Submission: "That the House of Representatives investigate an energy rationing scheme such as Tradable Energy Quotas (TEQs)"
Submission of Degrowth Aotearoa New Zealand (DANZ) in support of the petition of Deirdre Kent, which was "That the House of Representatives investigate an energy rationing scheme such as Tradable Energy Quotas (TEQs), which we believe could address both potential shortages of fossil fuels and the climate emergency."
Who we are:
DANZ is a public interest group that, being concerned that the world has breached six out of nine planetary boundaries, now seeks to reduce the material and energy throughput of an economy in order to bring it back into balance with the living world in a safe and equitable way.
The degrowth movement of activists and researchers advocates for societies that prioritise social and ecological well-being instead of corporate profits, over-production and excess consumption. This requires radical redistribution, reduction in the material size of the global economy, and a shift in common values towards care, solidarity and autonomy. Degrowth means transforming societies to ensure environmental justice and a good life for all within planetary boundaries.
What we are asking for:
We want Parliament to investigate a system called Tradable Energy Quotas (TEQs). This is a scheme where, in order to reduce emissions, we ration fossil energy while reducing the number of total rations each year, which will lead to a decrease in fossil fuel use. Equitable access to alternative sources of energy combined with much less energy use is the only responsible long-term path for New Zealand and the world.
Unlike the Emissions Trading Scheme, TEQs applies to everyone not just the big emitters. After all, it is the use of fossil fuels that have caused the blow out in emissions.
With TEQs, unlike ETS, everyone is involved and has the same goal - to work to adapt to fewer rations or quotas for next year. Living with a lower input from fossil fuels will make a profound difference to how we live, work and trade. This is our future. Physics and geology will always pull rank, no matter what we wish for.
The History of Tradable Energy Quotas (TEQs):
TEQs were invented by the late Dr David Fleming, a UK economist. The idea was presented to the UK Parliament over a decade ago at the same time as other schemes for reducing emissions. Of all the schemes presented TEQs was chosen in 2011 as being the best, but was described then as being “ahead of its time”. It is described on the website of the Fleming Policy Centre TEQs - Tradable Energy Quotas (flemingpolicycentre.org.uk).
How it works:
The best description is from the Fleming Policy website in UK, which has been copied to our own website https://www.degrowth.nz/blog/teq. Since this is the key link I will copy what it says here, with technical changes to suit New Zealand reality, e.g to our Climate Commission instead of theirs.
TEQs at a glance:
1. TEQs (Tradable Energy Quotas) is an electronic system for fairly reducing consumption of carbon-intensive energy, at the national scale.
2. There are two main reasons why introducing TEQs may be desirable:
a) maintaining a fair distribution of fuel and electricity during challenging times.
b) providing a method to guarantee achieving national carbon reduction targets.
3. TEQs (pronounced“tex”) are measured in units.
4. Every adult is guaranteed an equal free Entitlement of TEQs units each week. Other energy
users (government, industry etc.) bid for their units at a weekly tender, or auction.
5. When you buy fuel or energy, such as petrol for your car, units corresponding to the amount
of energy you have bought are deducted from your TEQs account, in addition to your money payment. This is the only time you need TEQs units, and transactions are generally automatic, using credit-card or direct-debit technology.
6. All fuels and electricity supplies carry a “carbon rating” in units; one unit represents one
kilogram of carbon dioxide — or the equivalent in other greenhouse gases — released in the fuel’s production and use. This determines how many units are needed to make a purchase (thus giving a competitive advantage to low-carbon energy).
7. If you use less than your Entitlement of units, you can sell your surplus. If you need more,
you can buy them. All buying/selling takes place at a single national price, which rises and falls in line with demand. Buying and selling is as easy as topping up an Snapper card or a mobile phone.
8. The total number of units available in the country is set out in advance in the TEQs Budget. The size of the Budget goes down year-by-year — step-by-step, like a staircase.
9. The Budget is set by the Climate Change Commission, which is independent of the Government. The Government is itself bound by the TEQs system; its role is to support the country in thriving on the available carbon/energy.
10. Since the national TEQs price is determined by national demand, it is transparently in
everyone’s interest to help each other to reduce their energy demand — encouraging a national sense of common purpose in working together to keep energy available and affordable.
Overview - How it works in practice:
The full cycle of TEQs units through the economy (source - FAQ's):
As illustrated above, then, the TEQs registrar is the only body that can create TEQs units. It does so in line with the country's carbon budget, and then issues these TEQs units into the economy,
via the entitlement and tender.
