Since the National party moved into the Beehive back in 2008, mining has been a contentious issue. The government, looking for ways to mirror Australia, as well as speed up economic growth, focused on upscaling the mining industry. We have plenty of coal in country and, possibly, major reserves of oil and gas offshore. What’s not to like about that?

Well quite a lot really. Gulf of Mexico ring any bells? Like Chernobyl and Bhopal before, major industrial accidents can have long-term, catastrophic consequences, as well as immediate costs measured in human and economic cost. Offshore drilling carries huge risk and major negative downstream effects if it goes wrong. Onshore mining, on the other hand, is supposed to be plain vanilla these days. Apparently it’s a little like rolling up a cricket wicket and re-laying it when you’ve dug out a bit of sub-soil.

It’s safe, clean and you end up with an environment, which is as good as, if not better, than before. I was told that by the Assistant Head of Global HSE at Rio Tinto back in 2000. Actually it made sense to me…if you contain all the possible polluting effects, run a safe operation and remediate to very high standards…that could work. Perhaps that culture hasn’t quite made to to NZ. Judging by the poor practices at Pike River, one would have to ask serious questions about the management of mining in NZ. This has been reinforced by the recent shutdown of the Solid Energy mine at Spring Creek.

So I’m waiting to be convinced about this new world of clean coal and safe extractive practices. However, whilst I’m waiting, I’d like to suggest another way forward. Given that we do need certain commodities to be extracted, we need to create a risk structure that allows for exploration but with a precautionary approach. In other words, extractors must pay their way and do so in a manner that reflects the worst case scenario, such as the BP Gulf of Mexico disaster. So far BP have set aside a $20b fund for settling claims, of which $7.8b has been currently allocated. It’s an extreme event but an example of how badly things can go wrong when operating in sub-optimal conditions.

It’s time to explore environmental contingency bonds, as a way of mitigating risk and ensuring that insurance is in place before the extracting activity takes place. Just as someone renting a house has to pay a bond up front, to ensure any potential damage is covered, so do extractors have to pay an upfront amount before they start work. This upfront risk adjusted payment would be used to purchase government bonds (supposedly risk free!) or similar risk free asset, for the duration of the extractive activity. If, at the end of the activity period, there are no adverse effects, over and above what may have already been applied for, then the money is returned (plus any interest) to the extractor.

There are several consequences to this approach:

- This may increase the cost of extraction (though, in reality, this is simply a financing cost, assuming no damage occurs).

- This may spur companies towards better risk management and remediation processes. If they get it wrong, they pay. The onus of responsibility falls on the extractor and not the taxpayer and/or local community.

- In some cases, the sum demanded by the rental agent (usually the government) will be too high for the extractor to bear and this may result in the proposed project not proceeding. This isn’t necessarily a bad thing, as the priced risk is considered to be too high. An example of this may be drilling for oil in the Arctic or the new trade of the day, fracking.

How will the bond be priced? Each industry will have a different risk factor, which will be based on previous data….for example, offshore oil drilling and onshore coal mining have very different risk profiles. It’s important to note that this is not an insurance payment but a full cash upfront payment. The extractor may, of course, wish to insure their own risk on having to forfeit the bond but the important point here is that the government holds the cash and can move into remediation action as soon as any damage occurs. As we have seen with numerous disasters, insurers and re-insurers are difficult to deal with and can lock up claims for many years.

Remediating and risk management plans are great but for business, paying cash up front against possible mishaps will certainly concentrate their focus on doing the job properly and without harm. The public will be happier knowing that extractors are having to pay upfront and that they will, therefore, do their utmost to ensure their activities are not polluting, harmful or dangerous. Governments will be happy knowing that they have the cash in the bank, just in case anything does happen. The extractors? Well they probably won’t be happy at the extra cost but according to them they will leave the place in a better condition than they found it. So really they have nothing to worry about at all.

Thanks for Celsias for this post on the updating of the Montreal Protocol. It seems obvious that this successful treaty should be the starting point for any treaty on greenhouse gases but many of the lessons derived from those intense negotiations haven’t fully be absorbed into the Kyoto process.

It’s not too late to have another look. Many Kyoto advocates have told me there is too much time and money invested in it to change tack now. Well that’s not good enough. If Kyoto is not going to work then it should be set aside. It doesn’t mean a step back but a step forward.

So i’m dusting off my proposal based around Montreal. I think it’s time to realise that major reductions can only come from the supply side.

See Climate Control and also have a look at Oliver Tickell’s proposal Kyoto 2.

We’ve had Web 3.0 so why not Climate Change 3.0? I believe it’s time to move forward on this issue and start thinking smarter.

Let’s start with the basic problem. Governments are controlling the issue and yet governments do not create greenhouse gases. Who does? People and organisations do (ok and so do some animals) and they need to deal with it. Then we need to ask who provides the polluting items? Fossil fuel companies in the main (ok farmers and cement manufacturers as well) are the providers of the feedstock.

