The removal of an offset concession in the emissions trading scheme will affect the transport and electricity sectors says Climate Change Minister Paula Bennett.
Hardest hit by the decision are likely to be the electricity and transportation fuels sector because the removal will double the cost of offsetting the carbon emissions from burning coal, natural gas, petrol and diesel according to BusinessDesk.
BusinessDesk reports the price of carbon in the New Zealand scheme had already been rising towards $11 a tonne in anticipation of such a decision after collapsing to below 50 cents a tonne for a period after 2011 when New Zealand emitters had access to carbon units from international markets. That access has since ended, meaning major emitters can only buy carbon as New Zealand Units (NZUs) under the local ETS.
“This will have a direct impact on every part of the economy,” says Bennett, without nominating the impact on electricity, gas or petrol prices.
“Whether it’s forestry, farming, households or the transport sector, the effects of the decisions we make will be widespread.”
She told an international energy conference in Wellington that big industrial emitters of greenhouse gases will lose their right under the emissions trading scheme to offset only half of their emissions.
It was a matter of “when not if” the so-called ‘two-for-one” concession is removed, says Bennett, leaving open the impression that the current $25 a tonne upper limit “cap” on carbon prices may also be removed or placed at a higher level.
“It was always a temporary measure,” says Bennett of the two-for-one measure. “It is abundantly clear that if the ETS is going to work, carbon must cost more than it does right now.”
It appears the widely expected decision has not yet been made formally made by the Cabinet, but Bennett said she expected to conclude the review of the ETS within “the next couple of months”.
A transition period of several years is mooted for the two-for-one removal, which is vital to raising carbon prices to a level capable of encouraging forestry plantations.
The forests soak up carbon from the atmosphere. They are an essential element of New Zealand’s plan to meet its long-term emission reduction target.
The impact of the ETS on New Zealand’s emissions had been limited “due to the artificially low carbon price, which the government instituted following the global financial crisis so as not to cost further businesses that were already struggling,” says Bennett.
“I’m currently considering the options and potential implications of removing these artificial measures, including pricing emissions units at two-for-one, and the cap of $25,” she says.
“As some of you might have seen me say already, this isn’t a case of ‘if’, but more ‘when and how’.”
“If New Zealand is going to take the next steps to tackle climate change, we’re going to have to see more investment in tree planting and big emitters making a greater contribution to our efforts,” says Bennett.
