The New Zealand emissions trading scheme (ETS) is in transition from an uncapped and largely ineffectual scheme to one more constrained but without being tied to the carbon budgets of the Climate Change Commission. 

The ETS is highly discriminatory, with the net effect determined by varied sector start dates and precise targeting of rebates, compensation and gifts.  Small emitters pay much higher charges (proportionately) than major emitters that are heavily subsidised.  During the first five years, households paid roughly half the total charges resulting from the ETS, while being responsible for less than 20% of all emissions.  Agricultural emissions that make up nearly half of New Zealand’s total are entirely exempted despite evidence that pastoral farmers could significantly abate their emissions at low cost.

It is a tax that did not even pay for itself during this five-year period. The various slabs of corporate welfare and compensation ate out all the ETS income and more.  The end result was a huge deficit of 76 Mt to the end of 2012.

The original programme for progressively tightening the ETS was indefinitely shelved in 2012 when the scheme was effectively put into a coma through ‘transition measures’ being extended indefinitely and carbon prices collapsing to levels that provide no meaningful price incentive.

The 2020 legislative amendments to the ETS began to repair the broken instrument by:

• Enabling a cap to be set on emissions covered by the ETS (but also includes a mechanism to expand that cap if it pushes prices too high).

• Setting up a mechanism for the Government to auction units.

• Providing for the minimum unit price to rise from $25/tonne to $35.

Among the reforms still required is the creation of a new unit of carbon currency to recognise the permanent sequestration of greenhouse gases.  This would provide a clear way for exporters to meet international standards for offsetting emissions associated with their products.

Key documents

A New Carbon Accounting Unit for Permanent Sequestration

Zero Carbon Bill Submission

Market Pressures for Pastoral Products to go Carbon Neutral

The Carbon Budget Deficit

ETS: Bill to a Future Generation

A Convenient Untruth

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