Buying carbon offsets mean transferring of funds to some of the most corrupt nations in the world – there are very serious doubts about whether NZ will get what it pays for

Opinion: Under current projections, by 2030 the New Zealand government has committed to buy up to $30 billion in offshore carbon credits to make up the difference between the country’s gross greenhouse gas emissions and the amount we have signed up to emit under the Paris Agreement – our Nationally Determined Commitment.

That’s according to Adrian Macey, New Zealand’s first Climate Change ambassador, and Dave Frame, Professor of Climate Change at University of Canterbury. Or maybe it’ll be “up to $12.8 billion”, according to the Treasury. Either way, we’re on the hook for an offensively large number by anyone’s count.

It’s especially large when you realise it’s avoidable. And it’s especially offensive when you consider what it’s being spent on (and not spent on).

The New Zealand government has convinced itself that we cannot meet our Nationally Determined Commitment with emissions cuts from domestic sources. We certainly don’t have room to plant enough trees here – the Parliamentary Commissioner for the Environment’s latest report makes clear that we would need to increase our forestry by nearly half just to cope with our methane emissions, let alone our other emissions.

Hence the plan is to pay other nations to make cuts for us. That’s not a terrible plan in and of itself. If it’s cheaper to plant and grow a tree overseas than it is to do the same here, then New Zealand can access lower-cost emissions offsets by sending our money overseas. This also supports developing nations with access to international carbon markets and the corresponding income stream.

The International Emission Trading Authority suggests that such international trading of least-cost mitigation could halve the cost for all nations to implement their commitments … but they would say that, wouldn’t they?

There’s just three huge problems with this approach.

“National emissions per capita show a systematic negative correlation with state corruption”
– Prof Dave Frame, University of Canterbury

First up, far too many nations plan the same strategy. A brief comparison of the volumes of carbon currently traded on the voluntary market compared to the volumes needed to meet the Nationally Determined Commitments of all those nations makes clear that climate finance for offsets is going to have to grow by about a factor of a hundred – from around a hundred million tonnes in 2020 to ten billion tonnes by 2030. 

The majority of those offsets are predicted to be trees. Will there be enough trees planted in developing nations? Can there be? Much of that shift of land use will be away from growing food. Will that shift be politically acceptable in those nations? We’re thinking not – meaning carbon prices will continue to go through the roof, increasing the amount for which NZ is on the hook.

Secondly, and this is a point that Dave Frame has emphasised for over a decade, these markets are dodgy. To use his words: “national emissions per capita show a systematic negative correlation with state corruption” – meaning that transfers of funds to buy offsets will mean transfers of funds from the least corrupt nations to some of the most.

To be fair, governance and carbon accounting capability in developing nations has improved since the sketchy days of the Kyoto Protocol’s Clean Development Mechanism. International trading under the Article 6 rules of Paris have the right intentions in terms of credibility.

However, even in Western nations, large flows of money for hard-to-measure nature-based offsets are already resulting in plenty of dubious behaviour. Will those implementing the Article 6 rulebook do so in such a way as to limit corruption, so New Zealand gets what it pays for? Is there sufficient assurance to spend billions of dollars? We have very serious doubts.

Thirdly, is the lost opportunity to invest those funds in New Zealand. Our Nationally Determined Commitment is based on what we think it will cost the nation to achieve emissions mitigation. This is an estimate based on domestic policy, how rapidly we think sectors can transition to lower emissions, and the amount of resources put into enabling those changes.

“Given the need to make deep reductions in all emissions, offsetting with trees should be a last resort that is used only when all practicable means of reducing emissions at source have been exhausted.”
– Simon Upton, Environment Commissioner

The gap between our Nationally Determined Commitment and our forecast business-as-usual emissions has come down substantially over the past eight years since the first estimates.

This is good news and reflects that some technologies look to be easier and cheaper to implement than expected in 2015. For example, in 2015 the world was buying less than a million electric vehicles, all at a premium. Now global sales are heading for seven million and there is no premium – for many people EVs are cheaper to own than petrol cars.

Still, that gap persists, and is leading us to send ten(s) of billions of dollars overseas.

We think that is a mistake.

Instead, and to quote Simon Upton, the Parliamentary Commissioner for the Environment, “given the need to make deep reductions in all emissions, offsetting with trees should be a last resort that is used only when all practicable means of reducing emissions at source have been exhausted.”

We don’t think we are close to trying all those “practicable means”. We want to see a bolder plan for making use of that investment to deliver more emissions reductions. That includes the investments required to turn early-stage ideas into easier, cheaper, and practicable reductions.

So what else could we buy for that kind of money? A fully renewable electricity system? An electrified transport system along with a good number of bike lanes? Insulation for every house? Decarbonised process heat for industry? New and unforeseen solutions for agriculture? And a big party with the small change left over to celebrate our transition to an economy that isn’t putting our future at risk?

As Dave Frame has publicly noted, governments won’t commit to spending tens of billions of dollars domestically, preferring to send the same money overseas on the basis of dubious and hard-to-enforce promises.

To us, this makes no sense – we should invest those public resources where we have more control of them, where we can ensure they are used well, and where the spin-offs from that use are visible to us and can be built on.

But once we get to this point, we’ve moved from climate policy into industry policy. New Zealand’s political establishment is slowly moving in favour of actively doing industry policy, after a few decades of neglecting or ignoring it. We think there is huge potential in this area to help build low-emissions industries that will be competitive in this century.

We put forward the position that plenty of that investment should go to early-stage companies creating new and unforeseen mitigation technologies. It should be invested through parties with expertise in climate investment. This would support a much more active and diverse climate investment community, of the kind that is developing overseas and the kind that New Zealand needs to direct funds for this transition.

Metallurgist Dr Jez Weston is a director of the Climate Venture Capital Fund, a NZ-based fund with investments in climate technologies in NZ and Australia.

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