Carbon price spikes 44% as government tightens Emissions Trading Scheme settings

Public Policy / news

Government complies with Climate Change Commission's advice and sharply reduces the number of ETS units available in the next five years

26th Jul 23, 11:26am by Dan Brunskill

New Zealand Emissions Trading Scheme (ETS) units jumped to $65 on Wednesday after the Government lifted auction prices and reduced the number of available units.

Units had been trading on the secondary market at just $45 on Tuesday, and had fallen as low as $36.50 earlier in July. While the price was up 44% overnight, units are still about 11% lower than they were six months ago.

ETS prices had been falling since December 2022 when the Labour cabinet chose to ignore the Climate Change Commissions’ advice and opted for looser auction settings.

This was intended to protect households from higher carbon-related prices during a cost of living crisis and related to the auctions between 2023 and 2027.

However, a group of lawyers challenged this decision and a High Court judge ordered Labour’s Cabinet to remake its decision alongside its settings for the 2026-2028 period

After the market had closed on Tuesday night, Climate Change Minister James Shaw announced Cabinet had agreed to significantly tighter settings for the 2023 to 2028 periods.

This means there will be fewer units and higher reserve prices in the December auction. The auction floor prices will rise from $33.06 to $60, and a two-tier cost containment reserve trigger price will also be introduced.

The cost containment reserve is a stock of extra ETS units which can be released into the scheme if prices get too high. There will be two trigger prices under the new rules, $173 and $216, compared to the current $82.

Auction participants would have to submit successful bids above these prices, in order to release more units.

Climate advocates have previously complained the trigger prices were too low and the amount of units that were being released exceeded our national carbon budget.

In addition to raising auction prices, Cabinet also agreed to lower the overall limit in carbon units by 17.6 million between 2023 and 2028.

This aligns with the Climate Change Commission's recommendations, with 116 million units available for auction between 2024 and 2028.

The two-tier trigger prices also follow the commission's advice, but are able to go into effect sooner than expected due to the court ruling.

Usually the Government would not be able to change ETS settings in the next two years, so the Commission's 2023 advice only recommended changes from 2025 onwards.

The ETS scheme is the key tool in New Zealand’s plan to meet its climate obligations and it imposes a cost on businesses’ emissions, similar to a carbon tax.

Shaw said the Government had chosen to follow the Climate Change Commission’s advice this time around — which was his initial recommendation to Cabinet in the first decision back in December.

The Labour government’s original decision to ignore the Commission’s advice was based primarily on concerns that a higher carbon price could exacerbate the cost of living crisis.

ETS units were valued at more than $80 at the time and Cabinet (then chaired by Jacinda Ardern) did not want to be responsible for heaping costs onto households.

Shaw said on Tuesday that the Government was still “mindful of any impacts” the decision might have on living costs, but they were expected to be minimal.

“Modelling shows that an increase of $10 per NZU will increase average annual household costs by about $1.67 per week. For lower income households, the increase is estimated at $0.88-0.95 per week,” he said.

Bronwyn Carruthers, president of the climate lawyers who sought a judicial review of the settings, welcomed the new decisions.

“It is vital that the ETS settings are made in accordance with our emissions budgets and not out of political concerns about the ETS price going too high,” she said in a statement.

“The amendments mean that the supply of units will now be in accordance with our emissions budgets, and the changes will help reduce the large stockpile of existing units".

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23 Comments

by kiwimm | 26th Jul 23, 11:52am 1690329171

A move in the right direction although the true carbon cost would be around $250/tonne based on either its externality impact or cost to remove it:

Social Cost of Carbon in the US is $185 per ton (carboncredits.com)

Direct Air Capture: 6 Things To Know | World Resources Institute (wri.org)

by J.C. | 26th Jul 23, 12:30pm 1690331418

The Labour government’s original decision to ignore the Commission’s advice was based primarily on concerns that a higher carbon price could exacerbate the cost of living crisis.

