A Tale of Two Iceblocks: Part 2 (Or A Hopefully Helpful Pointer For Politicians & Policy Makers Who Wish to Reduce Greenhouse Gas Emissions)

9:50 Aug 1, 2016 76

In Part 1 of this post, I used the example of iceblocks to explain how well-intentioned efforts to reduce New Zealand’s ‘official’ dirty energy* emissions can actually increase the global total of greenhouse gases emitted to the atmosphere. I concluded that an approach to discouraging dirty energy in New Zealand must satisfy three criteria:

Any disincentive must be applied to the embodied dirty energy for goods and services imported into New Zealand.
Any disincentive must also be applied to goods and services within New Zealand.
Any disincentive must be removed from goods and services exported from New Zealand.

In this second part, I’ll explain a possible approach that meets these criteria. I’m not a tax expert and a proper ready-to-implement scheme would obviously require extensive analysis and modelling. My intention here is simply to demonstrate the basic ingredients needed for an approach to New Zealand’s dirty energy that would genuinely reduce global greenhouse gas emissions—and to give a ballpark analysis showing that the numbers are probably feasible.

As soon as the subject of a carbon tax is raised, many people will say something like: “New Zealand doesn’t need any new taxes”. Good news for those people—I’m not suggesting a new tax. My demonstration proposal relies on the fact that the cost of energy ‘flows’ through the whole economy, i.e. since every good and service requires energy, then any cost applied to the production or importation of energy will flow through to the final price of any good or service.

To explain this in terms of the “ingredients” in bringing an iceblock to your local dairy (this is not an exhaustive list):

Energy embodied in the raw sugar cane arriving at the border
Coal and electricity required to refine the sugar
Diesel required to transport the sugar to the iceblock factory

Diesel and electricity required to manufacture the stick
Diesel and electricity and sundry petroleum products required to manufacture the wrapper
Electricity required to process water and deliver it (via the water network) to the iceblock factory
Electricity required to transport and mix the ingredients in the iceblock factory
Electricity required to provide lighting, heating, etc. in the iceblock factory
Electricity required to cool the iceblock mixture
Electricity required to store the finished iceblock
Electricity and transport fuels required to run the office and administrative services at the iceblock factory
Transport fuels required to deliver the workers to the factory (indirectly priced in via wages)
Energy required to feed and house the workers (indirectly priced in via wages)
Electricity and transport energy, etc. required to run the advertising company
Diesel required to deliver (and keep cool) the iceblock to the dairy
Electricity required to run the freezer at the dairy
Etc., etc., etc.

… the cost of all this energy is added up along the way and is a component in the final price of the iceblock in your dairy.

Those familiar with the horrors of GST returns will recognize this as being very similar to the way that GST accumulates onto the final price of a product. An obvious solution—and the one that I’ll use as my demonstration proposal here—is to replace GST with a consumption tax on dirty energy that will similarly flow through to the final price of good and services, i.e. to transform GST into PGST (Polluting Goods & Services Tax).

This would involve dirty energy (and possibly some greenhouse gas contributors arising from clean energy) being taxed on a per-kilogram-of-carbon-dioxide-equivalent** basis at point of production or importation. In comparison to GST, a PGST would therefore greatly reduce the administrative burden on most New Zealand businesses (who currently act as unpaid tax collectors for the IRD) by shifting the tax collection point onto comparatively few energy producers, importers, and exporters.

A PGST (as with the current GST) would then meet our criteria for discouraging the production of dirty energy in New Zealand:

PGST would be applied to all dirty energy imports (including embodied dirty energy) as they cross the border into New Zealand.
PGST would be applied to dirty energy originating within New Zealand at the point of production.
PGST would be refunded on dirty energy exports (including embodied dirty energy) as they cross the border out of New Zealand.

Let’s look at each step in more detail:

1. Dirty Energy Imports

The carbon dioxide equivalent values of ‘straight’ dirty energy imports such as oil, coal, and gas are well known (not forgetting that these products also have additional embodied dirty energy from their production). But very few manufacturers of other goods and services can provide documentation showing the dirty energy embodied in their products.

These products must therefore be categorized, and dirty energy emissions estimated from typical values for each category. Happily the techniques to perform these calculations are already available (for example, from the input–output tables produced by Statistics New Zealand, the energy datafile, and the greenhouse gas inventory), which would then allows these goods to have PGST applied on a per-kilogram-of-carbon-dioxide-equivalent basis.

PGST could be collected through the current administrative systems already used for duties (such as the synthetic greenhouse gas (goods) levy, which would no longer be necessary, of course) on products entering New Zealand. It is important to note, however, that PGST is not an ‘import duty’ since—as with the GST that it would replace—it is also applied to goods and services produced within New Zealand.

We can calculate some ballpark numbers on the PGST that could be collected from dirty energy embodied in our imports. Taking our raw data from 2010 (the most convenient year in terms of aligning data sources), we can employ an approach based on the monetary value of the world’s final goods and services (i.e. world GDP) at US$63,048,823,000,000 and the world’s total greenhouse gas emissions (carbon dioxide equivalent) at 42,669,720,000,000 kilograms to give an average ‘carbon-dioxide-equivalent intensity’ for the world’s goods and services of 0.677 kg/US$.

