The Climate Change Commission is recommending more than halving the number of carbon credits auctioned off next year, in an effort to reduce oversupply.
Cutting the auction volumes could threaten the Government's plan to use revenue from the Emissions Trading Scheme (ETS) auctions to help fund income tax cuts.
Usually, policy settings are fixed two years in advance and are unable to be changed except in special circumstances which the Commission thinks have been met.
It said dysfunction in the scheme last year—prompted by an unlawful Cabinet decision and a review of forestry units—was significant enough to justify amending the unit limits next year.
This was made even more urgent by a revised estimate of the amount of units that have been stockpiled by emitters for use in the future.
New data suggests there may be 19 million, or 38%, more surplus units being held than had been previously thought, largely due to a sharp rise in forestry registered in the scheme.
The Commission said that surplus still needed to be used up by the end of 2030, or else New Zealand might blow its second emission budget, and therefore unit settings needed to be cut faster.
It has recommended more than halving the amount of units being offered in 2025 and in the following five years. The total number of units would drop from 49.5 million to 24.7 million.
Price control settings would remain unchanged in the next two years and rise gradually thereafter. The minimum reserve price would rise from $68 today to $88 in 2030.
Cost containment reserve trigger prices would rise from $194 to $250 and $243 to $313.
Rod Carr, Chairman of Climate Change Commision, said the four declined auctions in 2023 demonstrated there was an oversupply of units already in the market.
“The auction results highlight that the NZ ETS is not primarily a revenue generating mechanism and cannot be relied on as a steady source of funds,” he said.
“This unit surplus will not self-correct. It is critical that the Government adjust the NZ ETS unit volume limits as soon as possible to draw the surplus down and bring the settings back into alignment with targets”.
Government response
Minister of Climate Change, Simon Watts thanked the Commission for the advice but did not make any further comments.
The advice will go out for public consultation later in the year and the Government will make the final decision on ETS settings before September.
National and its coalition partners are relying on the scheme to deliver on Christopher Luxon’s personal promise to achieve net zero emissions by 2050.
It also plans to redirect its revenue into the Government’s general coffers to free up some funding for its income tax cuts. This was pitched as an indirect ‘carbon dividend’ of sorts.
Redistributing the proceeds of the scheme to income earners would help to ease the political pressure that could come with letting the carbon price climb.
While only emitters and market makers take part in the ETS scheme directly, consumers indirectly pay the carbon tax when they buy electricity, petrol, and other things.
The Climate Change Commission's recommendation—to halve the number of units sold over the next six years—could create a headache for the those trying to balance the Budget.
“Adjusting units in the scheme to align to targets … highlights the unreliability of income for the government from the NZ ETS,” it said in its advice.
Fiscal fallout
Auction volumes were already set to decline in line with emissions targets until they both reached zero in the mid-2030s, but this policy recommendation puts it on a fast-track.
“The current increase in the surplus, which leads us to recommend sharper adjustment to auction volumes, makes this unpredictability more acute,” it said.
It is hard to know for sure how much revenue the Crown might miss out on, as reducing the number of units available could push up prices and lessen the fiscal impact.
But Paul Harrison, a managing director at Salt Funds, said it wasn’t obvious that following this advice would cause the carbon price to spike significantly.
The advice was given in response to the higher stockpile estimate and was intended to keep emissions within the existing budget — which could mean prices stay on a similar track.
“I think what's apparent is that New Zealand has sold too many in the previous auctions and let emitters get off too easily,” he said.
The price was expected to rise in the coming years and would need to be higher if it was going to encourage companies to invest in renewables and consumers to change behavior.
In a press release, Labour’s climate change spokesperson Megan Woods said the advice “foreshadows lower than expected” auction revenue.
“Which is a problem for the Government if the intention is to use the money from auction proceeds for tax cuts,” she said.
Woods said the Coalition should “move quickly” to ensure the ETS is aligned with emissions budgets and also articulate its broader climate policy plans.
Comprehensive policy needed
Carr advised there was an opportunity to tighten the ETS cap and reduce the amount that would need to be spent on offshore offsets.
“We have deferred adopting this approach in this advice as we await the Government’s clarification of its approach to gross emissions reductions, removals from forestry and purchasing offshore mitigation, as well as its wider vision for climate policy in the second emissions reduction plan to be developed this year,” he wrote.