Looks like the 'little people' are going to have to used to wearing the cost of protecting the world from climatic destruction. You can't have your cake and eat it too.

by profile | 26th Jul 23, 1:37pm 1690335475

All this cost doesn't protect anything tangible to the little people - just provide some nice coastal housing to climate lawyers and other climate change industry parasites.

"Assuming that nations would continue adhering to their high-end promises for 2030 for the next seven decades, in total cutting 540 Gt CO₂e, however implausible, as it is equivalent to accepting an undiscounted $70trillion+ in extra costs. The difference in temperature by 2100 is 0.17°C"

https://www.sciencedirect.com/science/article/pii/S0040162520304157

by blobbles | 26th Jul 23, 3:07pm 1690340852

Ahh yes Lomborg. The guy that exclaimed incredibly loudly and got everyone to listen when he said in the 2000s that global warming was in hiatus, when he cherry picked 1998s unusually warm year and the following decade which were about the same temperatures (climate change isn't uniform, it can't be as its a complex system). He then projected his faulty analysis outwards and claimed that global warming was basically over. Noticeably hasn't admitted that he was wrong about that. He isn't a working scientist (a political scientist only) and has a single study that is regularly cited... on game theory.

Even that paper is full of summary analysis, often wrong, of cherry picked reports and data. Climate Change deniers love him though because he is a "scientist" in their camp. I'll help you out here profile, the only scientists that should actually be listened to (cos they understand the subject and are practicing scientists) are probably Roy Spencer and Judith Curry. Pretty much everyone else in the field are snake oil sales people who love to be contrarian to gain notoriety, Lomborg clearly being one of them. He never admits he was ever wrong about anything, which is a clue when he has made so many predictions previously that never panned out.

by powerdownkiwi | 26th Jul 23, 3:21pm 1690341668

Yes - Lomborg is a classic - and if folk need to reference him, they might as well admit they're clutching at straws.

by kaczor47 | 26th Jul 23, 9:34pm 1690364095

Ah Lomborg. Someone who stepped out of the climate fanaticism circle j*rk and is thinking logically.

by profile | 27th Jul 23, 12:47am 1690375628

Do you prefer the MIT figure of 0.20 degrees by 2100 or are you just doing your usual lazy ad hom spray blobbles? Never has so much money been spent for so little estimated return.

Based on intended COP21 contributions, we estimate 64 Gt CO₂‑eq emissions in 2050—about 13 Gt less than our 2014 Outlook estimate, which only considered Copenhagen–Cancun pledges.
Assuming the proposed cuts are extended through 2100 but not deepened further, they result in about 0.2°C less warming by the end of the century compared with our 2014 estimates.

https://globalchange.mit.edu/publications/signature/2015-energy-and-cli…

by linklater01 | 27th Jul 23, 9:07am 1690405634

Profile,

Changes in Climate:

We predict accelerated changes in global and regional temperatures, precipitation, land use, sea level rise and ocean acidification.

Global mean surface temperature increase ranges from 1.9–2.6°C by 2050 (relative to the 1860–1880 mean), and 3.1–5.2°C (central estimate 3.7°C) by 2100.
Global mean precipitation increase ranges from 3.9–5.3% by 2050 (relative to the 1860–1880 mean), and 7.1–11.4% (central estimate 7.9°C) by 2100.
Thermal expansion and land glacier melting contribute 0.15–0.23 meters to sea level rise by 2050, and 0.30 to 0.48 meters by 2100.
More carbon in the ocean leads to increasing acidity, and the average ocean pH drops from 8.13 in 2010 to about 7.82 by 2100.

