Wednesday, July 14, 2021

Climate Change: Fixing the government's fuckup

Newsroom today has a piece on the ETS price crisis and the risk that poor market design means we will blow the carbon budget in its first real year of operation. But can we do anything about it? According to Climate Change Minister James Shaw, the answer is "no":

As the price nears $50, the trigger level for releasing a flood of new units into the market to depress the carbon price, the Government says its hands are tied about raising the cap this year.

Climate Change Minister James Shaw told Newsroom he'd been advised that he couldn't raise that $50 cap until the end of the calendar year. Given the speed at which prices are rising, the threshold is likely to be breached well before then - possibly in the next government auction, scheduled for September 1.

Bullshit. To point out the obvious, the government could legislate. I've taken a first stab at what a bill to do this would look like here. It is basicly a simple matter of changing one column of numbers in a schedule. The numbers I've chosen are higher, designed to give the market room to grow and find its price, while setting a clear pathway to a price of $150 by 2030. Note that the price cap is a maximum price; you would expect it to be significantly higher than the usual market price, and I'm actually worried that the rate of growth isn't enough (it would imply a trigger point of $235 in 2030, and I'm not sure that 50% headroom over the expected price is enough to cope with regular market variations). But whether the rate of increase should be $15, $20, or $25 a year is something we have a little time to work out - the important thing is to solve the current problem so the market can actually do its work.

The timeframe to pass this is narrow - the next auction is on 1 September. Given the significant environmental (and fiscal) implications of doing nothing, all-stages urgency seems justified, just as it would be for a tax-legislation fuckup. And that's what this is: a fuckup, which needs to be fixed ASAP.