Proposed changes to NZ ETS limit and price control settings for units for 2022

I do not agree we should include the criterion - “Improve regulatory certainty and predictability”, as this seems to be getting in the way of impactful climate action.

I would recommend a rewording of the criterion “Support the proper functioning of the NZ ETS” to “create a bold incentive to minimise carbon emissions” or similar.

The remaining criteria seem comprehensive and in line with the obligations of the Climate Change Response Act 2002.

I would suggest an additional criterion for the speed of impact on climate outcomes / market action - some levers pulled will take longer to have an impact than others.

I was disappointed to see that across the options for addressing surplus stockpiles and reserve prices, the CCC’s recommendations are presented as the most extreme option in a series of watered down policies.

This presentation of the extreme actually opens us up to the Decoy Effect, whereby the reasonable option looks like a more extreme option when presented next to so many other weaker options. Doing less than the CCC’s recommendations is refusing to tackle climate change at a fast enough pace. It is nothing more than predatory delay.

In future consultations I request there are a mixture of options presented, including some more ambitious in addition to the less ambitious options. This would introduce more fairness and help to decrease bias in decision making.

Furthermore, the Emissions Trading Scheme is yet to have the impact on emissions that its status as the nation’s emissions cap & trade scheme, and New Zealand’s international and domestic commitments including its Nationally Determined Contribution (NDC), requires. I argue therefore we should be presenting and taking bolder choices than the minimum required recommendations to meet legal requirements. We need to take bold action now, not wait till it’s too late.

A note on the requirement to “accord with Emissions Budgets & the NDC”: I note that although this is a legal requirement, you have not provided any information in the consultation material as to how the ETS limits & price controls will align to the NDC. You have also not provided any information on actual projected emissions, which could be higher than the budgeted level because of the stockpile. I request that in future consultation documents, these critical end-stage environmental impacts are analysed, instead of downstream lagging consumer impacts.

In this projection of emissions outcomes, I would like to see definitions of what it means to accord with budgets and to accord with the NDC, why it would accord, and how the ETS settings will maximise domestic delivery & minimise international offsetting.

I agree with the Climate Commission’s estimates of the overall surplus. I do not agree it is reasonable to slow down the pace of the reduction of stockpile due to future concerns of liquidity. Climate change is an urgent and life-threatening issue: the timing of the reductions is key. I therefore recommend an aggressive reduction in stockpiled units to get the system into balance as quickly as possible, in line with the CCC’s more aggressive “straight line” trajectory. Readjustments in 2027 or later could be done if required, but it is better to take bold steps now.

I support the Commission’s recommendations for reducing the surplus. Maintaining too high a surplus could threaten our ability to stay within our emissions budgets.

I do not support the MfE option 3 recommendation, whereby the stockpile is reduced more slowly, closely in line with current settings. I believe the risk of blowing out the emissions budget has to be treated as much more important than liquidity concerns, given the expected influx of forestry credits.

Liquidity as speculation is also not ‘good’ liquidity. I recommend considering adding more incentives to use NZUs and disincentives to speculate.

The simplest and strongest answer to this question is that the volume of new units auctioned should be set to zero. As there is currently a stockpile of 144 million privately held units, only by making zero new units available for auction will the closest possible alignment between ETS quantities and NDC quantities be ensured.

Without resiling from the above, I consider the Commission’s advice to be the next best position. They have done the analysis, and know we cannot risk missing our targets. If the case for technical adjustments is unclear, a precautionary approach should be taken by withholding (rather than releasing) the units that are in doubt.

Obviously I also support the faster drawdown of surplus.

I do worry that one of the main drivers in demand for NZUs is investment and speculation, since speculators can rely on the price of NZUs steadily increasing. An NZU purchased this year at auction for $70 is very likely to sell for much more on the secondary market in future years, as the price of NZUs continues to increase. Many more steps are needed in order to reduce speculation.

I agree with the Commission’s use of gross emissions instead of net emissions.

Yes.

I agree with the Commission’s recommendation as a minimum. In the longer term, if the price is too low, a flood of forestry credits could destabilise the market and dampen abatement investment.

But as mentioned above, it is irresponsible in a climate emergency, to consider any option below the CCC’s recommendations, which are already well below the market price.

I believe the bare minimum would be to start price floors from where the market currently is: keeping the price up is important to continue and enhance the incentive for reducing emissions.

As one of the criteria is regulatory certainty / stability, I suggest that in order to maintain this for low carbon investors, it is critical to prevent the price they are using as a basis point for investments from falling.

The CCR is no longer fit for purpose, and I am of the opinion that it should be abolished (by setting the volume to zero). The extenuating circumstances of insanely high stockpiles and secondary markets mean that any marginal benefit of the CCR is outweighed by 144m tonnes, not 2m tonnes, of market inputs. Until the point at which we return to seeing a functional ETS without such wild card inputs, the CCR is not useful and ends up being counterproductive to market behaviour.

As mentioned above, I believe the CCR should be abolished. Therefore my opinion on when it should be triggered is that it should not be triggered at all.

Should the MfE wish to still have a CCR, I support the CCC’s Option 5 for Two Tier pricing.

Repeating earlier advice, the CCC was required to balance all factors when coming to its recommendations, so its recommendations should be treated as falling in the middle ground. I recommend when proposing options in future, to put options on either side of the CCC position.

It is clear that the CCR price to date has been way too low. The price needs to be higher in order for the market to operate smoothly, without triggering the CCR and releasing more units. Considering how fast the unit price increased in the past 2 years, the CCR price for 2023 needs to be significantly above historic prices.

If we need to have a CCR, then I support the Commission’s recommended calculation for the first tier. We should ensure that the CCR volume is less than the level of the stockpile adjustment, and never allow emissions to be higher than what they are right now.

The role of the ETS is not to mitigate the impact on households. The Government has other measures available to do that, which it should use as needed. I would like to have seen forecasting of whether we’ll hit our climate goals or not, through these prices.


Also, I consider that the electricity price analysis is alarmist and designed to trigger a reaction. Markets will adjust over time, a sudden price-shock as shown here is not realistic. The Climate Change Commission did a more detailed analysis, showing much lower electricity price impacts, that is not shown here.


While energy prices may be impacted, there are better ways to manage the effects of this than via a price cap. This is implying we should use price controls to reduce the impact - this is not the case. Like the cost of living payment, there are other policy levers to ensure household impacts are mitigated.

And constraining the role of price would decrease the impact on emissions, so we’d have to use a different policy lever.

Yes. If the ETS is to work as a market-based system, it should focus on ensuring carbon is priced at the level necessary to allowthe country to achieve its emissions targets. Government programs can be targeted to mitigate impacts, when necessary, including with regard to Te Tiriti issues and equity implications.

Complementary policies that reduce emissions (like regulations and subsidies for clean energy) can also be used to lower prices.

The role of the ETS is not to contain impacts of a rising price of emissions. Its role is to help bring emissions down in line with our national and international commitments, including the NDC.

The audience for this question is exclusively businesses, yet the ETS impacts everyone in all parts of society, as a key part of Aotearoa’s climate policy. I would recommend that you leave space for other stakeholders in your consultation process.

Yes. I, as a consumer will respond to price and adapt.