Energy News Today

Government gives Emissions Trading Scheme a longer rein in 2022

Bills for petrol, diesel and natural gas could all get a little more painful next year – after the Government decided to give our galloping carbon price a slightly longer rein.

To encourage individuals and businesses to stop burning fossil fuels, everyone must pay a price for each tonne of carbon dioxide they emit. The market price is currently $50 per tonne, teetering at an upper guardrail the Government set last year.

But since prices may need to go as high as $250 per tonne for the country to eliminate fossil fuels, according to the Climate Change Commission, the Government is resetting this upper guardrail, shifting it from $50 to $70. This will take effect next year.

READ MORE:
* Are we about to blow our first-ever carbon budget?
* Climate Change Minister: cheaper-than-expected snug, dry homes should become the norm
* The secretive auction designed to cut our climate pollution

At today’s market carbon price of $50.30, consumers pay 12 cents extra for every litre of petrol. If the trigger was lifted to $70, that could add up to 16 cents onto each litre. But this is only a guardrail, so the market could take years to reach that point.

The Government decision, made last week, follows the recommendation of the Climate Change Commission – which evaluated the Government’s Emissions Trading Scheme (ETS) as part of its wider advice on the country’s best approach to net zero.

Last year’s ETS reforms put a slowly shrinking cap on the number of NZ Units – which allow one tonne of carbon pollution to be released – that can be sold each year during a series of auctions in bulk.

Climate Change Minister James Shaw has followed Climate Change Commission advice on the cost of carbon pollution.
ROSA WOODS

Climate Change Minister James Shaw has followed Climate Change Commission advice on the cost of carbon pollution.

The system acts as a game of chicken: each polluter must pay higher prices, until they baulk and switch to zero-carbon fuels. By 2050, very few greenhouse gas emitters should be left in the ring (and they’ll need to offset their emissions with forests absorbing carbon).

However, to prevent wild swings in the price of carbon, the reforms also introduced a set of guardrails, which essentially create a minimum and a maximum price.

If the appetite for NZUs dries up, and the price falls below $20, the Government will sell fewer NZ Units at auction. But if demand gets high and plenty of bids above $50 are placed, the Government will sell additional NZ Units.

The scheme isn’t restricted to polluters. Anyone can buy NZUs, which can be traded on a secondary market. In this market, NZUs have passed the $50 threshold.

Rising as high as $70 per tonne in 2022, the carbon price could contribute up to 16 cents to the cost of one litre of petrol.
JOHN BISSET/STUFF

Rising as high as $70 per tonne in 2022, the carbon price could contribute up to 16 cents to the cost of one litre of petrol.

If the upper guardrail is triggered, up to 7 million more units could be sold this year – representing an additional 7m tonnes of pollution, which could be released this year or any time in future. Because many companies have a stockpile of NZ Units already on hand, this could blow the 2020 domestic cap of 32.8m tonnes of carbon pollution the Government set for itself.

If not balanced out in future budgets, the extra units could make it harder to achieve our 2050 goals. This trigger “should ultimately aim to be rarely triggered, if at all,” according to the Ministry for the Environment. Yet the event could occur in the system’s first year of operation.

To prevent extra carbon pollution from being released, the Government could reduce the number of units sold during future auctions. Climate Change Minister James Shaw​ said in a statement he is committed to doing this, so there is no unintended impact on emissions.

“We are currently looking at the best way to do this and Cabinet will decide next steps.”

To allow the carbon price to rise to the heights required to drive climate action, the Climate Change Commission recommended that the $50 trigger should be increased to $70 “at the first possible opportunity”. From there, it should increase each year by 10 per cent plus the cost of inflation.

So in 2023, the guardrail will be shifted again from $70 to $78.40. By 2026, it will sit as high as $110.15.

Updates were also made to the lower guardrail. From next year, the Government won’t sell units if the offers at auction fall below $30.

With the market price at $50, this mechanism is unlikely to be triggered during the next few years. By 2026, the minimum price will rise to $39.32.

Stay on top of the latest climate news. The Forever Project’s Olivia Wannan will keep you in the know each week. Sign up here.

Read More: Government gives Emissions Trading Scheme a longer rein in 2022

2021-08-22 19:37:00

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy
%d bloggers like this: