Wednesday, August 24, 2011

Charting unexplained territory in the NZ Emissions Trading Scheme Report

This is another cross-post from Robin Johnson's Economics Web Page.

Recently, I have written a couple of posts on the New Zealand Emissions Trading Scheme (NZ ETS).

I compared the comprehensiveness of the NZ ETS vs the Australian Clean Energy Future ETS, the Kyoto chart junk in the Report on the New Zealand Emissions Trading Scheme, and the over-supply of the New Zealand Units in 2010.

This post mixes two of these ideas; searching out bad charts and looking again at the supply side of the New Zealand carbon market, how many New Zealand Units were allocated for free to emitters and businesses under the NZ ETS.

The Report on the New Zealand Emissions Trading Scheme provides in Figure 5 a pie chart of the number of New Zealand Units (NZUs) surrendered by emitters.

Although the pie chart is Kaiser Fung's least favourite type of chart, this pie chart isn't too bad. There are a manageable number of categories; only five; and no 3-D effects. The key point is clear from the pie chart, that about two-thirds of NZUs surrendered were purchased from foresters.

Also the chart follows the NZ Ministry for the Environment's usual practice of providing the original data underneath so you can do you own chart.

I did a bar chart of the data, re-labelling the "Other" NZUs as "Free NZUs".

The free allocations of NZUs are shown in another pie chart, Figure 8.

The allocations to industry activities (the pie slices) are charted not as as numbers of NZUs as in Figure 5, but as proportions. The proportions are noted as percentages on each pie slice. There is no table of data accompanying the chart. This is clearly inconsistent with Figure 5. Why doesn't the pie chart show either the actual total number of NZUs allocated, or the number allocated by activity? The total number of NZUs allocated for free in 2010 is not disclosed anywhere else in the Report on the New Zealand Emissions Trading Scheme. There is another chart, Figure 11, that appears to show free NZU allocations to each industry sector.

Maybe these add up to the total "pie" in Figure 8. I added them up; 1.76 million NZUs given to industry, plus 6.9 million NZUs given to pre-1990 forest owners plus 0.69 million NZUs given to fishing quota holders: equals a total of 9.35 million NZUs.

However, the total number of NZUs allocated by free gifting between 1 July 2010 to 31 December 2011 is 12,776,026, according to the Ministry of Economic Development Chief Executives report. So there appears to be a gap of 3.4 million gifted NZUs, not disclosed in The Report on the NZ ETS.

Is this a big deal? I think it is. Dr Jan Wright, NZ's Parliamentary Commissioner for the Environment, describes free allocation for what it is; a subsidy to industry

In her submission on the 2009 amendments to the NZ ETS, Jan Wright said
Allocation is costly. Each credit that is given away rather than kept or sold is a real dollar loss to the taxpayer. And there is another cost: it lessens the incentive to invest in low-carbon technology and emissions reductions. Generous and unlimited allocation that is promised to last a long time, whether or not it actually does, removes the push to transform to a low carbon-intensive economy.

To me this is an unsatisfactory level of disclosure of information. I am struggling to find an explanation for this other than to obscure the amount of subsidies funded via NZUs to emitters such as Rio Tinto-owned New Zealand Aluminum Smelters Ltd. I leave the last word to Jan Wright.

The principle of Parliamentary scrutiny in the Public Finance Act should also apply to allocation. Given the large taxpayer expense, the reason for allocating to a particular sector should be transparent.

No comments: