Why NZ’s emissions trading scheme should have an auction reserve price



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New Zealand’s emission reduction target for 2030 is to bring emissions to 30% below 2005 levels, and to be carbon neutral by 2050.
from http://www.shutterstock.com, CC BY-ND

Suzi Kerr, Victoria University of Wellington

While people’s eyes often glaze over when they hear the words “emissions trading”, we all respond to the price of carbon.

Back in 2010, when the carbon price was around NZ$20 per tonne, forest nurseries in New Zealand boosted production. But when prices plunged thereafter, hundreds of thousands of tree seedlings were destroyed rather than planted, wiping out both upfront investment and new forest growth.

Emission prices have since recovered but no one knows if this will last. With consultation underway on improving the New Zealand Emissions Trading Scheme (NZ ETS), the government should seriously consider a “price floor” to rebuild confidence in low-emission investment.




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How a price floor works

If we want to make a smart transition to a low-emission economy, we need to change how we value emissions so people make the investments that deliver on our targets. Implementing a reserve price at auction – or a “price floor” – is a powerful tool for managing the risk that emission prices could fall for the wrong reasons and undermine much needed low-emission investments.

In New Zealand’s ETS, participants are required to give tradable emission units (i.e. permits) to the government to cover the emissions for which they are liable. A limit on unit supply relative to demand reduces total emissions and enables the market to set the unit price.

In the future, the government will be auctioning emission units into the market. A reserve price at auction, which is simple to implement, can help avoid very low prices. If private actors are not willing to pay at least the reserve price, the government would stop selling units and the supply to the market would automatically contract.

The government’s current ETS consultation document suggests that no price floor will be needed in the future because a limit on international purchasing will be sufficient to prevent the kind of price collapse we experienced in the past. However, that assessment neglects other drivers of this risk.

When low ETS prices are a pitfall

Ideally, ETS prices would respond to signals of the long-term cost of meeting New Zealand’s decarbonisation goals and achieving global climate stabilisation. With today’s information, we generally expect ETS prices to rise over time. For example, modelling prepared for the New Zealand Productivity Commission suggests emission prices could rise to at least NZ$75 per tonne, possibly over NZ$200 per tonne, over the next three decades.

However, ETS prices could also fall because of sudden technology breakthroughs or economic downturn. Even though some low-emission investors would lose the returns they had hoped for, this could be an efficient outcome because low ETS prices would reflect true decarbonisation costs. Technological and economic uncertainty imposes a genuine risk on low-emission investments that society cannot avoid.

But there is another scenario in which ETS prices fall while decarbonisation costs remained high. This could arise because of political risk. For example, if a major emissions-intensive industrial producer was to exit the market unexpectedly and it was unclear how the government would respond, or if a political crisis was perceived to threaten the future of the ETS, then emission prices could collapse and efficient low-emission investments could be derailed.

Even when remedies are on the way, it can take time to correct perceptions of weak climate policy intentions. The New Zealand government’s slow response to the impact of low-quality international units in the ETS from 2011 to mid-2015 is a vivid example of this.

A simple and effective solution

With a price floor, an ETS auction will respond quickly and predictably to unpredictable events that lower prices. A price floor signals the direction of travel for minimum emission prices and builds confidence for low-emission investors and innovators. It also provides greater assurance to government about the minimum level of auction revenue to expect.

It is important to note that ETS participants can still trade units amongst each other at prices below the price floor. The price floor simply stops the flow of further auctioned units from the government into the market until demand recovers again and prices rise.

We have three good case studies overseas for the value of a price floor.

  1. The European Union ETS did not have a price floor for correcting unexpected oversupply and prices dropped because of the global financial crisis, other energy policies and overly generous free allocation. It now has a complex market stability reserve for this purpose, although that operates with less ease and transparency than a reserve price at auction.

  2. To counteract low EU ETS prices, the UK created its own price floor as a “top up” to the EU ETS. Although this did not add to global mitigation beyond the EU ETS cap, it did drive down coal-fired generation in the UK.

  3. California’s ETS was designed in conjunction with a large suite of emission reduction measures with complex interactions. Its reserve price at auction has ensured that a minimum and rising emission price has been maintained, despite uncertainties about the impact of other measures.

Keeping NZ on track for decarbonisation

In New Zealand, the Productivity Commission supports the concept of an auction reserve price in its final report on a transition to a low-emissions economy.

The only potential downside of a price floor is the political courage needed to set its level. It could be set at the minimum level that any credible global or local modelling suggests is consistent with New Zealand and global goals. The Climate Change Commission could provide independent advice on preferred modelling and an appropriate level. The merits of a price floor warrant cross-party support.

