The Zero Carbon Act, introduced at the end of last year, provides the framework for delivering a net zero carbon economy for New Zealand by 2050. While it is a very good start, it is only a framework. That means a range of key additional measures, like the Emissions Trading Scheme (ETS), will be required to help us down the net zero pathway.
Right now the ETS is undergoing reform to make it more ‘fit-for-purpose’ so that it helps to significantly reduce New Zealand’s emissions. As part of that process the government is running a public consultation on some important ETS settings which include a ‘cap’ on emissions and a minimum price emitters have to pay.
Those settings are crucial if we are to have any chance of meeting our Paris Agreement commitment. which is to reduce our emissions by 2030 so they are 30% below 2005 levels. Even then we will still not be doing enough to limit warming to 1.5°. The ETS settings are also vital to our target for a net zero carbon economy by 2050.
However, our view is that the proposed settings are too weak to meet either of those goals. Based on data from the Ministry for the Environment, we think the proposed emissions budget of 354 million tonnes over the next five years should be cut by at least 6%, or preferably closer to 15%.
We understand the need for great care when setting the budget to avoid large increases in the carbon price which could be economically damaging. The consultation documents include analysis which identifies a range of measures which could be introduced, at no net cost, across the economy. That makes good sense, but only some of these measures seem to have been incorporated when setting the budgets.
Another key concern for us is a provision to allow the emissions cap to be lifted if the price big emitters pay per tonne of emissions reaches a high of $50. In technical terms this is called the cost containment reserve. In reality it would allow big emitters to pollute above the targeted level.
The United Nations Environment Programme and the Intergovernmental Panel on Climate Change state that global CO2 emissions need to be cut by more than half by 2030 if warming is to be limited to 1.5°.
If New Zealand’s proposed carbon budget for the next five years is not lowered further, we will be forced into making massive cuts later in the decade, or we will have to admit failure on the world stage.
Now is the time to be ambitious.
You can see the SBN submission on reforming the NZ Emissions Trading Scheme here.
The key points are:
- We need to set a budget that at a minimum is consistent with the Paris Agreement, e.g. 332 Mt for 2021-25 (requiring 36 Mt reductions) and 270 Mt for 2026-30 (requiring further 66 Mt reductions). Ideally, the budget should require net CO2 emissions to be cut in half by 2030, along with reductions in methane and nitrous oxide emissions.
- This needs associated adjustments to the stockpile adjustments and auction volumes.
- We support the $20 price floor (auction reserve price) and increase in the fixed price option.
- We think an increase is needed in the price ceiling trigger (i.e. more than $50) and there should not be a cost containment reserve volume (no release of additional NZU units), or as a minimum very tight controls on such a release.