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19/06/2023
Major NZ ETS review - consultation open
The Ministry for the Environment has opened consultation on significant changes that could be made to the New Zealand Emissions Trading Scheme (ETS).
Submissions close at midnight on Friday 11 August 2023 and the full details can be found here. The aim is, in the words of the Minister of Climate Change, “to make sure it’s fit for the job ahead - cutting carbon pollution”.
There will be a wide range of views on the need for change and the suitability of the options. In this article we summarise the options, to help you get started on assessing what they might mean for you.
To this end, the consultation is about:
- Should the ETS change: Whether the ETS should be changed to prioritise gross emission reductions (based on the Climate Change Commission’s recommendation that that Aotearoa New Zealand’s climate response should prioritise gross emissions reductions), while maintaining support for removals from forestry (on the premise that New Zealand is too reliant on this at the moment); and
- If so, how: Options for making the change.
The options that are being consulted on are:
| Change Option | Description |
|
1. Reduce supply of NZUs |
Reduce the supply of NZUs, and therefore reduce net emissions, through existing levers such as auction volumes, price controls or industrial allocation. The consultation document assesses that this option would result in a short-term increase in NZU price, dampened in the longer term by removals activities. |
|
2. Create additional demand for NZUs |
Additional entities would be able to purchase NZUs outside the ETS (eg, the government or offshore buyers). The government could purchase NZUs to support achievement of international commitments, and offshore buyers might purchase them to meet voluntary emissions targets or support voluntary market claims. The consultation document assesses that this option would provide a marginal increase in NZU price, with a limited impact on gross emissions reductions. |
|
3. Create one price for emissions and another for removals |
There would be different weightings for units sold at auction and those allocated from removal activities. For example, there could be a limit on the proportion of NZUs from forestry that could be used in an emitter’s NZU surrenders under the ETS. The consultation document assesses this option as being expected to incentivise greater gross emissions reductions. |
|
4. Create two markets, one for gross emissions reduction activities, and one for removal activities |
Emitters would not be able to use NZUs allocated for removal activities to meet their surrender obligations for gross emissions, and the number of NZUs available to them would reduce over time. The removals market would involve the government purchasing the NZUs, or emitters purchasing them on a mandatory or voluntary basis, or a combination. The consultation document assesses this option as providing government control and an ability to provide a stronger incentive for gross emissions reductions than the status quo. |
| Combinations | For example, option 3 (which could restrict the use of units allocated for removal activities from surrender obligations) could be combined with option 2 (where the government becomes an additional buyer of these units). |
Other points of interest that are in the consultation document include:
- Linking ETS incentives to biodiversity credits;
- Setting up a voluntary carbon market framework;
- Ideas for increasing indigenous forestry;
- Including a wider range of removals in the ETS.
Make a submission
The implications of all the options and their combinations are wide-ranging, and often involve pluses and minuses for the same group. If you would like to talk this through, please do get in touch with your usual Simpson Grierson contact person or one of our contact people below.
Submissions close at 11.59 pm on 11 August 2023.
