Wednesday, October 06, 2021

Climate Change: The CCR was a huge waste of money II

Last month, in the wake of the September carbon auction, I talked about how the government's policy of flooding the market with a "cost containment reserve" of an extra 7 million tons of pollution in an effort to keep carbon costs low was a huge waste of money. Ministry for the Environment has now released their auction monitoring report, so we can see exactly how big a waste of money it was. The "interim clearing price" - pre-CCR - was $57 / ton. The final clearing price - post-CCR - was $53.85. So the government's flooding of the market saved polluters all of $3.15 a ton, or (when multiplied by the original auction volume of 4.75 million tons) just under $15 million.

The government values carbon internally at $150 / ton. So the social cost of that extra 7 million tons of pollution they have allowed is $1.05 billion. Or about 70 times more than the amount of money they saved, a benefit-cost ratio of 0.014. Which is even worse than the proverbial Auckland motorway, previously the rule-of-thumb for "waste of money".

While carbon prices have now settled at $64.50, that's just short of the 2022 CCR trigger price of $70/ton. So there's every chance that this tremendous polluting waste will be repeated next year. And possibly the year after that. The policy conclusion is simple: the CCR must be repealed.