Added to that we have the other side of the equation which is the sequestration system, our rainforests, soils, other vegetation, oceans and whatever else sucks up greenhouse gases.

So we have a certain volume of fossil fuel feedstock coming into the system to be combusted in various forms to provide energy in the main (as well as a multitude of petrochemical based products) and we know where the major changes in land use occur so we know the net volume of greenhouse gases added in any given period.

What we don’t know is the tolerable limit of greenhouse gases in the atmosphere. It could be 400ppm, 500 or 600 (using carbon dioxide equivalents). No one knows and quite frankly the models we have are really best guesses. We do know that there is likely to be a tipping point over which we will have some severe and irreversible impacts. Hopefully our science will get better and allow us to forecast accurately but we are still learning about our systems and as yet cannot be certain as to where this level is.

So at some point we have to pick a number. Let’s say 500ppm. We are now at 380ppm so we can plot out a course for getting there. We must have a global cap on emissions or we are wasting our time. Forget about national limits..they are a complete red herring and unworkable unless governments want to control the sale and use of all fossil fuels within their own region. Given global trade that is simply not possible.

Once we have a global cap we can work out an annual quota for fossil fuel production. Then the fossil fuel companies can compete for the right to produce. One suggestion is that rights are grandfathered in but a better one is that the rights are auctioned off annually and the receipts put into a global environmental contingency fund. This has been suggested by Oliver Tickell through his proposal Kyoto2. You can read about that here www.kyoto2.org.

Once annual quotas are put into place the market will adjust prices to meet demand at the appropriate supply level. I have proposed a complete reorganisation of the global energy market to increase efficiencies and therefore lower prices.

Then we can forget about all the attempts to somehow finesse this problem. We just have to work out how much we can use and then carry on as normal. If prices go up then renewable and alternative energy will be sought out. Either way we need to adjust our behaviour.

This is the most likely way of achieving that. Governments can help negotiate the process like they did with Montreal but ultimately this problem can be solved easily by the fossil fuel companies taking charge like the CFC producers did before them.

Give people the freedom and the incentive to change and they will.

Research from the UK into people’s “green” behaviour demonstrates that people respond poorly to price signals and very rarely make the changes required without strong arm tactics. Recent fuel surcharges on air travel have made little difference to people’s travel plans. As our recent experiences with credit show us, people are always happy to go into debt to have what they want right now. Ecological credit is no different.

We must stop offering unlimited ecological credit if we really want to cap greenhouse gas emissions at any chosen level. Like our money supply it is currently in an acceleration phase upwards with little or no control.

Climate Control: Managing Global Greenhouse Gas Emissions

It’s time to face the fact that climate change can only be dealt with at the global level in a similar manner to ozone depletion.

I issued the following press release today. Read the full paper at the above link.

Should we limit fossil fuel production
Monday, 5 February 2007, 11:56 am

Press Release: Sustento Should We Limit Fossil Fuel Production?NZ economist proposes global fossil fuel production quotas to stem greenhouse gas emissions.

Christchurch-based policy institute Sustento says governments must set up a global quota system urgently to control fossil fuel production.

Institute director, Raf Manji says the Sustento Framework is based on the reality that climate change is a global problem and needs to be dealt with at the global level.

“Currently efforts to reduce greenhouse gas emissions have been devolved to the national level where policy has been limited to improving energy efficiency and switching to renewable energy. This approach has not yielded major results and other policy proposals such as carbon based taxes have not found favour with either politicians or their voters.

“As the latest Intergovernmental Panel on Climate Change (IPCC) report demonstrates this policy impasse needs immediate attention,” he urges.

The Sustento Framework calls for action at the production rather than consumption level. The Framework combines a global carbon inventory with an agreed limit to global greenhouse gas emissions, and from that produces an annual production quota for fossil fuels.

“This guarantees that agreed targets will be met – unlike current consumption reduction approaches which simply hope that this will happen,” he says.

Mr Manji is aware that critics of this approach argue that producers will not like the idea of quotas but, he counters, this approach was very successful in dealing with ozone depletion via the Montreal Protocol where producers rather than consumers were targeted.

Quotas also currently operate within OPEC and informally within the IEA, which represents non-OPEC producers. In July 2006 the G8+5 met for the first time to consider climate change issues. This group alone controls 76% of global coal production, 57% of natural gas and 38% of crude oil production. G20, which is an enlarged version of the G8+5, controls 94% of coal, 73% of gas and 59% of crude oil.

“If the problem of climate change is to be taken seriously by the major nations of the world then it is likely that forums such as the G8+5 will be the place where concrete action will be possible,” he says.

In 1977 the Brandt Commission proposed an international strategy on energy.

“If we are to limit growth in greenhouse gas emissions now is the time to implement such a proposal,” concludes Mr Manji .

ENDS