Ahead of time I’ve worked out that a suitable PGST rate for our calculation year would be US$0.40/kg. In 2010 the value of our non-fossil fuel imports was roughly US$24,256,000,000 (based on this data) giving estimated embodied dirty energy of 16,416,000,000 kilograms carbon dioxide equivalent, and therefore raising US$6,566,000,000 of PGST at our chosen rate.

(It should be noted that the numbers above only cover embodied dirty energy imports. For ease of calculation the PGST on imported fuels burnt in New Zealand will be estimated as part of the next section.)

2. Dirty Energy Originating Within New Zealand

Emissions from dirty energy originating within New Zealand occur in three main forms: carbon dioxide (e.g. from transport, electricity generation, and industrial processes such as cement manufacture), nitrous oxide (e.g. due to fertilizer use in agriculture), and methane (e,g. from ruminant animals and landfill decomposition). From an energy engineering perspective, we view nitrous oxide as a by-product of the conversion of solar energy into chemical potential energy in food; and methane as a by-product of the conversion of solar energy into chemical potential energy specifically in the form of ruminant animal meat.

In all cases, the PGST can be applied at comparatively few source points. For example: fossil fuel producers and importers, cement manufacturers, fertilizer manufacturers, and landfill operators. Theoretically it could also be collected for agricultural methane emissions on a per kilogram basis applied to ruminant animal meat produced in abattoirs, and similarly on milk solids.

A PGST scheme could also, in principle, be used via a tax refund to encourage negative emissions, e.g. atmospheric carbon dioxide sequestered as carbon in forests. Various counter-productive results might be possible with such an approach, however, and careful analysis would be required prior to implementation.

In terms of ballpark calculations, I’m only going to take into account carbon dioxide emissions from the ‘energy sector’ (as defined by the Ministry for the Environment) in order to provide a lower bound on the PGST that could be collected. Fertilizer production and agricultural emissions are outside my field of expertise, and would require detailed investigation to assess an appropriate rate per kilogram of fertilizer or ruminant animal meat.

Given the above assumptions we can use data for New Zealand’s total internal greenhouse gas emissions for 2010 at 71,270,000,000 kg (carbon dioxide equivalent) along with an approximate proportion originating from the energy sector (40 per cent) to give PGST of US$11,318,000,000 collected at our chosen rate.

(As mentioned previously this includes imported fossil fuels burnt in New Zealand that were excluded in the ballpark calculations for PGST on dirty energy imports.)

3. Dirty Energy Exports

In theory, the refund of PGST on exports could be calculated via a system of documentation that shows the accumulated dirty energy for any good or service (in the long term this may well be the approach taken internationally). However this would impose a considerable administrative burden on New Zealand businesses.

A simpler system—and one that has added advantages in terms of incentivizing a reduction in dirty energy consumption by exporters—is to refund the PGST collected from each industry category on a per export dollar basis.

Let’s use our iceblocks to illustrate how this would work in practice:

Imagine that there are two iceblock manufacturers in New Zealand: Mackenzie Country Clean Iceblocks manufactured using predominantly clean energy, and Huntly Emissions Iceblocks manufactured using entirely dirty energy.

During manufacture and transport to the border, Mackenzie Country Clean accumulates $5,000 worth of PGST on $100,000 worth of iceblocks. In contrast, the dirty energy Huntly Emissions accumulates $15,000 worth of PGST on $100,000 worth of iceblocks.

When the IRD totals the exports in the industry category of ‘iceblock’ it therefore obtains a figure of $200,000. Given the typical carbon-dioxide-equivalent intensity in the ‘iceblock’ category of, say, 0.167 kg/$ the IRD then calculates a category refund of $20,000 at the official PGST rate. They then refund $10,000 PGST to each Mackenzie Country Clean and Huntly Emissions.

Eagle-eyed readers will note that in actuality Mackenzie Country Clean paid $5,000 PGST but was refunded $10,000—since they consume less dirty energy to manufacture their iceblocks than the typical manufacturer in their industry category. In contrast, Huntly Emissions paid $15,000 worth of PGST for the same refund of $10,000, due to their higher consumption of dirty energy than industry average.

The PGST refund means that, on average, New Zealand iceblock exporters are placed at no economic disadvantage compared to countries that do not put an internal price on greenhouse gas emissions. But simultaneously, the New Zealand iceblock manufacturers that produce more dirty energy emissions than their competitors are punished by getting a smaller slice of the PGST industry category refund.

In other words, the very fact that Mackenzie Country Clean could sell $100,000 worth of iceblocks (while consuming less dirty energy than its competitor) proves that reducing dirty energy consumption in this industry category is possible—and therefore its competitor is incentivized to emulate this in an attempt to claim a bigger portion of the PGST refund for themselves.

In terms of our ballpark calculations, we can employ the data for New Zealand’s total greenhouse gas emissions of 71,270,000,000 kg, and—in a similar manner to the calculations used for our ‘dirty energy imports’—estimate an average ‘carbon-dioxide-equivalent intensity’ for New Zealand’s goods and services at 0.563 kg/US$ (this figure is lower than the world average as a consequence of our greater-than-average use of clean energy).

Then taking New Zealand’s total exports for 2010 (including fossil fuels) at US$29,350,000,000 we obtain PGST of US$6,605,000,000 refunded at our chosen rate.

