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