The Coalition needed to urgently set out the role it sees the ETS playing in a “coherent policy package” that would meet the country’s various emission reduction targets.
Current ETS settings are likely to drive lots of new forests, which sequester carbon, but not significant reductions in actual gross emissions.
This might be the fastest and cheapest option but has a negative effect on many rural communities and may not succeed at permanently reducing emissions.
The Commission wants the Government to quickly signal whether it wants to stick with a net emissions reduction strategy, or attempt to seek more gross emissions savings.
“Delay will undermine the confidence of investors, lead to disappointed expectations, delay action needed to meet targets and impose avoidable costs in the future,” Carr said.
55 Comments
Carr is well aware we have bigger existential problems; CC being just one facet of the Limits to Growth which humanity is bumping its collective heads up against, about now.
But he is terms-of-reference bound, hence this. The joke is that if we reduce carbon by that measure, the 'economy' - as we have temporarily come to know it - will have imploded. Already there isn't the energy to assuage the current debt, and that gap is widening.
The bigger joke is that fossil energy is leaving us, anyway. By 2050, we won't be trading amicably with each other; we'll be in much smaller, probably sub-national, cliques. And carbon emissions will be in the rear-view mirror. Unfortunately, feed-back-loops won't be.
The flaw in the ETS was that is was designed to maintain BAU. That goal - it was really: BATemporarilyPossible - was unattainable, just as the Nat-established Productivity Commission was doomed to fail because it was really up against the Second Law of Thermodynamics and Carnot. Money is a forward expectation of future energy; you cannot underwrite more of the former with less of the latter.
The govt is caught between a rock and a hard place. I understand that the Nats fully supported the Carbon Act whatever its actually called while in opposition and also the establishment of the commission.
Unless they revise their commitment to the Paris? accord, there's not going to be much progress without NZ messing up somewhere. Everything flows on from the Paris accord commitment. Somehow need to fudge that as I think many countries are back pedalling without declaring as such. Time to revise the Carbon Act.
There is evidence that the 1.5deg C, a politically chosen value, has been exceeded already.
Forget the investors in carbon credits. Mostly overseas speculators I suspect.
The recommendation of the Climate Change Commission is based on strong logic if commitments to the Paris Accord are to be achieved. It is highly likely that the Government will agree to them. If it does not agree, then it by law has to explain why it s not doing so. Reduction in government revenue will not be a valid reason.
It is reasonable to assume that this will increase the price of carbon over the next few years but with minor effects beyond 2030. It may even lead to a decline in the post 2030 price.
KeithW
"If it does not agree, then it by law has to explain why it s not doing so" I'm not sure whose law this is but suspect it's NZ law then it's likely to be in the Carbon Act which can be changed by Parliament. The Paris accord as far as I'm aware is not legally binding.
Officially it's the"The Climate Change Response Act" aka my terminology Carbon Act
There's a number of problems looming. Reading the advice they point out new tree planting is likely to be very low by 2025 with current regs and confidence. As they showed earlier they still need around 32,000 ha per annum of new exotic for another 10 to 15 years and a growing native area.
Failure to reach this could cause reverse supply problems in the 2030s. They even note there needs to be some financial and reg certainty to get these numbers. Not an easy path to navigate politically.
Another interesting watch will be to see if we get the emissions reduction path they have mapped out. It's a steep and constant fall about to start based upon their forecast. We will have to see some major coal burners stop to achieve this.
Will the Government forgo revenue by dropping auction volume?
If they ignore this they could be back in court and may lose again which caused a backtrack last time.
Interesting time ahead.
When the pollies, 'scientists' and various other hangers-on arrived, all those private jets had then to be flown to other airfields for parking. And then flown back.
The biggest carbon event in history. Isn't that what's called hypocrisy?
https://sentinel-aviation.com/news/private-jets-flock-to-dubai-for-cop-….
Wingman - yesterday you actively chose ignorance, over learning.
Realise that others will rate your rants accordingly.
Which is a pity - because you raise a major point; ex fossil energy, NOBODY will be going anywhere at those speeds (speed demands energy) and the global trading system, as we've come to know it, will not exist.
This is where I have an issue with the CCC and Keith W upthread; money is underwritten by energy; you cannot reduce the net energy available and still underwrite the same dollar-parity. Cannot happen, hence incessant inflation - only suppressible via degrees of recession.