A potential problem with this approach to dirty energy exports is the possibility of transport of goods and services via New Zealand to take advantage of the PGST system, e.g. a manufacturer sells a product to a New Zealand importer significantly below cost, who then exports it back to the manufacturer at true cost, and thereby collects an undeserved PGST refund. Obviously the tax laws would need to be modified to prohibit this type of rort.

4. Reality Check Using Our Ballpark Numbers

So how much PGST have we collected in comparison to the GST that it replaces? Adding together our ballpark figures for PGST on dirty energy imports plus dirty energy originating within New Zealand minus PGST refunded on dirty energy exports gives a total PGST of US$11,279,000,000.

In comparison, the current GST collected (adjusted to US dollars at the 2010 rate) is US$11,266,000,000. So we can see that—in terms of ballpark figures—our demonstration proposal of PGST appears entirely capable of producing the same revenue as the GST that it replaces.

What about the final price of products with high dirty energy content? Would PGST make them unaffordably expensive? We can do some approximate calculations:

Petrol (approx. 2.4 kilograms carbon-dioxide-equivalent per litre) would go from NZ$2.00 to NZ$3.07 per litre after tax (note that since PGST would be collected at source then the illogicality of paying GST on fuel excise tax would be avoided).
Concrete (approx. 200 kilograms carbon-dioxide-equivalent per cubic metre) would go from NZ$250 to NZ$330 per cubic metre after tax.

It’s worth noting that while the above products would increase in price, other goods and services (such as renewable electricity and some wood products) would experience a relative drop in price when moving from GST to PGST.

We can also look at PGST in terms of an equivalent sales tax on total goods and services sold in New Zealand:

goods solely imported into New Zealand: an equivalent of 27 per cent sales tax.
goods solely manufactured in New Zealand: an equivalent of 12 per cent sales tax.

The difference in these equivalent percentages reflect the fact that New Zealand exploits more clean energy than the world average. Of course, most good and services sold in New Zealand are a mix of both imported and locally-manufactured products, and these equivalent percentages are average values (depending on dirty energy emissions from any particular product the proportion of PGST may be greater or less than the average value).

We should also remind ourselves that these ballpark calculations are... well, just ballpark calculations based on average values for emissions on good and services. It’s entirely possible that large numbers of products exported or imported into New Zealand may have very non-average values, which would lead to a significant change in the numbers estimated here.

Having emphasized the limitations to our ballpark analysis conclusions, it’s probably worth discussing the obvious way that PGST can be avoided in comparison to GST.

Dealing With The Effect of Tax Avoidance Via Reduced Use of Dirty Energy

But won’t people simply avoid PGST by using less dirty energy? Yes, exactly—this is the main point of this demonstration proposal! However, it does raise the issue of diminishing tax collection as less dirty energy is used in New Zealand.

Leaving aside the revenue split between income tax and consumption tax (I’d personally favour collecting more government revenue via income tax) it becomes obvious that the rate of PGST would have to be varied over time as the economy responds to price signals and moves away from dirty energy. Any change of tax rate in our current GST system does, of course, impose a major administrative cost on the economy, since nearly every business in New Zealand is required to modify their accountancy systems. In contrast, however, because PGST would be applied at comparatively few points in the economy—energy producers, importers, and exporters—then changing the PGST rate is a relatively trivial issue. It can quite easily be raised to provide increasing revenue (and increasing disincentive) as dirty energy consumption diminishes over time.

Furthermore, being able to easily change the rate of consumption tax offers an additional economic benefit. We can imagine the government being allowed to set a base rate, and then the Reserve Bank being allowed to vary that rate by a percentage point or two. This would give the Reserve Bank a very useful tool (i.e. in addition to the OCR) in order to effect change in the economy.

Needless to say that the PGST rate could (and probably should) also be used as part of a cap system. Given that New Zealand has signed various agreements to reduce our greenhouse gas emissions, then it is not a stupid idea to have a year-by-year plan in order to reach the desired end point. Our PGST rate could therefore be varied in order to move the economy towards a target reduction in greenhouse gas emissions for any particular year.

As with any consumption tax, there are valid issues of inequity with my demonstration proposal for PGST. It’s certainly true that wealthy people would be able to avoid PGST by—for example—purchasing electric vehicles or low energy appliances. But viewed from another perspective these same wealthy people would be the early adopters who would bring this technology into the mainstream, and who would effectively subsidize the capital investment for the rest of New Zealand.

Also in comparison to GST—which the very poor (e.g. homeless people) pay on 100 per cent of their post-income-tax earnings—it would be possible for those with low incomes to avoid PGST. Many basic foodstuffs, for example, consume minimal amounts of dirty energy in their production. Buying most of your protein as legumes rather than beef could have a significant impact on your grocery bill.

Being taxed at only a few points in the economy means that PGST would also be more difficult to evade than either GST or income tax, e.g. no more builders offering their labour half-on and half-off the books. Viewed cynically, this also addresses an inequity issue with GST—in that small business owners (and those who can afford their services) have endless opportunities for GST evasion under the current system in comparison to low-income wage earners.

