Climate explained: how emissions trading schemes work and they can help us shift to a zero carbon future



Putting a price on greenhouse gas emissions forces us to face at least some of the environmental cost of what we produce and consume.
from http://www.shutterstock.com, CC BY-ND

Catherine Leining, Motu Economic and Public Policy Research


CC BY-ND

Climate Explained is a collaboration between The Conversation, Stuff and the New Zealand Science Media Centre to answer your questions about climate change.

If you have a question you’d like an expert to answer, please send it to climate.change@stuff.co.nz

Would you please explain how the New Zealand Emissions Trading Scheme (ETS) works in simple terms? Who pays and where does the money go?

Every tonne of emissions causes damages and a cost to society. In traditional market transactions, these costs are ignored. Putting a price on emissions forces us to face at least some of the cost of the emissions associated with what we produce and consume, and it influences us to choose lower-emission options.

An emissions trading scheme (ETS) is a tool that puts a quantity limit and a price on emissions. Its “currency” is emission units issued by the government. Each unit is like a voucher that allows the holder to emit one tonne of greenhouse gases.

The New Zealand Emissions Trading Scheme (NZ ETS) is the government’s main tool to meet our target under the Paris Agreement. In a typical ETS, the government caps the number of units in line with its emissions target and the trading market sets the corresponding emission price.

In New Zealand, the price for a tonne of greenhouse gases is currently slightly below NZ$25, which is not in line with our target. We are still waiting for the government to set a cap on the NZ ETS, which is (hopefully) coming.




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


In the past, we had no limit on the number of emission units in the system, which is why emission prices stayed low, our domestic emissions continued to rise, and the system accumulated a substantial number of banked units.

How an ETS works and who pays

The government decides which entities (typically companies) in each sector (e.g. fossil fuel producers and importers, industrial producers, foresters, and landfill operators) will be liable for their emissions. In some cases (e.g. fossil fuel producers and importers), liable entities are not the actual emitters but they are responsible for the emissions generated when others use their products.

There is a trading market where entities can buy units to cover their emissions liability and sell units they don’t need. The trading price depends on market expectations for supply versus demand. Steeper targets mean lower supply and higher emissions mean higher demand; both mean higher emission prices and more behaviour change.

Each liable entity is required to report emissions and surrender to the government enough units to cover the amount of greenhouse gases they release. The companies that have to surrender units pass on the associated cost to their customers, like any other production cost. In this way, the emission price signal flows across the economy embedded in the cost of goods and services, influencing everyone to make more climate-friendly choices.


Supplied by author, CC BY-ND

There are several ways for entities to get units.

First, some get free allocation from the government. Currently, these free allocations are granted to trade-exposed industrial producers (for products such as steel, aluminium, methanol, cement and fertiliser) as a way of preventing the production and associated emissions from shifting to other countries without reducing global emissions. Producers who emit beyond their free allocation need to buy more units, whereas those who improve their processes and emit less can sell or bank their excess units.

Second, entities can earn units by establishing new forests or through industrial activities that remove emissions. By stripping emissions from the atmosphere, such removal activities make it possible to add units to the cap without increasing net emissions. The government publishes information on ETS emissions and removals every year.

Third, entities can buy units from the government through auctioning. In this case, market demand still sets the price. The NZ ETS does not yet have auctioning, but again this is (hopefully) coming. The government currently does allow emitters to buy uncapped fixed-price units at NZ$25.

In the past, entities had a fourth option – buying offshore units – but this stopped in mid-2015. This option is not currently available under the Paris Agreement. If that changes in the future, quantity and quality limits will be needed on offshore units.




Read more:
New Zealand poised to introduce clean car standards and incentives to cut emissions


Where the money goes

The entities that surrender units to the government directly face the price of emissions – either because they had to buy units from other entities or the government, or because they lost the opportunity to sell freely allocated units.