So, an individual or family receives their free entitlement of TEQs units each week. Then, to take your example, they buy electricity from a power company, and in order to do so they must surrender to that company a number of TEQs units.
This number is determined by the amount of energy they buy multiplied by the carbon rating of that electricity (so it costs the family more TEQs units if that power company is fossil-fuel based, and fewer TEQs units if the company is renewables-based, giving a competitive advantage to the latter).
As you can see in the diagram, the power company then surrenders these same TEQs units to the mining/extraction companies when buying the coal or gas they need for their generator, and these mining/extraction companies then in turn surrender these units back to the registrar, in exchange for permits to extract these fossil fuels.
This completes the cycle, with all TEQs units having originated from the registrar, then flowing through the economy wherever energy does, and eventually returning back to the registrar in
exchange for the right to bring more carbon into the economy. This is how the TEQs system regulates carbon economy-wide (note, by capping carbon in the economy, not by trying to make it more expensive - and thus unavailable to the poor), and also why it is able to operate in a largely self-monitoring way rather than requiring extensive policing.
Different fossil fuels have different emission profiles, so they are each given a carbon rating. One litre of diesel, petrol, gas will produce different amounts of carbon dioxide so will involve the surrender of different quantities of TEQs.
Issues to be addressed with TEQs:
A regular objection is that there appears to be a lot of potential for fraud with a system involving tens of millions of consumer transactions, meaning that TEQs would require heavy regulation and policing? In fact, a particularly elegant feature of the TEQs design is that it is largely self-monitoring.
This characteristic is a product of the fact that the very TEQs units surrendered by energy consumers at, say, a petrol station are then surrendered by the petrol station when it buys its fuel from a fuel supplier. And when the fuel supplier applies to produce or import fuel, it surrenders these same units back to the agency that they originated from.
This cycle (illustrated above) means that every recipient of TEQs units needs to surrender those units later. The units flow through the economy just as energy does.
Consequently, it is in no-one’s interest to ‘let someone off’ surrendering their TEQs units, just as it is now in no retailer’s interest to let someone off paying them in cash for their fuel or electricity. We know that the police are not required to watch every cash transaction in the present economy to ensure that money has changed hands, and individual TEQs transactions will go on in just the same bureaucracy-free, surveillance-free way.
It is only when you buy petrol, diesel or natural gas that you need tosurrender TEQs. The number of occasions on which individuals actually purchase energy is quite limited—perhaps eight times a year for utilities, although it could rise to some thirty times a year for individuals with cars—and most TEQs transactions are done by card and direct debit. No carbon labelling is required.
But aren’t emissions declining with our current ETS?
Yes, for a couple of years but not much really. It certainly won’t get us to our goal that we promised at Paris. The Ministry of Environment says,
“Gross emissions in 2021 were 76.8 million tonnes of carbon dioxide equivalent (Mt CO2-e) in 2021, a 0.7% reduction from 2020. This is the second successive year we have seen a slight decrease in gross emissions, after a 3% reduction in 2020, compared to 2019.”
But let’s be realistic about scale. To achieve our Nationally Determined Target we need to reduce emissions a great deal more. The Ministry for the Environment says our Nationally Determined Contribution was to reduce our emissions by 50% below our gross 2005 levels by 2030. On current trends we will overshoot this by between 61 and 81 Million Tonnes CO2 equivalents.
What is surprising on the Stats NZ website is that only 11.1% of emissions are from households. Most of that is in transport emissions. Industry accounts for 88.9% of emissions and most of this comes from agriculture. In fact, agriculture contributes 51% of our emissions.
Also Stats NZ wrote at the time, “Household emissions have increased 12.1 percent since March 2010.”
Despite the 2020 and 2021 slight decrease in gross emissions, if we take it from 1990 New Zealand's gross emissions by 2021 have increased 19 percent and net emissions, which is 25 percent.
Households aren’t the only ones contributing to transport emissions. There are transport emissions involved in almost every industry. Remember TEQs are bought by businesses to accompany their purchases of fossil fuels.
What about agricultural emissions?
The agriculture sector also is dependent on fossil fuels. Fossil fuels power tractors, other farm machinery, milk processing and transport. They also play a major role in making synthetic fertilisers and pesticides, crucial for high yield farming. Moreover, the introduction of fossil fuels allowed for the expansion of agricultural lands, conversion from sheep farming to dairy farming and the move to larger farm units using intensive agriculture.