Final Comments

As I said at the beginning of this discussion: I am not a tax expert. This is not a ready-to-implement scheme. It is merely a demonstration proposal showing the necessary ingredients for an approach that would genuinely reduce New Zealand’s dirty energy emissions (while also reducing total emissions for the world as a whole).

Obviously the best solution to the world’s greenhouse gas emissions would be a binding global agreement for reduction. Also—quite obviously—there is no sign that this will happen in the near future. The next best thing, therefore, is to reduce emissions on a country-by-country basis, while ensuring that our solution doesn’t have the counter-productive effect of causing an increase in emissions from the rest of the world (as happens with our current ETS and the currently proposed alternatives).

Reducing New Zealand’s consumption of dirty energy also has benefits in terms of our balance of trade, economic productivity, and even health costs (dirty energy in transport imposes a huge health burden on the economy). And, of course, reducing our own greenhouse gas emissions doesn’t mean that we should stop working towards a global binding agreement to tackle the problem at an international level.

This has been a very long discussion—anyone who has read this far deserves a reward. You now have my permission (in my medical capacity as a doctor) to cast aside all dietary restrictions and treat yourself to an iceblock. Clean energy products preferred, of course.

Dr David Haywood is an energy engineer who is happy to offer pro bono advice on energy policy to any political party.

*An as energy engineer, I’d see greenhouse gases as being released due to energy consumption in three main ways:

In conversion of energy from a useless form to a useful form, for example:
• Carbon dioxide emitted when the chemical potential energy of petrol is converted into kinetic energy in a motor vehicle.
• Methane emitted when solar energy is converted into chemical potential energy in cow’s milk (via chemical potential energy in grass).

When energy is used to convert materials from a useless form to a useful form (this includes energy used to dispose of materials at the end of their life), for example:
• Carbon dioxide when energy is consumed to convert limestone into cement
• Perfluorocarbons when energy is consumed to convert aluminium oxide into aluminium
Greenhouse gases emitted as a consequence of emissions due to energy consumption in the above two categories, for example:
• Methane released from permafrost due to climate change (which itself occurs as a result of energy-related greenhouse gas emissions).

This essentially covers all aspects of human activity in terms of greenhouse gas emissions.

** Carbon-dioxide-equivalent values refer to the global warming potential (GWP) of other gases in comparison to carbon dioxide over a given time period. For example, the GWP100 value for methane is 34, because methane has 34 times the global warming effect of carbon dioxide over a time period of 100 years.

76 responses to this post

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David Haywood, 09:58 Aug 1, 2016

I realize that I’ve doubled-down on the emotion-laden issues here—not only discussing anthropogenic climate change but also taxes!
As before, could I politely request that we avoid a stooshie about whether the climate scientists and atmospheric physicists are right or wrong – and concentrate purely on the subject of discussing methods for reducing New Zealand’s consumption of dirty energy without causing an increase in global greenhouse gas emissions.
Let the animadversions begin...

Dunsandel • Since Nov 2006 • 1156 posts Report
David Haywood, 10:00 Aug 1, 2016

Rob Stowell wrote in the comments for Part 1 of this blog:
A carbon tax isn’t just – or even primarily? – aimed at consumers, but at producers, too, of course. Isn’t it possible that the NZ iceblock [exporters] will (in response to a carbon tax) even further reduce their dirty energy consumption, install a wind generator, avoid any carbon tax at all and end up doing ok...
Hopefully this second part of my blog explains an alternative approach to this now, Rob (see the discussion on exports in Section 3). I couldn’t really explain it before without posting the whole thing. There are certainly methods (as described) of not imposing a carbon tax or emissions cost on exports (within a given industry category) – while at the same time providing an incentive for exporters to minimize their consumption of dirty energy.

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, 10:35 Aug 1, 2016

It's worth noting that you have also focussed entirely on energy, so you're ignoring the flatulent bovine in the room.
It's at least conceptually possible to include methane waste/leaks/dumping from fossil energy mining as part of the "energy cost", but it's very easy when looking at energy to overlook GHG emissions from other sources. Deforestation and other land degradation, farming especially ruminants, clathrate destruction, refrigerant gas releases, etc, are all significant problems that should be included.
Note that Russia is basically fucked the day we count methane from permafrost and clathrates, as their whole economy is not big enough to buy the offsets required to adjust for that. Even if you just count the warming from the Siberian fires they're in trouble (which also introduces another twist, the cost of soot deposits decreasing albedo).

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, 10:50 Aug 1, 2016

It's worth noting that you have also focussed entirely on energy, so you're ignoring the flatulent bovine in the room.
As I mentioned in my discussion, the methane emissions from ruminants are due to the conversion of solar energy (e.g. via grass) into chemical potential energy in meat. So that certainly is an emission due to energy usage.
The reason I didn't include it in the ballpark calculations is that -- insofar as I have been able to discover -- the UNFCCC approach doesn't seem to distinguish between biomethane from cattle and fossil methane. So it's not clear to me what the true numbers actually are. (I may be wrong about this and would be very happy to be corrected). At any rate, neither calculating nitrous oxide or methane from agriculture is in my field of expertise, and the ballpark calculations could demonstrate what I needed to show without them, i.e. that a PGST could produce the same revenue as the GST it replaces.

