Wednesday, July 27, 2022

Climate Change: Freeing the ETS

The Emissions Trading Scheme is broken. Stuffed with free allocations and rigged with a "cost containment reserve" which floods the market any time prices get "too high" (for a definition of "too high" set in a different world), its basicly served as a machanism to subsidise the production of the pollution it ostensibly wants to get rid of, at a cost of billions of dollars a year. This is obviously unsustainable, so much so that even the foot-draggers in Labour have recognised it, and they finally seem to be fixing it. last week, they announced they'd be reducing free allocation (though dragging their feet on it at the cost of another billion dollars). And today, the Climate Change Commisison published advice on the topic of NZ ETS unit limits and price control settings for 2023-2027 - basicly, how much carbon polluters will be allowed to emit, and how much they will pay for it.

The changes proposed are massive. Comparing their new numbers (p11 - 12) to the current settings, they'll be ripping over 12 million tons out of the overall cap over four years, lowering it from 124.9 to 112.7 million tons. But it gets better, because that cap includes the Cost Containment Reserve volume, and they're increasing the trigger price (the point at which it becomes available) by about $100/ton, from $78.40 to $171 in 2023 (they're also moving to a two-tier CCR, with a small volume released at that price, and the bulk of it at a price ~$40 higher). CCR volumes have increased by about a million tons a year, but the massive price increase means those credits should effectively be unavailable. Meaning the effective volume available will be decreased by another 29.7 million tons to just 83 million tons. That's a reduction by a third. Unfortunately, past policy mistakes have left polluters with a massive stockpile of credits, but these changes should see most of them used up by 2026 (the Commission's goal is to force the stockpile to be used by 2030). The upshot: we're going to see a big increase in carbon prices, a reduction in the stockpile, and real price pressure on polluters to reduce emissions. The price increase should also be high enough to incentivise native forestry, so all those farmers currently hating on pine as a threat to their rural lifestyle will start sharpening the chainsaws for manuka and totara.

(The massive decrease also shows just how much the rest of New Zealand is squeezed by the exclusion of farmers from the ETS. They don't have to make cuts, so all the burden goes on us, and we'll be paying for it. And all to protect a tiny minority of dirty, rural rich people...)

Of course, this assumes that the government adopts the Climate Commission's advice. They have a good record on this in the past, but those changes have been fairly small and ineffectual. This is actually going to do something, so we can expect the pressure to go on from polluters to water it down and weaken it and keep the subsidies flowing. Which means we're going to see whose side Labour is really on: the planets, or the polluters'.