Carbon price drop endangers ETS, Paris Agreement commitments, and exporters

Rural News / opinion

Susan Harris says the carbon price needs to go up, gradually, until it hurts. Then, emissions will come down

29th Mar 23, 4:48pm by Susan Harris

By Susan Harris*

The value of New Zealand carbon credits has dropped to $58 on the spot market as of 4pm on 29th March, the time of writing this article.

This has happened because the Government didn’t take the Climate Change Commission’s advice to set the floor price to $60, and the trigger price to somewhere between $171 and $214 this year. The Government did this because it was concerned a higher credit value would fuel inflation.

The Government set its auction floor price to just over $30 and trigger value to $80.64 and so the price crashed. That meant the March 2023 credit auction failed, the big buyers low-bid, the Government sold no credits and lost out on about $300 million. By comparison, the European Union credit price is €89.40 (NZ$155). It has been up over €100 (NZ$173), so the Commission’s recommendation was spot on.

This may be great for credit buyers and critics of the NZ Emissions Trading Scheme (NZETS), but in the longer term if the NZETS is ineffective because the carbon price is too low, we face the risk of failing to meet our Paris Agreement obligations and will expose our exporters to carbon tariffs from the EU and USA. This represents another own goal, as other commentators have noted.

But more importantly, failure to make meaningful efforts to mitigate climate change and keep to international agreements will reduce our influence, our export market net value, and ability to persuade others to greatly reduce their emissions. Market-based instruments only understand price after all, and Planet Earth responds only to the laws of physics, not commercial markets.

The carbon price needs to go up, gradually, until it hurts. Then, emissions will come down.

*Susan Harris is Principal Scientist at GreenXperts Limited, a New Zealand-based sustainability consultancy involved in numerous carbon and land management projects. Susan was on the science team that helped the New Zealand Government create the New Zealand Emissions Trading Scheme. Susan worked on emission factors with other colleagues at that time.

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33 Comments

by Grattaway | 29th Mar 23, 5:17pm 1680063445

So you have set up a market mechanism that you dont think is working the way it should because the price is lower than you think it should be

Any evidence that it is not working?

by Hamish | 29th Mar 23, 5:21pm 1680063704

Where are we at with international air travel?

by solardb | 29th Mar 23, 6:48pm 1680068891

not covered by the ETS or any other tax.

by Hamish | 30th Mar 23, 6:44am 1680111885

That's my point.

Susan Harris says the carbon price needs to go up, gradually, until it hurts. Then, emissions will come down

Should read 'Then, some emissions will come down'

by solardb | 30th Mar 23, 7:40am 1680115252

Agree they should be in the ETS, but no politician is going to be brave enough to hit voters travel budget

by Erant | 29th Mar 23, 5:35pm 1680064559

The history of ETS in NZ is that governments have always taken the soft option to ensure that the ETS carbon price does not "hurt" the economy. But to be effective and modify behaviour the ETS cost would have to hurt a lot, so the ETS is doomed to fail, and greenhouse gas emission reduction will need to be done by a lot of random politically-driven regulations, an economically inefficient outcome that the ETS was intended to avoid.

by solardb | 29th Mar 23, 6:51pm 1680069115

My understanding was it was kept low to get Bipartisan support from National. I.e make sure it survives a potential change of government.

by kiwimm | 30th Mar 23, 9:25am 1680121514

The true carbon price is about $250/tonne based on the cost of permanently removing a tonne of C02 from the atmosphere.

by Jack Lumber | 29th Mar 23, 5:58pm 1680065917

Its a market - they are never smooth.

In the last 2 years the market has been pumped full of credits with the CCR being taken and everyone thought it a one way bet.

Financial pressure, end of year and enough supply - why buy?

The market needs to offset around 100,000 NZUS every day so its in the registry already. If the auctions all pass in this year it means next year, May 2024, the registry will need to yield around 36 million NZUs - plenty there - it will actually sort out the surplus oversupply, like any market does, and then as supply shortens every year it will get tighter and go up - look at the long term supply it - it tightens faster and faster.

