Time for a real price on carbon

The Government is consulting on changes to the Emissions Trading Scheme, and it's an opportunity to tell them to put a real price on carbon pollution. If the ETS is going to be our "main tool" to reduce emissions, we need to design so it actually works! Submissions close 5pm Friday 19 February, and we've prepared a quick guide to help you make a personal submission.

So far, the ETS has been a failure. Due to the weak settings it has been totally ineffective. But it is a tool, and we can fix it.

The Government's consultation is in two stages. This first stage just focuses on the removal of the "one-for-two" deal whereby companies only need to buy one emissions unit (or carbon credit) to cover every two tonnes of carbon emissions. What a bargain!

Removing this would be a small but very overdue step towards an effective price on carbon, which is a vital part of cutting emissions and building a zero carbon future. The Government has signalled an intent to remove it, but will no doubt face push back from polluters seeking to maintain the deal or secure a slow phase-out.

We decided not to make a quick submit form for this, but we've put together this brief guide to help people make personal submissions. 

 

Submission guide

The online submission form and more information can be found at http://www.mfe.govt.nz/consultation/new-zealand-ets-review-201516-consultation.

Note that you only need to fill out questions 1-8 on the "priority issues" - the remaining questions have a later submission deadline of 30 April (confusing, we know!).

Here are our four main recommendations relating to the consultation questions, with some suggested supplementary points you could make to back up and expand on the recommendations. 

We need a real climate plan. (Q2)

  • New Zealand needs a comprehensive plan to decarbonise our economy, including how we will meet our 2030 target. The ETS review needs to be integrated with this rather than done in isolation.

The ‘one-for-two’ deal on emissions should be removed, and the ETS should move to full surrender obligations. (Q3)

  • Removing the ‘one-for-two’ deal will better meet the objectives of the ETS by reducing New Zealand’s net emissions and helping meet our international obligations.

  • The time for ‘transition measures’ is well and truly over - the world is committed to cutting greenhouse gas emissions and New Zealand needs to make up for lost time.

  • The impact on the economy will be very modest and action now will reduce the cost of meeting our 2030 target.

  • Stronger carbon prices are already in place in many other countries and regions. 

The ETS should move to full surrender obligations before the end of 2016, and as soon as possible. (Q5)

  • The sooner New Zealand moves to full surrender obligations, the sooner the benefits will materialise and the more it will help to meet our emissions reduction targets.

  • There will never be an easier time to remove the one-for-two deal than now, with very low oil and carbon prices that will only go up in the future.

  • The government needs to send a clear signal it is stepping up action following the Paris agreement.

  • Carbon prices need to rise above a threshold of $15 to stimulate forest planting, which will be key to helping meet our 2030 target. Moving to full surrender obligations will help strengthen prices.

Government should fairly manage the transition without watering down the carbon price. (Q6-Q8)

  • The $25 price cap (fixed price option) could be kept in place until the end of 2016 to mitigate potential short-term price shocks, but should be either removed or steadily increased from then on.

  • If a price cap is to be kept it should be set at a meaningful level - for example, benchmarked to the ‘social cost of carbon’, currently assessed by the US EPA at around NZD$60 (central estimate).

  • NZIER’s modelling shows that keeping the $25 price cap in place could severely restrict potential net emissions reductions, while removing it would have only modest economic impact.

  • Government should take further action to increase the price back above the $15 threshold as soon as possible, for example through (1) a price floor; (2) a one-year freeze on free allocation of units to clear the ‘bank’ of units accumulated over the last three years.

  • There are a number of ways the government could reduce the impact on low-income households, such as tax adjustments, without watering down the carbon price.

 

References:

NZ Government, New Zealand Emissions Trading Scheme Review 2015/16: Discussion document

MfE, The New Zealand Emissions Trading Scheme evaluation report 2016.

NZIER. Economic impacts of removing NZ ETS transitional measures.

Professor Bruce Manley, Afforestation responses to carbon price changes and market certainties.

World Bank, Carbon Pricing Watch 2015.

US EPA, The Social Cost of Carbon.

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  • commented 2016-02-21 21:09:53 +1300
    Paul, to me it’s a live question whether the NZETS is worth fixing. If there’s one conclusion we draw from the IPCC’s carbon budgets, Kevin Anderson and Jim Hansen’s analyses and from the promise of the Paris Agreement – it is that the world does not have time for incremental change.