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Methane needs special ETS rules and NZ carbon units need regulation: ProdCom

Tuesday 4th September 2018

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The Productivity Commission's final report on achieving a low carbon economy makes concrete recommendations on how to treat methane under the Emissions Trading Scheme, says the ETS should be administered by a new, independent government agency, and says tradeable New Zealand Units of carbon should be regulated as financial instruments.

While the 620-page report largely confirms the findings of the commission's interim report, issued in April, there are new proposals in these and a few other areas that the government will consider as it develops the Net Zero Carbon Bill, due for introduction to Parliament in October, and that its Interim Climate Change Committee will take into account for its report into reducing agricultural greenhouse gas emissions, due next April.

The commission's report says that "biogenic CH4" - methane produced by the belching of sheep and cows - "is unsuitable for inclusion in a single-cap ETS due to the difficulty such a scheme would have in driving emissions reductions in a manner that recognises the different atmospheric properties of short and long-lived gases.

"A dual-cap NZ ETS with separate trading units for biogenic CH4 and other GHGs, or a methane quota system, are two suitable alternative permit and pricing mechanisms for incentivising mitigation of bio-genic CH4".

The commission's report mirrors one last week from the Parliamentary Commissioner for the Environment, which set out the case for a less stringent approach to short-lived GHGs, while still driving towards zero net emissions by longer-lived gases, such as carbon dioxide and nitrous oxide, as quickly as possible.

"In a dual-cap NZ ETS, each cap would be set in direct relation to the emissions budget for each category of GHG and would result in the creation of two separate types of NZUs: a long-lived NZU and a shortlived NZU," the commission proposes. "Given that the caps would be set at different emission quantities, the price of each type of NZU would be independently determined in its own market.

"Trading, and therefore abatement flexibility across participants, would be restricted to solely within each cap."

Alternatively, a methane quota system could be established, which would allocate a certain quota of methane emissions to each known emitter, with the ability to trade quota units.

The commission noted that the issue had not attracted much attention internationally because most developed nations are grappling with high emissions of long-lived gases, mainly CO2, whereas New Zealand is unusual because around half its emissions are from agricultural sources, including short-lived methane.

Yet "emissions of short-lived gases do not need to reach net zero to limit peak warming," the commission's report says. "The case for putting greater relative priority on mitigating long-lived gases is strong because emissions are irreversible. While this is well-understood within the scientific community, less policy attention has been paid to this issue globally." 

"The commission considers that this 'two baskets' approach would provide for a distinctively New Zealand solution to its emissions profile. It would align New Zealand’s mitigation policy more closely with the underlying science of warming, address the country’s distinctive emissions profile, and could become a world-leading policy exemplar," the report says. 

Climate Change Minister James Shaw was non-commital on the recommendations, saying they would be considered in policy development.

"I do think we will arrive at a target that satisfies a range of concerns, including the scientific reality that this and other reports are acknowledging, that a reduced but ongoing flow of methane doesn't produce any further warming for the climate and also meets the Paris (global climate change) Agreement requirements," he said. "Technically, you could have an all gases target and run different trading schemes or you could have a dual target but run the same trading scheme or you could run a combination.

"We've just got to see where the advice comes out on that."

On the new recommendation that a separate government agency should run the ETS, Shaw acknowledged only that it was "new suggestion", while the recommendation that NZ Units in the ETS should be treated and regulated as financial products, subject to the Financial Markets Conduct Act, was still under consideration.

(BusinessDesk)

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