Monday, June 12, 2017

Climate change: Fixing the ETS

Writing in the Herald, Brian Fallow reports on economic consultancy Motu's proposals to fix the Emissions Trading Scheme. The good news is that they think that New Zealand will be locked out of international carbon markets for the foreseeable future - meaning no more fraudulent Ukrainian "credits" crowding out domestic emissions reductions. And this means we can finally have an ETS which limits emissions:

[C]entral to the Motu proposal is that the Government start to set a cap, a fixed supply of units for the next five years and updated annually.

The cap, which would be lowered over time, would drive the price, which would rise over time. That, after all, is the point of the scheme.

Most of the units would be auctioned. Others would be allocated free, as now, to trade-exposed emissions-intensive sectors, so they only face a carbon price at the margin. Potentially, that could include agriculture. The model is agnostic on that.

And some would go into a unit reserve which the Government could use to deliver a second key feature: a price band with a floor and a ceiling. The floor provides some security for forest owners and the clean tech sector; the ceiling some comfort for emitters wary of a price spike.

I don't see much value in a ceiling (businesses who don't want to be exposed to price spikes could just emit less), but if we want trees to soak up carbon, we will need a floor. As for the rest, we desperately need a cap, and a long-term trajectory will provide businesses with certainty to invest in cleaner technology. I'd also like to see an independent body to advise on the cap and trajectory to limit the potential for sabotage by a future National government (as they did to the ETS in 2009).

But I doubt any of this will happen under National. From the start, their policy has been to prevent polluters paying the cost of their destruction of our environment. If we want change in this area, we're going to have to get a better government first.