23 June 2020
The Climate Change Response (Emissions Trading Reform) Amendment Bill has finally passed into the law books which will see the first scheduled auction of New Zealand carbon credits going ahead in March 2021.
The ETS reform includes several necessary changes to limit the total emissions allowed within the ETS per year and align the ETS framework and processes with the targets set in the Zero Carbon Bill, which passed last year.
OMF, an NZ carbon credit broker have summarised where we are at; “From 2021, we have a well-crafted proper, effective Cap & Trade ETS. With a cap on emissions driven by rolling five-year budgets, a wide price path and regular reducing supply via auctioning and allocations. An ETS that is fit for purpose to help us meet our Paris commitments and then drive on towards a net-zero future in 2050 or before. The old ETS was a jalopy, the new ETS is a Merc.”
An annual cap will be set on emissions covered by the scheme, which will decrease in line with Emission Budgets set by the Climate Change Commission. Industrial free allocations will also decrease each year to motivate carbon emitters to reduce their carbon emissions over time; 1% every year until 2030, 2% from 2031-2040, and 3% from 2041-2050.
The Fixed Price Option will increase from $25 to $35 for the 2020 emissions year and will overlap with the start of auctioning in 2021, with the first NZU auction set for March 2021. The annual allocation of units will be split evenly over the four quarterly auctions. Price controls have been set for auctions to mitigate extreme volatility with a $20 floor and $50 cost containment reserve (CCR) trigger, both of which will be adjusted for inflation over time. The CCR enables the Government to dampen the auction price when the trigger is hit by releasing additional units from reserves, or by procuring equivalent emissions reductions or removals.
A provisional emissions budget for the 2021 – 2025 period has been determined, reflecting 90 million tonnes of CO2 equivalent greenhouse gases for the five years. The Climate Change Commission will provide the first three emission budgets by the end of July 2021, which may include a revised budget for the 2021-25 period.