Review of the Emissions Trading Scheme - Proposed settings

The Ministry for the Environment issued a consultation document on Reforming the Emissions Trading Scheme: Proposed Settings in December 2019.

The Consultation Document is part of the Emissions Trading Reform Bill that is currently going through parliament to make legislative amendments and covers structural changes to introduce auctioning and allowing for the setting of an overall limit (cap) on emissions covered by the scheme.

The Consultation proposes setting a provisional emissions budget of 354 Mt CO2-e prior to the Climate change Commission providing their first budget recommendation to the Government by February 2021. The proposed budget is a reduction of 14 MT from the forecast net emissions over the period of 368Mt and MfE have outlined how the reduction could be achieved through initiatives such as the increased electrification of transport.

In addition to the emissions  budget the consultation covers a number of areas including the NZ ETS Cap, free allocation volumes and the current stockpile of 132 million NZU’s so as to calculate the remaining annual auction volume of 80 Mt CO2-e for the period 2021 to 2025.

Price controls are also proposed to manage unacceptability low or high prices with a price floor of $20 per NZU being proposed.

The current price ceiling is $25 and it is proposed that this be raised to $35 for surrender obligations over the 2020 calendar year.

To manage upward prices a cost containment reserve price trigger of $50 per NZU is proposed at this price additional NZU’s will be released onto the market. The impact on households’ ranges from $0.80 low income households at $35 per tonne to $4.00 for high income households at $50 tonne.

Overall the changes are positive step in right direction with a cap and trade scheme finally having a cap put in place. The Government recognising the need for action to reduce emission and that the ETS is the key mechanism to achieve this.

The Association’s submission  highlighted several areas for improvement in relation to architecture to minimise the risk of the emissions budget being exceeded and ambition and recommended that  prices should be set at a higher level: