A few weeks ago, I blogged about the (then) upcoming ETS auction, raising the prospect of it failing, leaving the government with a messy budget hole. The auction was today, and indeed, it failed. In fact, it was such a failure that no-one even bothered to bid.
Its easy to see why this happened: the price path has set a minimum auction price of $64/ton. Meanwhile, National's mass-repeal of climate policies has undermined and public dabbling in climate denial around agricultural emissions means that no-one really believes they're committed to emissions reduction. Carbon prices in the public market have dropped to $49/ton - $15 less than the minimum auction price - and the government deciding to consult on lowering the auction floor, essentially on reducing the price of carbon in the future, means that only a fool would buy it from them. So, no auction. People are just going to wait and see what happens, and buy from the (much cheaper) spot market to meet their obligations.
This isn't a problem from an emissions point of view, in that any unsold credits get cancelled at the end of the year, removing them from the pool entirely. Emitters will instead be reducing the stockpile and/or encouraging tree planting, both of which are things we want. It is a problem for the government, who were depending on ETS revenue to fund their landlord tax cuts and farmer subsidies. And its especially a problem given that they have said that the ETS is their primary (effectively only) emissions reduction policy.
How can the government restore its credibility? Essentially, by shutting the fuck up, and doing what He Pou a Rangi tells them around policies and price settings. But I don't think National is capable of doing that - both because they're climate deniers, and doing what other people tell them goes against their fundamental ideas of how government should work. Instead, I think they'll wreck the ETS - by price drops or flooding it with credits - just to prove they're "in charge" (and because they're climate deniers and don't care if it works anyway). The next government is going to have a hell of a mess to clean up.