I've heard that for decades, new technology will take care of it. Aircraft now burn probably 50% less than a similar engine 40 years ago.
What inflation? Inflation's around 4.7% and that's not high. High is 19%, like 1987.
People get excited about different things. Some get wound up about Gaza, some about religion, some about atomic bombs, some about the environment. I've heard about running out of oil for 50 years, so I'm sure you'll excuse my scepticism.
If the environmental scientists were serious, they should be imploring people to breed less, but I don't hear anyone telling people to stop pumping out kids. In fact it was the Labour Govt that allowed 110,000 more immigrants into this country in one year.
New technology is going exponential, so we will definitely use less oil, unless people keep pumping out kids and the population keeps increasing.
But new technology allows us to extract natural resources much more efficiently - the planet has never run out of anything, despite 'experts' and 'scientists' telling us for decades it will.
Once the resource depletion rate (exponential) is greater than the technological advancement rate (linear but lumpy) then it becomes uneconomic to extract resources. As an example, we now have to extract 10x more rock to get the same amount of copper as 100 years ago. https://upload.wikimedia.org/wikipedia/commons/2/2f/Grade_of_US_Copper_…
The Second Law is immutable.
Efficiencies therefore are a process of diminishing returns - exactly as 'productivity declines' tell us.
And the Jevons Paradox more than soaks up the rest.
And he's wrong about 'running out' too- sort of a flawed cranial approach; probably hard to re-wire this late in the day...
We're not 'running out', it's nonsense. Lots of people out there love a cause.
https://www.investors.com/politics/commentary/we-are-not-running-out-of…
Foolish comment, sorry.
If you use a finite resource at X rate, it will deplete.
Use at X2 rate, it'll deplete faster.
Try substitution at exponentially-growing rates, and all options fail to fill the demand, sooner rather than later,
Guano, whaleoil, mammoths, moa, worked-out mines and wells, thousand-year-old timber - sorry, it's just stupid to think a finite planet can support infinite resource consumption,.
Must be fun at your house PDK, every time you open a chocolate bar, you enjoy it a little bit, and then to your horror you realize (again) that if you keep going you will surely run out.....an impending disaster....and if you eat it twice as fast, OMG that is too scary to think about. So, I assume there are lot of half finished chocolate bars at your place, because running out is bad right ?
Yeah, we were supposed to run out of oil decades ago. Now there are more known reserves, than we have ever known about, at the time we were supposed to run out of oil, the conspiracy theory was (and I was a child so I almost believed it) that oil companies since they had so much money were buying all the seed companies, and everyone would have to pay the oil companies for access to seeds, and therefore food. We would all have to pay high prices or starve. Of course this never happened, we didn't run out of oil, and the oil companies didn't try and starve us. Now we are faced with starvation as a result of man made climate change. What next ?
Absolute bollocks.
We were meant to peak, years ago, and did so. You fell for the denial propaganda, obviously. Now we're down to fracking, tar-sands, deep-offshore; all lesser-desirable choices. That, inexorably, tells us we've burnt the best; it's gone.
I think you have a defective way of thinking - maybe learn some critical-literacy skills? Logic says that the oil co's cannot 'become rich' is there's no energy available - less if there is less. There will never be $200 (equiv) oil; society cannot 'afford' oil of that low a net energy (whether by quality-reduction or competitive rationing).
And a species in gross overshoot, is going to come up against multiple Limits - again, it's just logic. Double-or-quits territory.
wingman,
Like you, I have little enthusiasm for COPs and would happily see them binned. I am also quite prepared to accept that there is a real danger of 'groupspeak', where individuals toe the party line for the sake of their jobs or their research grants.
Where there is good evidence that goes against the received wisdom, it should be heard and debated openly, not suppressed or ignored. Personally, with 4 young grandchildren, I would love to see good evidence showing that somehow, climate change will be much less of a problem than we currently believe, but I haven't seen it yet. If you have it, let's see it.
It's a matter of what really is the problem. I haven't seen any evidence of global warming here. Have you got any where you live, or are you just accepting what you've been told in the media?
I do believe that there's a case to answer, and that many 'scientists' and govt and local body employees, and employees of environmental organisations couldn't possibly disagree with the accepted theory. If they did, that would be very hazardous to their jobs and company superannuation.
