The Climate Change Commission’s first advice on updating the Emissions Trading Scheme unit limits and price control settings for the next five years was released today, triggering the posting of expert comments from the Science Media Council.
The advice on updating NZ ETS settings will now be delivered annually to the Minister by the Commission.
Under the ETS, businesses that emit carbon must surrender a carbon credit – or unit – for every tonne of pollution they emit.
Commission Chair Rod Carr said confidence in the stability and predictability of the scheme was key to making it effective.
“It needs to be kept up-to-date, so that it aligns with the country’s emissions reductions targets,” Dr Carr says.
“Aligning NZ ETS settings up with our emissions reduction targets will make it easier and cheaper to achieve those goals, and guide us towards a thriving, low emissions, climate resilient economy.”
Compared to current settings, the Commission recommends:
- Reducing the limit on the number of units available for auction
- Raising the trigger prices for the cost containment reserve and auction reserve price
- Changing to a two-tier cost containment reserve from 2023
“High emissions activities will become more expensive and low emissions options more cost effective as the world prices the damaging effects of greenhouse gas emissions,” Dr Carr says.
The Commission’s advice has been developed in line with the intent of the Government’s emissions budgets and its Emissions Reduction Plan, and taking into account evidence about the emissions prices needed to meet our targets.
Beyond the unit limits and price control settings, there were some other pressing issues that the Government must address to make the NZ ETS as effective as possible, Dr Carr says.
“The NZ ETS needs to be fit to reduce gross emissions to reach net zero long lived gas emissions sustainably. The Government has not yet said how it intends to do this.
“For example, the NZ ETS currently does not distinguish between carbon removals by trees or reducing emissions. Unless this is addressed, the NZ ETS is likely to deliver mostly new plantation forestry rather than gross emission reductions. This would ultimately put our economy at a competitive disadvantage relative to a decarbonised global economy and shift cost burdens on to future generations,” Dr Carr says.
Another pressing issue is the need for the Government to clarify what role the NZ ETS will have, if any, in delivering the offshore mitigation that is needed to meet the NDC.
“It is essential that the Government secure access to sources of offshore mitigation as soon as possible, and decide how this will affect the NZ ETS. This is not a matter that can be left until later this decade.”
Climate Change Minister James Shaw welcomed the recommendations from the Commission.
Officials will now consider the recommendations and provide further advice.
The Government looks forward to receiving more feedback during the public consultation
The Science Media Centre has posted these comments from experts on the commission’s report:
- Dr Jocelyn Turnbull, Radiocarbon Science Leader, GNS Science:
“Every step that Aotearoa New Zealand takes towards reducing our greenhouse gas emissions is laudable, and this Climate Change Commission advice on the NZ ETS is one important step. A reduction in the number of units available over time, and the concurrent increase in pricing, has always been a necessary part of the emissions trading equation.
“Yet the NZ ETS is only one step, and many other steps are needed to meet our national (Zero Carbon Act) and international (Paris Agreement and Nationally Determined Contribution) commitments.
“The Climate Change Commission document rightly points out some flaws in the NZ ETS – that the structure is such that it encourages tree planting as an offsetting method, rather than actually reducing our emissions. And further, it encourages planting of exotic, typically monoculture, forests rather than enhancing native forests. NZ research is showing that the current mandated emissions accounting guidelines (the IPCC TFI) are out of synch with the reality of emission and offset rates, particularly around land carbon uptake (tree planting, land management, etc). NZ researchers are working closely with the IPCC TFI to update the guidelines to improve the match between what is reported and what happens in the real world – which will help us to better manage our mitigation strategies through the NZ ETS and other mechanisms.”
No conflict of interest declared.
- Distinguished Professor Robert McLachlan, School of Mathematical and Computational Sciences, Massey University:
“The Climate Change Commission’s latest advice is a strong response to the climate crisis.
