Thursday, April 13, 2023

Climate Change: The Climate Commission lays down the gauntlet

Back in December, the Labour cabinet ignored the Climate Commission's official advice on ETS price settings, triggering a collapse in confidence in the carbon market and likely slowing the pace of decarbonisation. This morning the Commission released its latest advice, on NZ ETS unit limits and price control settings for 2024-2028, and basicly they're doubling down on their previous recomendations.

If the Government expects the NZ ETS to contribute significantly to the abatement needed for budgets and targets, the NZ ETS must be given the room to do so.

Weakening decisions on NZ ETS settings and climate policy in general during times of adverse economic conditions, which climate change is only likely to exacerbate, is not sustainable in the long run and will greatly compromise our chance of meeting the climate change targets set out in the Act.

While they leave 2024 and 2025 settings unchanged (as they cannot be changed unless certain conditions are met), they're still recommending a two-tier cost-containment reserve, with a significantly higher trigger price and fewer credits available. More importantly, auction volumes for 2026 to 2028 have been cut even further, by about 3 million tons a year over their previous recommendation, to ensure the ETS aligns with the government's agreed emissions budgets. This is a statutory requirement, and its basically putting the government on notice over its previous cowardice: either they accept the Commission's recommendations for a tighter carbon market, or they publicly surrender any pretence that they intend to meet their own climate budgets or make meaningful emissions reductions (in which case the Commission might as well just all resign, because clearly their organisation is a joke and the Zero Carbon Act is a fraud on the people of Aotearoa).

Its an ugly dilemma for Labour, because the level of later reductions required by their backsliding - essentially halving the auction volume in five years - will probably cause market chaos and a price spike. But then that's the maths they've given themselves: surrendering to lobbyist whining and allowing more emissions now means less later and a steeper pathway - at least if they want any pretence of obeying the law. About the only way they can get a smoother pathway is if things get worse and the market colludes again to force a dump of units from the cost containment reserve in June, or if the Minister wants to argue that the December decision and its effects are a change which has significantly affected the proper functioning of the ETS, and that therefore the 2024 and 2025 settings need to be revised to restore balance. I think Shaw will be willing to make that argument. The problem, as always, is whether Labour will accept it.