Dunsandel • Since Nov 2006 • 1156 posts Report
Paul Campbell, 10:55 Aug 1, 2016

minor nit - I think you mean "milk solids"

Dunedin • Since Nov 2006 • 2623 posts Report
David Haywood, in reply to Moz, 10:59 Aug 1, 2016

Deforestation and other land degradation, farming especially ruminants, clathrate destruction, refrigerant gas releases, etc, are all significant problems that should be included.
Actually (nearly) all of this is included in the numbers that I discussed!
Russia is basically fucked the day we count methane from permafrost and clathrates, as their whole economy is not big enough to buy the offsets required to adjust for that.
This would be the exception in the numbers that I discussed. And this highlights yet again the silly system used in the UNFCCC conventions, alas. That methane is being released because the whole world is heating up – it would be ridiculous to slate it all back to Russia on account of it being released in Russian territory.

Dunsandel • Since Nov 2006 • 1156 posts Report
David Haywood, in reply to Paul Campbell, 11:02 Aug 1, 2016

minor nit - I think you mean "milk solids"
Thanks Paul -- that'd be my aging eyes! Now fixed...

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, 11:23 Aug 1, 2016

David, I agree with you in general and in more than 90% of the detail. I'm aware that I'm picking at the corners of an argument I wholeheartedly agree with, so I hope that's coming through.
I'm not convinced that your side notes and implicit "wood as a construction material is energy use" really convey even to me that you intend cutting down that tree in my front yard to incur an energy use tax for the embodied energy in the timber, let alone for the methane release as the waste breaks down.
I don’t even understand how biomethane from cattle can be considered to have the same effect as fossil methane ... since biomethane doesn’t leave net residual carbon dioxide after the methane breaks down
This week, this year, this decade, methane is methane regardless of where it comes from. Half life in the atmosphere is between two and five electoral cycles, so as far as the political system is concerned it's permanent once released.
I love the naive optimism inherent in ignoring the next 50 years in favour of the long-term effects, while we're still trying to understand where the tipping points are and how dramatic they are. Especially since we are in a catch-up year right now, where the suppression of warming due to ocean surface water movements is reversed and we've seen half a degree of warming this year alone. That kind of sudden change makes me very wary of "in the long term", especially when you're calling 50 years short term.
But even so, long-term we're looking at 10-50 metres of sea level rise and that is worth thinking about. All this "1-2 metre" stuff has the little caveat (not counting 70% of the fresh water in the world - the Antarctic and Greenland ice caps). But when engineers say "long term we need to rebuild our cities above the 10m mark" politicians get flighty.

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, in reply to Moz, 11:41 Aug 1, 2016

I'm aware that I'm picking at the corners of an argument I wholeheartedly agree with, so I hope that's coming through.
That certainly comes through, Moz -- and it's very helpful! One learns to think a certain way as an energy engineer, and this often makes it confusing when you try to explain things to normal humans. Very helpful having it pointed out where my explanations have been lacking!
It's hosing down with rain here, and I'm currently reading Anne of Avonlea to my daughter. Will respond to the issues you raise ASAP.

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, in reply to David Haywood, 11:49 Aug 1, 2016

I'm currently reading Anne of Avonlea to my daughter.
:) I was singing "there was an only lady who swallowed a fly" to entertain my sister in law yesterday. She loved it. Also, she's 25 years old. But apparently hadn't heard the story before

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, in reply to Moz, 12:52 Aug 1, 2016

I’m not convinced that your side notes and implicit “wood as a construction material is energy use” really convey even to me that you intend cutting down that tree in my front yard to incur an energy use tax for the embodied energy in the timber, let alone for the methane release as the waste breaks down.
The PGST you’d pay on the tree would mainly consist of:
* PGST on the petrol (at point of importation or production) to run the chainsaw
* PGST on the diesel (at point of importation or production) to run the hauler and transport to the timber mill
* PSGT on the dirty energy (at point of production) used to run the timber mill (i.e. a proportion of electricity cost)
* PSGT on the diesel (at point importation or production) used to transport the processed timber to its final destination
There would also be infinitesimal portions of PGST in the final cost of the finished timber due to the PSGT paid on the embodied energy (at point of importation or production) in the chainsaw, hauler, timber mill machinery, and trucks, etc.
If the timber was burnt or decomposed aerobically in the normal way then the resulting carbon dioxide would only be that originally removed from the atmosphere to grow the timber, and therefore no PGST would be payable on these processes (since there is no net release of greenhouse gases).
If the timber rotted anaerobically in a landfill to produce methane then PGST would be payable (at point of production) on the methane emissions by the company running the landfill.
Does that answer your question?

Dunsandel • Since Nov 2006 • 1156 posts Report
James Littlewood*, 13:12 Aug 1, 2016

Indirect relevance, but I met a climate change denier recently. It was at a thing where we all had to contribute something. He (a climate scientist) contributed a catalogue of human shortcomings which motivate people to subscribe to the idea of anthro CC.
I didn't have time to talk to him properly but I observed a tendency for him to make short utterances summarising deeply complex science, to the effect that there's nothing to worry about. And when questioned, he tended to respond by critiquing (i.e. attacking) the motivation behind the question, rather than considering the question itself. E.g. "How do you know that? Have you studied that yourself?" etc. etc.
In other words, if I was getting paid by someone to disrupt a set of well intentioned people acting on widely reported and widely held scientific consensus, I would do exactly what he was doing.