It would be like working for a local council and refusing to speak a bit of maori, or attend 'cultural' seminars.
Luckily these things "bit of maori, or attend 'cultural'" are on the list of things to be cancelled. Climate change conspiracy theories will also die, just a bit slower. Personally, if someone asked to to do 'bit of maori, or attend 'cultural' I would excuse myself and do something useful until they had finished wasting their time. Much like when someone tries to convince me of climate impending climate change disaster.
How about a dramatic reduction in the Climate Commission? Can we afford to house 120,000 immigrants and fund climate homeopathy at the same time? Especially when NZ is a CO2 sink.
"New Zealand is a net CO2 sink of −38.6 ± 13.4 TgC yr−1."
https://agupubs.onlinelibrary.wiley.com/doi/10.1029/2023GB007845
"sinks vs emissions in NZ let alone our supply chains" Try reading the paper? Perhaps start with the bit abut supply chains? Gold star for your "incomplete and poorly constructed argument". Perhaps get some sleep and try again in the morning?
"...In addition to the territorial carbon budget quantified using the bottom-up and top-down approaches, we estimated non-territorial emissions, which are the emissions associated with the net trade of fossil fuels, crop, wood, and livestock to and from other countries. Non-territorial emissions from these products occur in the country where they are consumed, and not in Australasia where they are extracted or produced and subsequently exported outside the country."
This govt has been very critical of the "free" credits given to large emitters when in opposition, even though it was because the previous Key govt insisted on it.
They could claw them back.
Simon Watts seems reasonably intelligent and sensible, but he will probably be overuled by the other imbeciles.
Seriously... I think the answer is to cut the climate change commission in half, eliminate them completely. I'd wager that there has been no net benefit for the environment or average person over the last 20 years or foreseeable future. The introduction of the ETS and Carbon taxes caused accelerated deforestation in the late 90's and early 2000's as land owners got in quick to convert to dairy before they had a tax to pay (often converting land that never should been - in a rush to avoid the tax). Replanting incentives that now exist - have caused widespread planting - but again on land that shouldn't be converted, in locations that have no processing, ports, or viable extraction. Permanent Radiata forests should never have been allowed - and poor (cheap) management of them raise the risk of allowing diseases to establish and spread to well managed estates. This entire ETS money go round has just employed thousands of bureaucrats, accountants, policy writers, media, created overseas junkets for politicians, made the rich richer with marginal land carbon farming, and placed a tax on the poorest New Zealanders with power prices 2-3x what they should be for long established hydro generation as the power price is now related to the cost of producing the last mwhr from a thermal station. I'm not arguing if climate change exists or not - "the experts" and media have told us we are in an emergency - but if we are - then we have taken the worst and most inefficient way of getting ourselves out of it.
Agreed. An ignorant ideology - the idea that you can 'make money' from anything, and that 'the market knows best', was behind the Key Government's choice to go this way.
It was never going to have a physical effect, because the physical driver - economic growth - was retained as the paramount goal. Thus the CCC asserting only 1% (If I remember correctly) less GDP by 2050. Renewables are inevitable - fossil fuel feedstocks being finite - but don't deliver the punch, by some orders of magnitude.
As a very intelligent participant once pointed out: http://large.stanford.edu/courses/2011/ph240/klein1/docs/rickover.pdf
The case for disbanding the Climate Change Commission. Their climate homeopathy theories are expensive and pointless. The Paris Accord is a non-binding failure. NZ should walk away.
"...All we have managed to do halfway through the intended grand global energy transition is a small relative decline in the share of fossil fuel in the world’s primary energy consumption—from nearly 86 percent in 1997 to about 82 percent in 2022. But this marginal relative retreat has been accompanied by a massive absolute increase in fossil fuel combustion: in 2022 the world consumed nearly 55 percent more energy locked in fossil carbon than it did in 1997.
...When the world began to undergo its first energy transition during the nineteenth century, it had to replace about 1.5 billion tons of mostly locally cut and burned wood with coal and, after the 1860s, also with hydrocarbons (Smil, 2016a). In 2022 the world produced nearly 8.2 billion tons of coal, almost 4.5 billion tons of crude oil, and 2.8 billion tons of natural gas, all extracted very efficiently and mostly in a highly concentrated manner from large mines and from enormous hydrocarbon fields on every continent.
