neither monetary reform nor tax reform are possible at central government level as the banks are too powerful these days. A change from an intrusive welfare system to a basic income should come from sharing the rents from land, natural resources and natural monopolies.

To design an economic system to serve the planet in a post fossil fuel age requires new thinking on money design, land tenure and governance. Examples from history are used as evidence of stable and prosperous societies using these principles.

This leads to the conclusion that very local government should assume powers of money creation, land purchase and rule-making about taxes for trades in that new currency.