Auckland • Since Mar 2008 • 410 posts Report
David Haywood, in reply to Moz, 13:16 Aug 1, 2016

This week, this year, this decade, methane is methane regardless of where it comes from. Half life in the atmosphere is between two and five electoral cycles, so as far as the political system is concerned it’s permanent once released.
Here’s what confuses me:
If, as I understand they are, the calculations for greenhouse gas emissions are based on the GWP100 values (global warming potential over 100 years) then how can biomethane be equivalent to fossil methane:
[EDIT: I hadn’t realized that this was particularly recondite information, but I may need to explain that under the IPCC guidelines greenhouse gases are rated according to their global warming potential (GWP) in comparison to carbon dioxide over a given time period. For example, the GWP100 value for methane is 34, because methane has 34 times the global warming effect of carbon dioxide over a time period of 100 years.]
1. Fossil methane breaks down after, say, twelve years, and then spends the next 88 years (of the 100 year GWP period) as carbon dioxide still contributing to global warming.
2. The C in the CH4 of biomethane comes originally from the atmosphere, i.e. it was absorbed from the atmosphere to grow the grass which feeds the ruminants who emit the methane. So when biomethane breaks down after, say, 12 years then the resulting carbon dioxide was just that which was absorbed by the grass in the first place. So there is no net contribution to global warming for the next 88 years by the decomposed biomethane.
So how can biomethane and fossil methane be considered to have the same GWP100?
Maybe there’s some modification factors that are figured in at some basic calculation level, but I haven’t been able to find them.
I may just be confused by all this biological stuff because it’s not my field. Any explanation would be greatly appreciated.
P.S. I also need to resolve this mystery for some other work I’m doing – so my appreciation would be double the normal value!

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, 13:24 Aug 1, 2016

So how can biomethane and fossil methane be considered to have the same GWP100?
Maybe consider a process view rather than a static view. For any given interval we have some methane being released, and some breaking down, but there's a net amount of methane in the atmosphere. Sure, that exact methane isn't there 50 years later, but the processes that produce and consume it are still running. That 10ppb of methane works the same whether it's from Cretaceous plants, kiwi plants or political ruminations.
As a GHG methane has the huge advantage that it's a short-term gas, so if we stop excreting it it'll be gone in a mere 20 to 100 election cycles. Which may be your confusion?
Alternatively, any given methane molecule will "live" in the atmosphere for, say, two half-lives or about five election cycles. During that time it will trap X joules of otherwise radiated heat.
The obvious solution, as always, is SPACE LASERS! Punch that unwanted thermal energy straight up and off the planet using lasers pointed into space. I am only slightly kidding here, as that approach at least has the advantage that it's permanent (barring aliens with space mirrors). Sequestration has the problem that it has to be permanent in the "diamonds are forever" sense, not the "no nuclear ships" sense.

Sydney, West Island • Since Nov 2006 • 1233 posts Report
Moz, 13:33 Aug 1, 2016

The PGST you’d pay on the tree would mainly consist of
Right, so in this view there is no energy storage in the tree per se, so there's no negative tax applied for planting trees or any other carbon-negative activity. That makes the system much simpler, but it makes negative emissions a separate problem. Since it looks as though we definitely need those, that's kind of an important lapse (I am deliberately not using the future tense here).
I'm also concerned that transformation isn't apparently considered. If I capture CO2 and turn it into methane, I pay PGST on the energy used to do that, but not on the net warming potential in the gas produced. This is much more of an issue if I make a refrigerant that is stable and a more effective GHG than methane... which is another "loophole" in the current rules that was being exploited by some companies. I think and hope it's been shut down.

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, in reply to Moz, 14:38 Aug 1, 2016

Right, so in this view there is no energy storage in the tree per se, so there’s no negative tax applied for planting trees or any other carbon-negative activity.
Well, you could say there’s no dirty energy storage in the tree.
The tree, if burnt, would provide mostly clean energy. The tree, if used as a building product, might displace another product that requires more dirty energy to manufacture. The approach taken in my demonstration proposal is to disincentivize dirty energy – rather than the more fraught and difficult route (it seems to me) of incentivizing clean energy.
The idea of using forests for carbon sequestration seems like a wholly separate issue. There’s only a finite amount of land in New Zealand that could be turned perpetually into forest, and so it’s obviously not a long term solution to ongoing greenhouse gas emissions. The question of what proportion of land we devote to perpetual forest – or how much we deforest – seems like a wholly separate political question (though certainly a tax on dirty energy might disincentivize dairy in comparison to forestry, for example).
If I capture CO2 and turn it into methane, I pay PGST on the energy used to do that, but not on the net warming potential in the gas produced.
I may not be following you here. The methane emitted at the landfill, for example, would be charged on a carbon-dioxide-equivalent basis. Theoretically you could also tax ruminant carcasses and milk solids (at abattoirs and dairy factories) on a per kilogram basis at a rate to represent the carbon-dioxide-equivalent of methane emitted during production of their food energy.
You’d only need to focus on big emitters. You wouldn’t worry about home kills or methane emissions from long-drops, of course (much in the same way that we don’t attempt to charge GST on postal orders of trifling value).
EDIT: It’s illegal in New Zealand, of course, to release synthetic refrigerants into the atmosphere, so that’s not an issue that needs to be covered by my demonstration proposal. Though you could certainly explore the possibility of taxing synthetic refrigerant imports on a carbon-dioxide-equivalent basis rather than under the current levy.