...Moreover, even the first grand energy transition still has not been completed more than two centuries after it began. Nearly 3 billion people (in Africa, monsoonal Asia, and Latin America) still depend, mainly for cooking, some also for heating, on traditional biomass energies: fuel wood (and charcoal made from it), straw, and dried dung still supplied about 5 percent of the world’s primary energy in 2020.5"
https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/in…
Great link, Profile. Agree with all of it, and it's why I chose my pen-name here, 15 years - or more - ago.
Because the one unstated item in that article, is the most important. We have burned 50% of all the oil we've ever burned, in the last 30 years; this has been an exponential trend. We are down to fracking, to tar-sands, deep-offshore sources, sour crudes; irrefutable indications that the better options have all been tapped-out.
So yes, we will cling to the less-entropic energy sources, while they remain. But - as the article acknowledges - that will cook the planet beyond human-life-support levels. But the biggest point is that by 2050, there won't be enough of the FF stocks left, to even go close to meeting demand. And nothing else scales/equates. So we will be powering down.
Which some of us foretold. And it's about time the media asked the questions....
A lot of the logic and practice in this goes past me: from the outside we seem to have a glitchy, distorted, gameable market where the local price setter can change it's mind, seemingly at random, and the market doesn't seem to be achieving anything other than making people's lives more costly while (theoretically) collecting money for...what?
Our governments of all stripes have done bugger all in practical terms: where is the usable, unified public transport system to reduce vehicle fleet movements; the development toward carbon neutral transport infrastructure; the incentives and development to evolve carbon emitting enterprises?
It's not a market failure: it looks a lot more like a crisis in basic operational competence.
The transition and change required would generate a lot of economic activity - if it could be planned and executed in some kind of rational, cohesive way to a beneficial end, rather than an apparently endless, politicised talking and "relying on the market". Sometimes there's a need to just get stuff done: but who are the grown-ups?
Golem - I'm going to bother because I think you are a thinker (unlike some who cut-and-run). Hence the effort in amassing the list of links...
Firstly, money eventually gets traded-in for something physical (although it can be parcel-passed several times prior - econ types call it velocity, I guess). If you're producing less physically (see: Rickover 1957 speech - 15% is his pick, and he was smarter that most) then discretionary spends are in the rearview mirror for the majority, and essentials (food, water, living-space) are in ever-increasing demand.
If you're advocating lots more economic activity but on a lot less energy, you cannot expect demand to be assuages in a non-inflationary way.
Cheers, PDK
https://surplusenergyeconomics.wordpress.com/
https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Stor…
https://www.financialsense.com/contributors/chris-martenson/the-trouble…
https://www.thegreatsimplification.com/ (Keen is not as good as usual, Raworth is OK - there's a lot there)
https://dothemath.ucsd.edu/2021/03/textbook-debut/ (the most important textbook you will ever read)
https://consciousnessofsheep.co.uk/
https://www.resilience.org/latest-articles/ (a clearing-house worth keeping an eye on)
That's the rub of being inside a speciality, where it all seems clear, but the decision making outside it is often not rational, even if it is consistent. The consequence of that is that a profound understanding of human nature is at least as important as the physics of entropy and thermodynamics, or the calculations of Thomas Malthus.
What are the important things that are doable?
Assuming that's a direct, rather than a rhetorical question...?
First, address population (local, including immigration numbers).
Second; address food security, on beyond fossil energy (harder than most folk realise; prior inhabitants didn't get to millions and ate each other post-battle for the energy gain).
Third. List, and triage, infrastructure; what must be maintained, what can be. And what has to be abandoned.
Fourth. Work out how to trade, post-collapse/implosion - because no ponzi goes forever, and this one's in injury-time.
Fifth - work out a system of local leadership, and a rough blueprint as to sustainability (real sustainability) as a goal.
I could add more, but that's enough....
PDK - latest Joe Rogan - Ray Kurzweil
Technology is moving forward very very fast (in fact exp)- solar panels , batteries etc, compute power its possible in 20 years we could be getting all our required energy from the sun, but I tend to think that we will not be able to transition society fast enough, as oil spikes capitalism will fall apart as we know it. We are not trained to work for free only for fiat.
Not sure what comes next its like the HyperNormalisation they went through as the USSR collapsed.
The greenies have a real blind spot for this, thinking that dolphin free tuna and food scrap bins will fix everything....
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