Just leave it to function like a market - its fine. Just don't let politicians pump it full again or fiddle. We can then all decide how many emissions we want to pay for in our life - yes I hear it already its not fair etc etc - well nothings fair in life.

Coal is doomed at between $70 and $80 - its going now.

It will work - just let it do it - will you, the voter, let them do it though?

by solardb | 29th Mar 23, 6:49pm 1680068974

End of financial year , yup , nice little write off there , buy back next week , and start again.

by Kate | 29th Mar 23, 6:34pm 1680068064

Market-based instruments only understand price after all, and Planet Earth responds only to the laws of physics, not commercial markets.

So let's try to save Planet Earth with a market-mechanism?

Hmmm.

by Jack Lumber | 29th Mar 23, 6:53pm 1680069181

Well conferences of well meaning people and chat rooms with 0.005% of the population achieve nothing.

People don't like being told what to do - I'm not all for pricing alone and agree with funding some changes as well and incentives.

Coal is stopping due only to price of carbon - before that it was talk fests and reasons why they couldn't do it - went to them for decades.

Same for getting rid of animal pests - the only time we got deer/pigs/goats under control was when they were worth money and everyone hunted them down for money. Thats gone and its out of control with no real money available.

Need a mix of all.

by profile | 29th Mar 23, 9:11pm 1680077468

It not that "People don't like being told what to do" - it is the people see for the scam that it is and would rather spend the money on healthcare, education, vaccination, food... Hence only 0.7% of AirNZ seats purchase carbon offsets - and most of that 0.7% is James Shaw's gravy train itinerary.

Coal is stopping? Umm... 2022 was a record year for coal. "Coal markets have been shaken severely in 2022, with traditional trade flows disrupted, prices soaring and demand set to grow by 1.2%, reaching an all-time high and surpassing 8 billion tonnes for the first time."

https://www.iea.org/reports/coal-2022/executive-summary

by Palmtree08 | 30th Mar 23, 11:36am 1680129376

Rather stupid thing to be gloating about.

by profile | 30th Mar 23, 4:05pm 1680145519

It is a statement of basic fact. Wishing or ETS boondoggles won't make it go away.

by chemistpeter@g… | 29th Mar 23, 7:48pm 1680072517

It should be $0.

by Omnologo | 29th Mar 23, 8:19pm 1680074369

When our greenhouse gas emmissions are 0?

by kiwi_overseas | 29th Mar 23, 8:07pm 1680073640

I don’t know why the govt went for auctions and a secondary market.

There could have been a single market with the govt a main sellers.

This would have allowed continuous price discovery and allowed the govt to feed the market continuously. The contracts could have been monthly or quarterly spaced rather than annual if needed.

it would even allow the govt to be a buyer if it wanted to shift its own carbon credit holdings profile.

by Fossil Lover | 29th Mar 23, 8:51pm 1680076294

Susan, it is all concerning if you believe in catastrophic climate change. Climates change over time and human influences are negligible. Susan please stop driving your SUV, living in your fossil fueled heated house, eating at your fossil fueled favorite restaurant, gobbling fuels to get there and wake up. Sea levels ain't rising, temperatures change, weather events happen, you are just lucky we have the fossil fuels to warn you of the coming acropolises.

by linklater01 | 30th Mar 23, 9:10am 1680120602

Fossil Lover,

Sea levels ain't rising. Untrue. "Tidal records from many sites around the globe provide clear evidence that sea levels have risen by 1.70mm/pa(+/-0.50mm/pa). Over the period of satellite observation, altimetry and tidal records confirm that the rate has increased. The rise over the past 15 years has been 3.30mm/pa(+/-0.40mm/pa) "Source: The Royal Society of New Zealand 2010.

"Research has shown that sea levels in the wider NZ area will rise by 5/10% more than the global average( Acherlay et al 2013 Kopp et al 2014)".

