Wednesday, March 15, 2023

Climate Change: Another ETS crisis

The quarterly ETS auction was held today. In the past, these have seen collusion by big players to game the price and force a dump of extra credits from the cost-containment reserve (essentially, trying to pick stuff up cheap now in the belief that it will be more valuable later). Today, things went... differently:

March 2023 has been declined because the clearing price did not meet the minimum price settings. As a result, there are no winning bids.
We don't know at this stage whether this was due to bids not meeting the minimum price of $33.06 - a price not seen since 2020 - or not meeting the confidential reserve. But its probably the latter. The confidential reserve is set by a methodology designed by the Minister, and is meant to ensure that auction prices aren't too much lower than spot prices. And its easy to see how if the methodology uses any but the most short-term averaging, then if prices have been high and have dropped significantly (due to, say, a cowardly government backtrack on price settings destroying confidence in the system) then you're going to see this sort of thing happening.

So what happens now? Well, all the units that weren't bought will just get rolled over until the next auction in June, while the failure to meet the reserve will trigger an automatic review of the methodology by which it is set (meaning the reserve will be lowered to ensure polluters get cheap carbon). But the fundamental problem here is that Labour's chickenshittery has caused a loss of confidence in climate policy and future decarbonisation. And that's something Labour needs to fix, because otherwise it becomes a self-fulfilling prophecy: low carbon prices mean less decarbonisation and higher emissions. Great for polluters and fossil profiteers, but not so great for the people of Aotearoa.