Submitter details
1. Submitter name
Individual or organisation name
(Required)
Keith Woodford , AgriFood Systems Ltd & Hon Professor Lincoln University
Summary of proposals
1. Do you think the decisions on NZ ETS unit settings announced in December 2022 had any impact on NZ ETS market behaviour?
Please select one item
Radio button:
Ticked
Yes
Radio button:
Unticked
No
Radio button:
Unticked
Unsure
Please explain your answer here
ETS participants lost confidence that they understood Government's policies for the future
Should NZ ETS unit settings for 2024 and 2025 be updated?
2. Do you think that the proposed update to auction volumes to reflect a change in forestry emissions outside the NZ ETS is sufficient to allow unit settings for 2024 and 2025 to be updated?
Please select one item
Radio button:
Ticked
Yes
Radio button:
Unticked
No
Radio button:
Unticked
Unsure
Please explain your answer here
This, and other questions are actually the wrong questions to sort out huge flaws in ETS execution. Please see my general feedback
3. What other special circumstances, if any, do you think exist that might enable updating NZ ETS unit settings for 2024 and 2025?
Please write your answer here
The failure of the June auction and the implications thereof.
But the fundamental issues and problems cannot be solved by changing unit settings in isolation from other issues
See general feedback
But the fundamental issues and problems cannot be solved by changing unit settings in isolation from other issues
See general feedback
5. Do you think that updates to NZ ETS unit settings for 2024 and 2025 should occur if NZUs from the cost containment reserve are sold at the June NZ ETS auction?
Please explain your answer here
Not relevant because the June ETS auction failed
Update price control settings for units
13. To what extent do you believe that increasing the CCR trigger price would influence NZU prices?
Please write your answer here
Yes, but only as one aspect of NZU price determination
Provide general feedback
Any general feedback on the consultation
Add your comments, ideas, and feedback here
Events of the last year, and specifically the uptake of activity on the secondary market, demonstrate that the whole idea of fixing the supply of auction credits is flawed. Such settings rely on assumptions as to how many credits will come available on the secondary market and this is impossible to estimate.
The current system is based on an overarching flawed assumption that auction settings can determine the overall market supply of NZUs and that this will influence the price of NZUs.
However, events have clearly evidenced what should have been readily apparent. The overall supply of units will be determined by activity on secondary markets and the associated number of units that are drawn from the bank of units held by non-Government entities.
If Government wishes to play a lead role in regard to NZU unit pricing and supply, then it needs to set closely spaced minimum and maximum prices of NZUs, going forward for at least five years, and state that it will supply flexible number of units at auctions to stay, to the extent this is possible, within those bounds. This flexibility is essential to removing price volatility and giving non-Government entities the necessary confidence to plan their emission and sequestration activities.
Once those bounds are met, then it is price that determines supply of units at auctions.
This requires a major turning around of the thinking that underpins the current ETS auction quantities. It requires acceptance that it is market price that determines the supply of auction units, rather than auction units determining market price.
Until Government accepts this reality, then market prices of NZUS will be volatile and this will act against businesses making rational decisions re their own emission and sequestration strategies.
The big question is whether Government can get its mind around the change of thinking that is required. It is a big change of thinking.
Keith Woodford
AgriFood Systems Ltd
Hon Professor Lincoln University
The current system is based on an overarching flawed assumption that auction settings can determine the overall market supply of NZUs and that this will influence the price of NZUs.
However, events have clearly evidenced what should have been readily apparent. The overall supply of units will be determined by activity on secondary markets and the associated number of units that are drawn from the bank of units held by non-Government entities.
If Government wishes to play a lead role in regard to NZU unit pricing and supply, then it needs to set closely spaced minimum and maximum prices of NZUs, going forward for at least five years, and state that it will supply flexible number of units at auctions to stay, to the extent this is possible, within those bounds. This flexibility is essential to removing price volatility and giving non-Government entities the necessary confidence to plan their emission and sequestration activities.
Once those bounds are met, then it is price that determines supply of units at auctions.
This requires a major turning around of the thinking that underpins the current ETS auction quantities. It requires acceptance that it is market price that determines the supply of auction units, rather than auction units determining market price.
Until Government accepts this reality, then market prices of NZUS will be volatile and this will act against businesses making rational decisions re their own emission and sequestration strategies.
The big question is whether Government can get its mind around the change of thinking that is required. It is a big change of thinking.
Keith Woodford
AgriFood Systems Ltd
Hon Professor Lincoln University