When the government sells units – through auctioning or the fixed-price mechanism – it earns revenue. In 2018, the New Zealand government sold 16.82 million fixed-price units and received NZ$420 million in revenue. When selling fixed-price units that allow the market to emit more, the government has to compensate through more action to reduce domestic emissions (like reducing fossil fuel use or planting more trees) or purchasing emission reductions from other countries – and these actions have a cost.

When ETS auctioning is introduced (potentially in late 2020), the government will receive more significant revenue. It has signalled that any revenue from pricing agricultural emissions (methane and nitrous oxide) will be returned to the sector to help with a transition to lower emissions.

What will happen with NZ ETS auction revenue from other sectors is an open policy question. So are the questions of how large the NZ ETS cap, and how high the emission price, should be. This will be determined under the Zero Carbon Bill and future amendments and regulations to the ETS.

This article was prepared in collaboration with Bronwyn Bruce-Brand and Ceridwyn Roberts at Motu Economic and Public Policy Research.The Conversation

Catherine Leining, Policy Fellow, Climate Change, Motu Economic and Public Policy Research

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

Sydney’s closer to being a zero-carbon city than you think


File 20171130 12069 1wyp7t6.jpg?ixlib=rb 1.1
The potential clean energy sources are all around Sydney, just waiting to be harnessed.
Author provided

Rob Roggema, University of Technology Sydney

You live in one of the sunniest countries in the world. You might want to use that solar advantage and harvest all this free energy. Knowing that solar panels are rapidly becoming cheaper and have become feasible even in less sunny places like the UK, this should be a no-brainer.

Despite this, the Australian government has taken a step backwards at a time when we should be thinking 30 years ahead.


Further reading: Will the national energy guarantee hit pause on renewables?


Can we do it differently? Yes, we can! My ongoing research on sustainable urbanism makes it clear that if we use the available renewable resources in the Sydney region we do not need any fossil resource any more. We can become zero-carbon. (With Louisa King and Andy Van den Dobbelsteen, I have prepared a forthcoming paper, Towards Zero-Carbon Metropolitan Regions: The Example of
Sydney, in the journal SASBE.)

Enough solar power for every household

Abundant solar energy is available in the Sydney metropolitan area. If 25% of the houses each installed 35 square metres of solar panels, this could deliver all the energy for the city’s households.

We conservatively estimate a total yield of 195kWh/m2 of PV panel placed on roofs or other horizontal surfaces. The potential area of all Sydney council precincts suited for PV is estimated at around 385km2 – a quarter of the entire roof surface.

We calculate the potential total solar yield at 75.1TWh, which is more than current domestic household energy use (65.3TWh, according to the Jemena energy company).


Further reading: What’s the net cost of using renewables to hit Australia’s climate target?


Wind turbines to drive a whole city

If we install small wind turbines on land and larger turbines offshore we can harvest enough energy to fuel our electric vehicle fleet. Onshore wind turbines of 1-5MW generating capacity can be positioned to capture the prevailing southwest and northeast winds.

The turbines are placed on top of ridges, making use of the funnel effect to increase their output. We estimate around 840km of ridge lines in the Sydney metropolitan area can be used for wind turbines, enabling a total of 1,400 turbines. The total potential generation from onshore wind turbines is 6.13TWh.

Offshore turbines could in principle be placed everywhere, as the wind strength is enough to create an efficient yield. The turbines are larger than the ones on shore, capturing 5-7.5MW each, and can be placed up to 30km offshore. With these boundary conditions, an offshore wind park 45km long and 6km wide is possible. The total offshore potential then is 5.18TWh.

Altogether, then, we estimate the Sydney wind energy potential at 11.3TWh.

Around 840km of ridge lines (marked in yellow and red) in the Sydney metropolitan area can be used for wind turbines.
Author provided

Further reading: FactCheck Q&A: is coal still cheaper than renewables as an energy source?


Turning waste into biofuels

We can turn our household waste and green waste from forests, parks and public green spaces into biogas. We can then use the existing gas network to provide heating and cooling for the majority of offices.

Biomass from domestic and green waste will be processed through anaerobic fermentation in old power plants to generate biogas. Gas reserves are created, stored and delivered through the existing power plants and gas grid.