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, 14:55 Aug 1, 2016

The idea of using forests for carbon sequestration seems like a wholly separate issue
Yes, once you rule negative emissions out they are. You also rule out embodied energy as sequestration, which makes some substitutions difficult (plantation vs old growth forest, they're identical to you)
I think I'm struggling with your time scales. To me, it doesn't matter whether, say, the 400 year old trees we're burning are swamp kauri (PGST taxable) or standing timber (not taxable), they both burn to CO2 and that's what we care about. But to you, one 400 years is geologic time which matters, the other 400 years is just normal carbon cycling so can be ignored.
Part of the issue is that politically, geologic time does not exist, and any apparent problem that can be deferred to the next electoral cycle can be solved that way. So there's a clash between "we must make this a political problem right now today immediately" and the engineer-speak of "in the long term". Politically "the long term" is the budget estimates that stretch way off into the far distant future... sometimes as far as 10 years. In that 10 year context, methane emitted now is permanent.
The engineering problem we have is that we don't have a socipolitical system capable of dealing with anything much beyond 10 years reliably, but we engineers are good at producing systems that require active management over much (much, much) longer timescales. It's not a "bah, puny humans" situation.
This is why I prefer to express everything in electoral cycles, and keep trying to emphasise that politicians count like dogs "one election, two election... thre? ... lots and lots of elections".

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, in reply to Moz, 14:57 Aug 1, 2016

As a GHG methane has the huge advantage that it’s a short-term gas, so if we stop excreting it it’ll be gone in a mere 20 to 100 election cycles. Which may be your confusion?
Perhaps. It's not really so much the methane as the residual carbon dioxide (or not) after the methane has broken down.
There are some aspects of biology that I really enjoy & am somewhat good at; apparently thinking about biomethane isn't one of them.

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, in reply to David Haywood, 15:04 Aug 1, 2016

The methane emitted at the landfill, for example, would be charged on a carbon-dioxide-equivalent basis
The reciprocal problem I was using as an example was the one where companies were paid for destroying a gas, but not charged for creating it. Profit!
The PGST tax has the problem that if a process creates a GHG they're charged for that, but there is no way to recover that tax if the gas is later destroyed. So with the landfill, they pay for the methane production, but if they sell that methane to someone who burns it, there is no tax refund for the methane but there is tax on the CO2 produced by burning. There are also nasty edge cases along similar lines (I assume that other intermediate products that are consumed during production are not taxed, for example, unless they are sold or shipped during production. It gets very complex).

Sydney, West Island • Since Nov 2006 • 1233 posts Report
Moz, in reply to David Haywood, 15:06 Aug 1, 2016

It’s illegal in New Zealand, of course, to release synthetic refrigerants into the atmosphere, so that’s not an issue that needs to be covered by my demonstration proposal
No, but it does need a container deposit levy style system to make sure that there's no systematic "accidental" release (at the dump, if nowhere else). That's where refusing to have tax refunds for destruction makes the system more complex, not less.

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, in reply to Moz, 15:18 Aug 1, 2016

plantation vs old growth forest, they’re identical to you
Only from an energy perspective! I'd say old growth forest has value that can't be measured in joules -- and should be considered (protected) via totally different laws.
think I’m struggling with your time scales. To me, it doesn’t matter whether, say, the 400 year old trees we’re burning are swamp kauri (PGST taxable) or standing timber (not taxable), they both burn to CO2 and that’s what we care about. But to you, one 400 years is geologic time which matters, the other 400 years is just normal carbon cycling so can be ignored.
You're saying that--from an energy perspective--I'd view swamp kauri as a fossil fuel? But standing timber as a renewable fuel (so long as the area is reforested after harvesting)? Yes I would. Burning the swamp kauri adds to the net carbon dioxide in the atmosphere, but burning the sustainably harvested timber doesn't (when averaged over time). This is the standard energy engineering perspective.
I'm assuming here that the swamp kauri is turning into coal or some such in the long term. Of course, if you were to extract the swamp kauri and then replant forest then that would be a different story (but again that gets back to the decision of how much of our finite land should be forested or not).
The engineering problem we have is that we don’t have a socipolitical system capable of dealing with anything much beyond 10 years reliably, but we engineers are good at producing systems that require active management over much (much, much) longer timescales. It’s not a “bah, puny humans” situation.
You won't find an argument from energy engineers on that analysis!

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, 15:50 Aug 1, 2016

I suppose the core problem is that you use "averaged over time" rather than naming a period, so it's not clear whether you mean over the next thousand years or million years. You've ruled out anything much under a century, though. Your ranges are inappropriate, IMO, since the solutions we need have to start now and operate over at most decades.
In terms of trying to avoid the worst of the effects of AGW, 1.5 degrees is starting to look too generous (just 1.5 degrees in the air is looking scary), and likely we should be aiming for less than one. But current policies are premised on long-term warming of 5-10 degrees, with a goal of 3-5 degrees in the immediate future (10-20 electoral cycles). While it's clear to me at least that somewhere in that range technological society becomes impossible, it's not clear where. I vote not to carry out the experiment. Unfortunately the overwhelming majority vote to give it a go. Which raises the question of whether people who will be dead soon should even be allowed to vote on issues like this. The evidence suggests not. Perhaps voting on climate policy should be restricted to those likely to live more than another 50 years?

