Climate Change: Treasury says "not like that"!

The history of New Zealand climate policy for the past thirty years has been one of Treasury demanding a perfect emissions trading scheme or nothing, as any other policy would be inefficient and not deliver emissions reductions at the least-cost. So its kindof ironic that when we finally got an ETS (imperfect though it was), and it finally started working, with rising emissions prices and an expectation of future increases driving polluters to clean up or shut down, Treasury said "not like that!" and basicly killed it. Thomas Coughlan has the full story in the Herald today:

Treasury warned ministers that higher prices needed to reduce emissions would send electricity, gas and petrol bills rising by between 3 and 8 per cent - and send the price of industrial and commercial energy even higher.

The advice, released to the Herald under the Official Information Act, fed into Cabinet’s decision to reject advice from the Climate Change Commission and supported by Climate Change Minister James Shaw to change the Emissions Trading Scheme (ETS) settings and allow carbon prices to rise much higher than they had done in the past.

[...]

The advice used an ETS price of $120, which is where prices might have gone had the advice from the Climate Change Commission been accepted. After the advice was rejected, carbon prices fell and now sit at below $60 a unit.

It appears Cabinet’s decision to reject the Climate Change Commission’s advice, while supporting lower household bills, has undermined confidence in the ETS, leading to a crash in the price of units.

Not mentioned anywhere in the report: the cost of cyclones, floods, and emergency legislation which is a crime against our democracy. But Treasury has always employed one-sided analysis, counting some costs but ignoring benefits, to get the result which fits their pre-conceived goal. And the deep history here is that Treasury has always opposed climate action, and their demand for an ETS was always intended to be impossible and so to impede action. So this just seems like them returning to type.

But the Cabinet paper also has some disturbing stuff in there about how they (under)value emissions, which gives them another reason to oppose action: because if emissions prices rise, so does the liability on the books from the ETS unit stockpile, which is (weirdly) valued at the current ETS spot price rather than the cost to cover those units in 2030. In December 2022 that stockpile was value at about $11 billion on an emissions price of ~$80/ton. A rise to $120/ton would have added ~$5 billion to the liability, which is a pretty material difference in the government's books, and a threat to Treasury's goal of keeping net debt low. Crashing the price OTOH has so far wiped about $3 billion off the liability, so someone's stat is looking good, and they'll probably get a bonus.

Which shows the problem with valuing carbon in monetary terms. While its sometimes useful - such as when doing so helps prevent emissions - at the end of the day, a ton of carbon is a ton of carbon, and if we care about climate change, that's what we need to track and what we need to stop. Treasury's climate sabotage might have made the books look better by $8 billion, but the cost of that is millions of tons more carbon being emitted than it would otherwise. And that's carbon we simply cannot afford to emit.