Further reading: Biogas: smells like a solution to our energy and waste problems


Algae has enormous potential for generating bio-energy. Algae can purify wastewater and at the same be harvested and processed to generate biofuels (biodiesel and biokerosene).

Specific locations to grow algae are Botany Bay and Badgerys Creek. It’s noteworthy that both are close to airports, as algae could be important in providing a sustainable fuel resource for planes.

Using algae arrays to treat the waste water of new precincts, roughly a million new households as currently planned in Western Sydney, enables the production of great quantities of biofuel. Experimental test fields show yields can be high. A minimum of 20,000 litres of biodiesel per hectare of algae ponds is possible if organic wastewater is added. This quantity is realisable in Botany Bay and in western Sydney.

Biomass fermentation of household and green waste and wastewater treatment using algae arrays can generate biogas, biodiesel and biokerosene.
Author provided

Further reading: Biofuel breakthroughs bring ‘negative emissions’ a step closer


Extracting heat from beneath the city

Shallow geothermal heat can be tapped through heat pumps and establishing closed loops in the soil. This can occur in large expanses of urban developments within the metropolitan area, which rests predominantly on deposits of Wianamatta shale in the west underlying Parramatta, Liverpool and Penrith.

Where large water surfaces are available, such as in Botany Bay or the Prospect Reservoir, heat can also be harvested from the water body.

The layers of the underlying Hawkesbury sandstone, the bedrock for much of the region, can yield deep geothermal heat. This is done by pumping water into these layers and harvesting the steam as heat, hot water or converted electricity.

Sydney’s geology offers sources of both shallow and deep theothermal heat.
Author provided

Further reading: Explainer: what is geothermal energy?


Hydropower from multiple sources

The potential sources of energy from hydro generation are diverse. Tidal energy can be harvested at the entrances of Sydney Harbour Bay and Botany Bay, where tidal differences are expected to be highest.

Port Jackson, the Sydney Harbour bay and all of its estuaries have a total area of 55km2. With a tidal difference of two metres, the total maximum energy potential of a tidal plant would be 446TWh. If Sydney could harvest 20% of this, that would be more than twice the yield of solar panels on residential roofs.

If we use the tide to generate electricity, we can also create a surge barrier connecting Middle and South Head. Given the climatic changes occurring and still ahead of us, we need to plan how to protect the city from the threats of future cyclones, storm surges and flooding.

I have written here about the potential benefits of artificially creating a Sydney Barrier Reef. The reef, 30km at most out at sea, would provide Sydney with protection from storms.

At openings along the reef, wave power generators can be placed. Like tidal power, wave power can be calculated: mass displacement times gravity. If around 10km of the Sydney shoreline had wave power vessels, the maximum energy potential would be 3.2TWh.

In the mouths of the estuaries of Sydney Harbour and Botany Bay, freshwater meets saltwater. These places have a large potential to generate “blue energy” through reverse osmosis membrane technology.

To combine protective structures with tidal generating power, an open closure barrier is proposed for the mouth of Sydney Harbour. The large central gates need to be able to accommodate the entrance of large cruise ships and to close in times of a storm surge. At the same time, a tidal plant system operates at the sides of the barrier.

An artist’s impression of the Sydney Harbour surge barrier and tidal plant.
Drawing: Andy van den Dobbelsteen, Author provided

Further reading: Catching the waves: it’s time for Australia to embrace ocean renewable energy


Master plan for a zero-carbon city

All these potential energy sources are integrated into our Master Plan for a Zero-Carbon Sydney. Each has led to design propositions that together can create a zero-carbon city.

The Zero-Carbon Sydney Master Plan maps out how the city can be fossil-free.
Author provided

The ConversationThe research shows there is enough, more than enough, potential reliable renewable energy to supply every household and industry in the region. What is needed is an awareness that Australia could be a global frontrunner in innovative energy policy, instead of a laggard.

Rob Roggema, Professor of Sustainable Urban Environments, University of Technology Sydney

This article was originally published on The Conversation. Read the original article.