“They call for a marked strengthening of the ETS and show that they are determined to follow through on the framework of the Zero Carbon Bill. The Commission also give the government a stern ticking off and point to numerous areas of complexity and uncertainty. As a whole, the advice illustrates the tricky terrain we are entering as we start to reduce emissions.
“The price changes are significant. The trigger for releasing reserve units goes from $78.40 in 2023 to become two triggers of $171 and $214. That level would be sufficient to greatly accelerate decarbonisation of industry – at Fonterra’s milk powder plants, for example, currently scheduled to be burning coal until 2037. The floor would rise from $32.10 to $60. But price rises also hit consumers, some of whom have limited capacity to respond.
“The reserve units themselves are a problem, though, as they may lead to overshooting the carbon budgets; the government then has to pay them back somehow. (But not until later.) The ETS market, and how it relates to emission cuts, is complex and unpredictable.
“The Commission’s task has been made extremely difficult by the uncertainty surrounding banked ETS credits and government inaction in two key areas: how much forestry will be allowed, and how our Paris Agreement NDC target (“halving emissions by 2030”) will be met.
“On forestry, the Commission beg the government to act; in the meantime, they assume that the sectoral reference pathways will be followed. They say that unlimited forestry will “severely damage the ETS’s effectiveness.” If the pathways are not followed, there is a huge risk that agriculture, say, will under deliver, leaving the rest of the country on the hook both for the domestic carbon budgets and for the Paris target.
“On the NDC, although the Commission is required to take this into account, they still consider that going any harder domestically would be too disruptive. Therefore, they stick with urging the government to say how the NDC will be met. At the moment, the potential liability for the NDC is not even on the books.”
No conflict of interest.
- Professor Euan Mason, School of Forestry, University of Canterbury:
“Being greenhouse gas neutral is highly desirable, and marketable, but the Climate Change Commission’s advice appears to be somewhat at odds with creating a net greenhouse gas neutral economy for two reasons.
“Firstly, the Commission says that we wish to get to net neutrality by 2050, but that our prime CO2 removal mechanism, new forest sinks, should not be relied upon because “This would ultimately put our economy at a competitive disadvantage relative to a decarbonised global economy and shift cost burdens on to future generations”. No doubt the Commission’s argument is based on the fact that new forests have limited lives as sinks, and so ever larger areas of new forest establishment are required for this solution to be sustainable, and we have a finite area of land much of which has other uses.
“What this really means is that net neutrality is not a desirable ultimate goal. Getting gross emissions to zero should be our ultimate goal. Forest sequestration can buy us time while we switch to an economy that is not based on greenhouse gas emissions, but it is not a final solution. It is quite clearly spreading the burden of change across generations, and this is what our “net zero by 2050” commitment inherently does. We therefore need mechanisms that go further than the emissions trading scheme which could only achieve net zero emissions. This advice should be explicit, with a clear plan and recommendations for mechanisms to get Aotearoa to gross zero emissions by a realistic target date.
“Secondly, given the marketability of an enterprise claiming “greenhouse gas neutrality”, the Commission appears to be confused about auctioned carbon credits, because as tools for claiming greenhouse gas neutrality auctioned credits are fraudulent. Auctioned credits are created out of thin air, and do not represent anyone actually removing greenhouse gases from the atmosphere. Therefore purchasers of auctioned credits cannot honestly claim “our operations are greenhouse gas neutral”. On the other hand, forest sinks do remove greenhouse gases from the atmosphere, and purchasers of those credits can honestly claim greenhouse gas neutrality. Auctioned credits should not be called carbon credits, they are instead a form of taxation, such as a car registration, and should be called something like a “licence to pollute”. This more honest name would provide an incentive to emit less rather than purchase them, and promote our ultimate goal of a zero gross emission economy. More honest naming would also clarify our policies and our actions thereby promoting our two goals of net emissions neutrality by 2050, and gross zero emissions by perhaps the end of the century, as suggested by the Globe study from Vivid Economics.”
No conflict of interest.