Wednesday , December 19 2018
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Just use the darned ETS

Summary:
If the government had just used the freaking ETS to reduce emissions rather than banning the natural gas industry in Taranaki, or subsidising hydrogen production, we wouldn't be seeing this kind of stupidity.The linked RNZ story suggests the government's provincial growth fund was used to subsidise development of hydrogen options for heavy vehicles, and that that led to the proposal to subsidise a much bigger hydrogen plant in Taranaki - but that the Taranaki gas ban means too uncertain a supply of the raw material for hydrogen production. So that presumably means higher equilibrium subsidies are needed to attract the thing, to compensate for the stupid gas ban.I have no clue whether it would have made sense to build hydrogen plants in Taranaki in the absence of the gas ban. I worry about

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If the government had just used the freaking ETS to reduce emissions rather than banning the natural gas industry in Taranaki, or subsidising hydrogen production, we wouldn't be seeing this kind of stupidity.

The linked RNZ story suggests the government's provincial growth fund was used to subsidise development of hydrogen options for heavy vehicles, and that that led to the proposal to subsidise a much bigger hydrogen plant in Taranaki - but that the Taranaki gas ban means too uncertain a supply of the raw material for hydrogen production. So that presumably means higher equilibrium subsidies are needed to attract the thing, to compensate for the stupid gas ban.

I have no clue whether it would have made sense to build hydrogen plants in Taranaki in the absence of the gas ban. I worry about Shane Jones engaging in the kind of winner-picking that might have even made Joyce blush. I expect the best folks to assess whether it makes sense to build hydrogen plants in Taranaki are the investors whose money would be on the line.

But if it did make sense, the gas ban makes it pretty unlikely anybody would decide to make a pile of costly infrastructure investments that depend on a reliable source of gas.

Under my preferred "Just use the freaking ETS and otherwise get out of the way" alternative, there wouldn't be a subsidy for hydrogen plants but hydrogen plants would have a lower effective cost of using natural gas because they wouldn't have to be purchasing ETS credits for GHG emissions, presuming that the stories of carbon dioxide capture are accurate.

And if the hydrogen plant stacked up without subsidy, then we've just found another way that the gas ban can wind up increasing emissions relative to the counterfactual.

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