Annual updates to the NZ ETS limits and price control settings for units 2023

It is our view that the Government Cabinet's decision to largely ignore the previous advice of the Climate Change Commission on ETS unit settings has directly led to a steady decline in NZU prices (falling from a high in November of $88.50 to the low $50s. Successive auctions have now also failed. This weakening of the ETS's role in emissions reduction responses is damaging the scheme and perversely incentivising greenwashing responses rather than real NZ net emissions reduction activity, such as through expansion of the forestry estate.

Without conducting our own detailed analysis, we are unsure as to the accuracy of the Commission's estimates. However, we note that the recent rush to plant and or register post-1989 forest land (including particularly land that was planted prior to 2019 has been driven largely by impending closure of the stock-change pathway available to forestry ETS participants. The stock-change pathway has been seen by many participants as more favourable to forestry's enduring NZU earning potential, that is, over a longer period. And, rightly, it was the only scheme reasonably suitable for older aged forests to earn saleable (risk-free) NZUs. Therefore, we suspect that the Commission is relying on a short-term and one-off effect in devising its estimates.

Refer our above answer.

We believe that the evidence suggests that CCR price settings play a significant role in secondary market price expectations and indeed in the success and effectiveness of auctions, and therefore they should be set with care. Increasing CCR prices in a staged manner should result in increases in prices, but there is significant room for the government of the day to undermine this process by weakening the influence of the ETS by protecting emitters from its effects. We argue that, to be an effective, and importantly, least cost measure for real climate change measures, the ETS should be NZ's primary mechanism for driving both gross and nett emissions reductions across the economy. Actions that support, rather than undermine the ETS's role, such as incentivising continuing expansion of the NZ plantation forestry estate through strong NZU prices, are a critical foundation to its ultimate success.

We are concerned that removal of the CCR would undermine the very aims the ETS is trying to achieve - steady progress towards net zero emissions -and we do not support its removal. We believe that NZU prices need to increase significantly from their current level in order to drive significant and lasting structural change in the NZ emissions profile. Part of that structural change includes expanding forestry offsetting, which will buy NZ time to reduce gross emissions elsewhere.

We are not convinced that making and already complex scheme more complex will achieve anything other than making the scheme less effective at driving real structural changes in NZ's emissions profile, and increasing regulatory uncertainty for emitters and investors.

We do not support a multi-tier CCR for the reasons stated previously.

Refer answer to Q24

As a forestry ETS participant and an emitter (through, in particular, logging infrastructure activity and log transport, including international shipping), we believe we nevertheless have the opportunity to mitigate the impact of higher prices through the progressive development and deployment of new technologies (reducing gross emissions) and improving earnings through the ETS itself as a result of progressive new forest plantings (reducing net emissions). The latter option however is highly dependent on regulatory settings, and remains under threat of political interference for other reasons, such as through the influence of prevailing and often poorly informed public sentiment. We argue that disincentivising ongoing productive (ie not including carbon only forestry) forest estate expansion will have a withering impact on forest industry economic activity, now and into the future. We note that the national forestry estate is still about 70,000 ha smaller than it was 20 years ago, so concerns about farm to forest conversions are misplaced.