I am never sure of where you stand on global warming, but having put this MIT study up in evidence, then I must assume that you accept it. Am I right?

by profile | 27th Jul 23, 1:46pm 1690422381

I think you are bit confused here linklater01? If you believe the MIT projections you also have to believe that the Paris Agreement/ETS will have a tiny effect on temperature in 2100 because the cuts in anthro CO2 are so small. You can't have it both ways. Tens of trillions spent to change a projected temperature by 0.17-0.2 degrees in 2100. The Paris Agreement/ETS is an eye watering expensive virtue signal when we have people living in cars and food prices are through the roof. Lomborg believes in global warming but demonstrates that money can be better spent.

by Zwifter | 26th Jul 23, 12:44pm 1690332256

The whole thing is a complete joke really. Money doesn't fix the problem but us wrecking the environment and cutting down the Amazon rainforest would help. Just another Tax that's not going to fix the problem.

by mfd | 26th Jul 23, 1:00pm 1690333205

What do you think the problem is? If the answer is 'carbon emissions', then yes this directly address the problem as the scheme caps our carbon emissions, with the cap reducing every year. The price is just the mechanism to distribute the cuts which are mandated. This is a very hands-off, market driven approach which is not something that Labour are often accused of.

If the answer is anything other than 'carbon emissions' - I'm not sure why you would expect this to fix it.

by Hemi Waipiro | 27th Jul 23, 9:07am 1690405662

'What do you think the problem is?' I thought it was common knowledge that the problem is TOO MANY PEOPLE which yes ultimately results in higher carbon emissions. No this tax won't solve the problem, to think it will actually make any difference is denial in the highest order.

by Blackbeard | 26th Jul 23, 1:26pm 1690334771

The real joke is that the western countries are actively encouraging immigration to join their large carbon emitting populations. In my opinion, to amend climate change damage, we need to seriously question the economic model of expansion and growth equals prosperity and economic success.

by mfd | 26th Jul 23, 1:40pm 1690335600

It's quite possible to ignore this scheme, but whether you pay attention or not it will increase the cost of everything you do that involves emitting carbon. Putting your head under a blanket won't change this.

I agree that aiming for full-bore immigration at the same time is crazy and will clearly make the mandated cuts harder on the existing population.

edit: my comment looks a little strange now that the previous post has been edited.

by morepork | 26th Jul 23, 12:49pm 1690332572

Someone's going to have made a lot of money in these price movements

by Te Kooti | 26th Jul 23, 1:07pm 1690333639

Professional investors (Funds) and carbon forest farmers.

by Cheetahlegs66 | 26th Jul 23, 1:13pm 1690334022

And lawyers acting on behalf of the latter.

by solardb | 26th Jul 23, 1:58pm 1690336712

Who caused the problem in the first place.

by J.C. | 26th Jul 23, 2:12pm 1690337566

Yes. The sentiments all good on the surface but the grift hangs heavy out of sight.

by Three Veg | 26th Jul 23, 2:16pm 1690337768

I’m confused.

can someone please explain what the legal basis is for the high court being able to force the government to review the settings?

If the climate commission offers advice , presumably the government is free to disregard should it choose to?

by Kate | 26th Jul 23, 3:15pm 1690341348

The case the group of lawyers took, was a judicial review/challenge asking the courts to determine whether the decisions made by the government were, or were not, in compliance with the Zero Carbon Act.

So it wasn't about a challenge relating directly to the Climate Commissioner's advice - you are right, it is just advice and the government has the power to either accept (in part or in full) or reject that advice (and do their 'own thing'). They chose to do the latter.

The question then became whether or not the actions they did take erred in law or not under the ZCA And the evidence/analysis presented by the legal group, suggested quite strongly that they did err in law (i.e., their actions would not meet the targets set under the law).

At least that was my understanding.

by kiwimm | 26th Jul 23, 3:20pm 1690341619

Correct - and this is the group that brought the action About Us (lawyersforclimateaction.nz) - they give their time pro-bono and rely on donations to keep the group running.

by Tombo77 | 27th Jul 23, 12:55pm 1690419303

I think they have to give appropriate reasoning as to why they choose to not follow the advice (which undermines the whole point of having an advisory body (CCC) in the first place. It's correct that some people have done very well with the jump in price and there is still a fair bit of demand (prices last at circa 64.00) in the secondary market - If anyone (wholesale investors only) needs to procure or sell relatively quickly I'll be able to help. pls text : 0210 8536 721.