If the market operates in line with expectations, then the price floor has no impact on emission prices. But the price floor usefully guards against price collapse when the market does not go to plan.

The government, ETS participants and investors need to understand that international purchasing is not the only driver of downside price risk in the NZ ETS. A price floor would strengthen the incentives for major long-term investments in low-emission technologies, infrastructure and land uses in the face of uncertainty.

To reach New Zealand’s ambitious emission reduction targets for 2030 (a 30% reduction below 2005 levels) and beyond, bargain-basement emission prices need to stay a thing of the past.

This article was co-authored with Catherine Leining, a policy fellow at Motu Economic and Public Policy Research.The Conversation

Suzi Kerr, Adjunct Professor, School of Government, Victoria University of Wellington

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Eulogy for a seastar, Australia’s first recorded marine extinction



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The Derwent River Sea Star was only documented for 25 years before its extinction.
Blair Patulo, Museums Victoria, CC BY-NC

Tim O’Hara, Museums Victoria

We see the surface of the sea: the rock pools, the waves, the horizon. But there is so much more going on underneath, hidden from view.

The sea’s surface conceals human impact as well. Today, I am writing a eulogy to the Derwent River Seastar (or starfish), that formerly inhabited the shores near the Tasman Bridge in Hobart, Tasmania. It is Australia’s first documented marine animal extinction and one of the few recorded anywhere in the world.




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The Derwent River Seastar, preserved in the Tasmanian Museum and Art Gallery, Hobart. Credit: Christy Hipsley, Museums Victoria/University of Melbourne

Scientists only knew the Derwent River Seastar for about 25 years. It was first described in 1969 by Alan Dartnall, a former curator of the Tasmanian Museum and Art Gallery. It was found on and off until the early 1990s but scientists noted a decline in numbers. Targeted surveys in 1993 and 2010 failed to find a single individual.

It was listed as critically endangered by the Tasmanian and Australian governments. But now, like a long-lost missing person, it is time to call it: the Derwent River Seastar appears extinct.

It is actually quite hard to document the extinction of marine animals. There is always hope that it will turn up in some unusual spot, somewhere in that hidden world. Australia has an ambitious plan to create high-resolution maps of 50% of our marine environment by 2025. This is a formidable task. But it is a reflection of our lack of knowledge about the oceans that, 20 years after the launch of Google Maps and despite an enormous effort in the interim, much of Australia’s seafloor in 2025 will be still largely known from the occasional 19th-century depth sounding, or imprecise gravity measurements from satellites.

We do notice when big animals go. There used to be a gigantic dugong-like creature called Steller’s Sea Cow, which lived in the North Pacific Ocean until it was hunted to oblivion by 1768. There is no mistaking that loss.

Steller’s Sea Cow, which grew up to 10 metres long and weighed between five and ten tonnes, was hunted to extinction in 1768.
Paul K/Flickr, CC BY

But the vast majority of the estimated 1 million to 2 million marine animals are invertebrates, animals without backbones such as shells, crabs, corals and seastars. We just don’t monitor those enough to observe their decline.

We noticed the Derwent River Seastar because it was only found at a few sites near a major city. Its story is intertwined with the usual developments that happen near many large ports. The Derwent River became silty and was at times heavily polluted by industrial and residential waste. The construction of the Tasman Bridge in the early 1960s cannot have helped.

From the 1920s a series of marine pests were accidentally introduced by live oysters imported from New Zealand, or by hitching a ride on ships. Some of these pests are now abundant in southeast Tasmanian waters and eat or compete with local species.




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The Derwent River Seastar has been a bit of an enigma. From the start, it was mistakenly classified as belonging to group of seastars (poranids) otherwise known from deep or polar habitats. Some people wondered whether it was an introduced species as well, one that couldn’t cope with the Derwent environment.

However, we used a CT scanner at the School of Earth Sciences, University of Melbourne, to look at the internal skeleton of one of the few museum specimens. Sure enough, it has internal struts to strengthen the body, which are characteristic of a different group of seastars (asterinids) that have adapted to coastal environments and are sometimes restricted to very small areas.

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CT scan showing the internal structure of the seastar. Source: Christy Hipsley, Museums Victoria/University of Melbourne

Is this seastar like a canary in a coal mine, a warning of a wave of marine extinctions? Sea levels are rising with global warming, and that is going to be a big problem for life adapted to living along the shoreline. Mangroves, salt marsh, seagrass beds, mud flats, beaches and rock platforms only form at specific water depths. They are going to need to follow rising sea levels and reform higher up the shoreline.

Coastal life can take hundreds to thousands of years to adjust to these sorts of changes. But in many places we don’t have a natural environment anymore. Humans will increasingly protect coastal property by building seawalls and other infrastructure, especially around towns and bays. This will mean far less space for marine animals and plants.




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We need to start planning new places for our shore life to go – areas they can migrate to with rising sea levels. Otherwise, the Derwent River Seastar won’t be the last human-induced extinction from these environments.The Conversation

Tim O’Hara, Senior Curator of Marine Invertebrates, Museums Victoria

This article is republished from The Conversation under a Creative Commons license. Read the original article.

It’s teamwork: how dolphins learn to work together for rewards



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Two bottlenose dolphins (Tursiops truncatus) cooperate in a button-pressing task requiring precise behavioural synchronization.
Dolphin Research Center, Author provided

Stephanie King, University of Western Australia

Cooperation can be found across the animal kingdom, in behaviours such as group hunting, raising of young, and driving away predators.

But are these cooperating animals actively coordinating their behaviour, or are they simply acting individually to accomplish the same task at the same time?

In a study, published today in Proceedings of the Royal Society B, we showed that bottlenose dolphins actively coordinate their behaviours. That is, they can learn to work together and synchronise their actions to solve a cooperation task and receive a reward.




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Testing teamwork

For this study, conducted at the Dolphin Research Center in the Florida Keys, we created a task in which pairs of dolphins had to swim across a lagoon and each press their own underwater button at the same time (within a 1-second time window).

Each trial began with both dolphins and their respective trainers located at the opposite side of the lagoon from the buttons, about 11 metres away. The trainers would either both give a “press the button” hand signal at the same time, or one trainer would give the signal first, while the second trainer asked her dolphin to wait up to 20 seconds before giving the signal.

If the dolphins pressed their buttons at the same time, a computer played a “success” sound, and the dolphins returned to their trainers for fish and social praise.

If the dolphins pressed their buttons at different times, a “failure” sound was played and the trainers moved on to the next trial.

The strict timing requirement meant they had to work together. If their goal was simply “press my button”, then when they were sent at different times, they would press at different times. To succeed, they had to understand their goal as “press the buttons together”.

The question, then, was whether the dolphin sent first would wait for the other dolphin before pressing its button, and whether they could figure out a way to coordinate precisely enough to press simultaneously.

Two bottlenose dolphins (Tursiops truncatus) cooperate in a button-pressing task requiring precise behavioural synchronisation.
Dolphin Research Center, Author provided

Swim fast, or coordinate?

We found that the dolphins were able to work together with extreme precision even when they had to wait for their partner. Interestingly, their behavioural strategies and the coordination between them changed as they learned the task.

Keep in mind that the dolphins had to figure out that this was a cooperative task. There was nothing about the situation that told them in advance that the buttons had to be pressed at the same time.

To help them learn, we started by sending them simultaneously and gradually increased the timing difference between them.

When one dolphin figured out the game first, if their partner was sent first on a particular trial, they knew that the partner (who had not figured out the game) was not going to wait.

So in the early phases, we found that many successes were achieved not by the first dolphin waiting, but by the second dolphin swimming extremely fast to catch up.

But once both animals understood the task, this behaviour disappeared and the timing of their button presses became extremely precise (with the time difference between button presses averaging just 370 milliseconds).

This shows that both partners now understood that they didn’t need to swim fast to succeed; instead, they needed to synchronise their actions.

Wait for it… a delayed start but the dolphins still work together.

Synchrony in the wild

In the wild, dolphins synchronise their behaviour in several contexts. For example, mothers and calves will surface and breathe at the same time, and males in alliances will perform the same behaviours at the same time in coordinated displays.

Triple synchronous dive by a trio of allied male bottlenose dolphins (Tursiops aduncus) in Shark Bay, Western Australia.
Stephanie King / The Dolphin Alliance Project, Author provided

The synchrony in these displays can be remarkably precise, and is thought to actively promote cooperation between partners.




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The results of our study suggest that this behavioural synchronisation that dolphins show in the wild may not be a hardwired response to a specific context, but may in fact be a generalised ability that they can apply to a variety of situations.


Kelly Jaakkola, director of research at the Dolphin Research Center, contributed to this research and this article. She can be contacted at kelly@dolphins.org.The Conversation

Stephanie King, Branco Weiss Research Fellow, University of Western Australia

This article is republished from The Conversation under a Creative Commons license. Read the original article.