How do you have an emissions trading scheme when there are no permits to emit?
That's a question Aotearoa is eventually going to have to confront as we move towards carbon neutrality. And, thanks to exclusions from the ETS and huge pollution subsidies, that end is beginning to come into sight.
The regime announced its new ETS unit limits and price control settings yesterday. They largely follow those recommended by He Pou a Rangi, with a big exception: He Pou a Rangi had recommended an increased allocation of 3 million tons in 2031, to account for the end of surplus reduction. The regime has cut this to 1.1 million tons, for "stability". Which is great from one point of view: its 2 million tons that won't be emitted! But He Pou a Rangi is already warning that surplus reduction has maybe been too aggressive, and might lead to a unit shortage from 2030 (and maybe as early as 2028). Which means price spikes, demand destruction by the market, deindustrialisation, and arbitrary ad-hoc interventions by the government to try and "fix" things.
He Pou a Rangi has been warning about this for years, and telling the government that it needs to rebalance the ETS by bringing in agriculture, decoupling forestry, and reducing industrial allocation (which will be higher than auction units in 2028, and three times higher in 2031). But that means decisions which will necessarily upset big polluters and their lobbyists, who view their current free ride as an absolute right. It would be work! And instead of doing that work, the regime has chosen to punt, make it someone else's problem, and make it worse, so that the next government will have to fight those polluters (and National can them collect donations from them). Which is a perfect example of how National is simply not serious about climate change.
Meanwhile, if nothing changes, on the current trend the ETS auction volume will be zero in 2033. There'll be subsidies and free rides and trees, but no actual auctions - and no government control over unit volumes or emissions. Which defeats the entire purpose of the scheme.
Something has to change, and the next government is going to have to deal with it. An "emissions trading scheme" where the only way to get permits is to be a regime crony with a pollution subsidy, and where there is no overall control over emissions, is neither viable or credible.