There's more, but I can't be bothered. I would love to know however what the 'coming acropolises' might be. Is it coming from Greece and if so why?

by nigelh | 30th Mar 23, 7:04pm 1680156275

The acropolis in Athens once had a temple. Perhaps this is where the ancients worshipped the gods who controlled the climate. Now its MSM and the UN who spread the word on the new CC religion.

by Wilco | 29th Mar 23, 8:59pm 1680076756

Until the government (of any colour) is willing to make hard decisions, ones that make our current lifestyles too expensive to maintain we will keep opting for mitigation instead of reduction.

Petrol price at the pump no longer directly reflects the carbon price as was originally envisaged as fuel taxes and surcharges are massaged by government to not antagonize the general public.

The reserve bank is calling for a recession to fix inflation but the government is more concerned about reelection and will continue to be soft on real change.

by The Person | 29th Mar 23, 9:41pm 1680079279

The point of the ets is that governments shouldn't be making hard decisions, we should all be making those decisions in our Individual consumption choices

by Wilco | 29th Mar 23, 10:25pm 1680081932

That is the theory.

But it gets screwed by government interference when the outcome becomes unpalatable. Take the carbon tax for petrol which was to reflect increasing carbon prices pushing up the price of petrol thereby encouraging people out of their cars and onto other forms of transport - public, electric. But as soon as the general public started getting upset the government relented and reduced the pump price so destroying the work of the ETS.

The government is hoping our contribution to the environment for the next 30 years is sorted by planting pine trees.

by OldSkoolEconomics | 30th Mar 23, 6:48am 1680112124

We are a small country relying on exports for our economy.

Our carbon footprint will be determined by the success or failure of our customers (uk usa eu etc... If they do the work and hit their targets they will then simply stop buying our products and source from climate friendly countries (until we achieve parity or by then until we get ahead). The trouble is if we fall too far behind then it may be too late to be able to catch up in time to save the economy (our customers will be locked into new, closer suppliers).

It represents a great business opportunity .. to be a leader.

by interesting1234 | 30th Mar 23, 8:26am 1680117961

And how has that worked out with recycling? It was simply a push from plastic manufacturers to shift the responsibility to the consumer as opposed to reducing production. Result? Kicking the can down the road for decade after decade as plastic production increased at an exponential rate. It is still climbing globally.

by Dale Smith | 29th Mar 23, 9:28pm 1680078528

While I'm reading this article about carbon credits, the pop up ads from Mitre 10 are advertising wood fires.

Preference trumps policy.

by interesting1234 | 30th Mar 23, 8:22am 1680117775

So to clarify, we are relying on a speculative market where the price is dictated, like shares, on how much is getting bought and sold at any given moment, and using this speculative market to try and meet goals set out in the Paris agreement? Seems to be more just straight up gambling than anything else

by solardb | 30th Mar 23, 10:05am 1680123952

not really , emitters have to buy enough credits to cover their emissions , and carbon forest owners still get paid for the amount of carbon they sequester, regardless of price.

The problem is , the price is not high enough for emitters to say , it will save me money to reduce my emissions . it is a political problem , and a social one , politicans not willing to make us pay , and us ( as a whole) not willing to pay , or reduce our emissions.

by Hamish | 30th Mar 23, 12:41pm 1680133296

Without looking for it myself, can anyone tell me how such carbon credits are treated? i.e. Are they a tax deductible business expense?

by Kate | 30th Mar 23, 1:25pm 1680135948

Yep, generally (and zero-rated for GST), but a bit more complicated as there is some year-end accounting to be done.

https://www.taxtechnical.ird.govt.nz/new-legislation/act-articles/2009-34/other-policy-matters/tax-treatment-of-transactions-in-emissions-units

by kaczor47 | 30th Mar 23, 1:38pm 1680136683

Climate alarmism will not go away as long as we have sustainability consultancy as a profession. Job preservation.

by SimonP | 30th Mar 23, 1:53pm 1680137609

Humans will go away if the environment isn't sustainable. Species preservation.