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, in reply to Moz, 15:53 Aug 1, 2016

So with the landfill, they pay for the methane production, but if they sell that methane to someone who burns it, there is no tax refund for the methane but there is tax on the CO2 produced by burning.
Okay I see what you’re asking. The idea, of course, is to encourage landfill operators to capture the methane (as they do now). If they flare it off (as is commonly done now anyway) then they would only have to pay PGST on carbon dioxide rather than the carbon-dioxide-equivalent of methane. If they use the methane to earn money from fuelling a peaking-power plant or heating a municipal swimming pool (which also turns it into carbon dioxide, of course) then they can recoup some of their PGST cost from the profits.
This would have the advantage of encouraging them to convert the methane into ‘safe’ (i.e. minimum-emissions) form at the point of production. It would have the disadvantage–as you say–of discouraging the landfill operator from selling the methane, for example, as fuel for a trucking company.
I can see ways around this disadvantage, if necessary, but I don’t think it’s the degree of detail that I need to get into on a broad-brush proposal (but an interesting point to raise nevertheless).
There are also nasty edge cases along similar lines (I assume that other intermediate products that are consumed during production are not taxed, for example, unless they are sold or shipped during production.
It would have to be sold to attract PGST. The lowest energy state of any slightly common fuel is when it is reduced to carbon dioxide – so there’s no real incentive for anyone to engage in large-scale release of unburnt 'fuel' to atmosphere (and indeed there are already laws that deal with dumping and spillages). The cost drivers would encourage usage of as much of the energy as economically possible, and existing pollution laws would cover discharge of most products (that I can think of) to atmosphere.
I agree that there are all sorts of definitional difficulties with energy – as there are now. For example, are wood pellets a waste product that embodies very little dirty energy, or should they be considered to embody a proportion of the dirty energy from production of the sold timber? In my view a PGST approach may well solve more definitional issues than it would raise, as the flow of money would determine the definition.
Again I think that these are details that could worked out if such a system was ever implemented (which would probably be never!) I fully acknowledge that my demonstration proposal isn’t a ready-to-implement scheme, but I would point out that all the other proposals I’ve seen seem a lot worse – which is why I used it as an example approach to show the basic ingredients required to genuinely reduce greenhouse gas emissions from New Zealand…

Dunsandel • Since Nov 2006 • 1156 posts Report
Moz, in reply to David Haywood, 16:02 Aug 1, 2016

I would point out that all the other proposals I've seen seem a lot worse...
Except that for all its faults, a carbon tax is widely known and discussed. A whole new approach would both create confusion and give excuses for further delay. As OldNewThing reminds us, new features start with -100 points. They don't just have to be good ideas, they have to be very good, to be worth considering at all.
Also, "no incentive to release fuel" is just wrong. Oil wells only burn it because otherwise it might explode, and the whole fracking industry is built around capturing most of the gas rather than all of it. Leakage from coal mines is so bad that there is a whole sub-industry built around preventing methane building up and suffocating or detonating miners. The methane doesn't stop existing in coal seams when you open cut mine them, it just becomes easier to ignore. Also, harder to quantify, especially when you're asking an industry to collect hard-to-quantify numbers in order to tax them on the numbers... expect them to systematically bias low.

Sydney, West Island • Since Nov 2006 • 1233 posts Report
David Haywood, in reply to Moz, 16:26 Aug 1, 2016

Except that for all its faults, a carbon tax is widely known and discussed.
But one of the faults of a carbon tax when applied to dirty energy in New Zealand (as I’ve tried to point out) is that it would increase greenhouse gas emissions for the world as a whole. That seems a major fault! And that’s why I’ve pointed out the ingredients required for a system that doesn’t suffer this fault.
I suppose the core problem is that you use “averaged over time” rather than naming a period, so it’s not clear whether you mean over the next thousand years or million years. You’ve ruled out anything much under a century, though. Your ranges are inappropriate, IMO
If we’re still taking about trees, the harvest time for radiata pine can be as low as 20 years; the coppiced chestnuts in Canterbury only 10 years. Not many renewable timber ‘crops’ are over 100 years (selective logging being a different kettle of fish).
Also, “no incentive to release fuel” is just wrong. Oil wells only burn it because otherwise it might explode, and the whole fracking industry is built around capturing most of the gas rather than all of it.
Well I was thinking of intermediate products in manufacturing in New Zealand [EDIT: sorry I may have confused the discussion when talking about ‘fuel’ in my previous post–I was thinking about fertilizer production and ‘non-oxidized intermediate chemicals’ might have been better terminology!]. I agree that the incentives would be for fossil fuel producers to attempt to hide their emissions, but whatever could be attributed to them would be all counted as embodied emissions under a PGST approach. Embodied emissions on imports aren’t even considered on other schemes I’ve seen proposed for New Zealand.

Dunsandel • Since Nov 2006 • 1156 posts Report