Our fertiliser use is up 600% since 1990 and it is all made using fossil fuels. It is these synthetic fertilisers which have enabled our tripling of dairy cows in the last 30 years.
So when Ravensdown manufactures super phosphate they will need to purchase of a quantity of TEQs, which result in a slightly higher selling price in the finished product. And it is the same for urea which is manufactured using natural gas. Those who buy urea or superphosphate will not have to surrender TEQs as the carbon content has already been built into the price.
Likewise, no TEQs units surrendered for the purchase of a chair, but the manufacturer of the
chair would’ve needed to purchase units as will the company who transported it to the shop, and they will pass on the costs onto the customers. So downstream consumers find that the cheaper option tends to be the lower carbon option, while retailers who are able to offer a lower carbon supply chain receive a clear competitive advantage.
The key benefits of TEQs are guaranteed emissions reductions, there is time to plan ahead, it leaves money with the consumer in a cost-of-living crisis and the government doesn’t micromanage your life but is there to help. This is very freeing for the government. Government
doesn’t have to punish or regulate or tax. But there will be other roles.
Why Price Based Schemes will never work politically:
For price-based schemes like ETS andcarbon tax, if the price is high enough to be effective it won't be politically acceptable. If it is low enough to be acceptable, it won't work.
The reason is that when the price of units is high as it raises the price of petrol and diesel. Since most of the goods in New Zealand are transported by diesel powered trucks, it raises the price of all goods. This brings inflation and the public disquiet which may follow.
The political reality of ETS and carbon tax has not yet been widely understood. Every political party is aware of the pressure from the cost-of-living issues. And rising carbon prices fan inflation.
There is another way of putting this. Price based schemes like carbon tax and ETS hurt the poor more than the rich. The poor are priced out of buying petrol and gas. In other words, ETS is regressive.
In an article on Business Desk, (17th of November 2023) journalist Ian Llewellyn said, “It is hard to imagine any focus either than on how to maintain and increase ETS Revenue without scaring the horses”.
Rising petrol and diesel prices are politically unpopular. The political consequences of high carbon taxes in France has continued for five years. Wikipedia writes on the Yellow Vest
movement:- “After an online petition posted in May 2018 had attracted nearly 1 million signatures, mass demonstrations began on 17 November. “”
The government had increased the taxes on petrol and diesel. The financial burden had fallen mostly on the middle and lower class.
Likewise in 2012 Julia Gillard’s Labour Party in Australia introduced a carbon tax of $25.40 a tonne. It was the subject of bitter political debate and climate policy. It dominated three election campaigns and was repealed just two years later by the Abbott government. Gillard had been pushed by the Greens to do it.
In contrast to carbon taxes or ETS, TEQs do NOT artificially increase prices for energy, as the current emissions trading scheme does, and as a carbon tax would.
How do Tradable Energy Quotas (TEQs) compare with ETS?
There are two overarching issues in dealing with climate change, ensuring we reduce emissions, and doing it fairly.
Certainty of emissions reduction can be achieved by reducing the use of fossil fuels in a planned way.
By issuing free quotas to every adult, requiring businesses and other organisations to purchase quotas, and making the quotas tradable, this system is fair, effective, and easily operated.
And because everyone is involved, this approach encourages everyone to be creative and help each other make this transition away from fossil fuels.
Government doesn’t have to do all the thinking. Everyone contributes to their solutions.
How do we know if people are adapting to living with a lowerfossil fuel input?
This scheme does not rely on raising the price of fossil fuels. Fleming points out that if the price of TEQs is low it shows that people are adapting to the gradual decline in the use of fossil fuels. Low TEQ prices are a sign of success. It is in everyone’s interests to keep the price of TEQs units low. We are all in this together. Those who don’t adapt and insist on buying large quantities of TEQs will be leaned on by the rest of society. TEQs reward those who live low carbon lifestyles.
Changing from ETS to TEQs will be a challenge
We are not claiming that it will be easy tochange from ETS to TEQs or that we have worked out a possible process. That challenge is for other minds.
The 60 page All Party Parliamentary ReportJan 2011 is at https://www.flemingpolicycentre.org.uk/APPGOPO_TEQs.pdf
Further information is on our DANZ websiteat https://www.degrowth.nz/blog/teq
What we want the House to do:
We want to present this petition to the Select Committee dealing with Climate Change.