Political tinkering with New Zealand’s Emissions Trading Scheme is the biggest threat to the effectiveness of the system, economist Eric Crampton says.
Crampton opined on the impact of the Government’s move to slash the number of units available for offsetting emissions from 45 million to 21 million between 2025 and 2029.
The chief economist at the NZ Initiative, a pro-free-market think tank, told Q+A, that the changes had already left some impact in terms of the carbon price.
“We’ve already seen some impact. The carbon price went up by about $5 a ton on the minister’s announcement, signalling that people are expecting this to have some effect. The carbon price went from about $55 to about $60,” he said.
“Just in ways of thinking about that and what it means – when you’re filling up your car, every $10 of carbon price increase is about $1 worth on a 40-litre tank.
“At the current carbon price of $60, about $6 when you buy a tank of fuel, that’s paying for the emissions permit that the fuel company bought on your behalf.
“You don’t know it, but the petrol company already bought emissions permits for you. It surrenders them when it distributes the fuel, and that means that somebody else can’t use those permits and emit somewhere else in the economy.”
Crampton also spoke about the previous government’s “cold feet” on reducing the cap on units and offsetting carbon through carbon forests.
1News Jordyn Rudd takes a look at the scheme, as the Government releases its new plan to tackle greenhouse gas emissions. (Source: 1News)
Climate Minister Simon Watts said on Tuesday the move would create a “more credible market” but said the Government was being “mindful” of the impact the changes would have on the cost of living.
He said: “As it stands, there is an oversupply of units held by participants which has contributed to a depreciated price of carbon.
“This has led, in part, to the failure of recent auctions to clear, and poses a risk to achieving our climate targets and emissions budgets. Reducing the number of units will likely see the carbon price rise.
“We need the carbon price to encourage businesses and individuals to reduce their emissions to meet our climate targets.
A Government review of the Emissions Trading Scheme has highlighted how contentious the trees have become. (Source: Sunday)
“We are mindful of the impact potential price rises will have on everyday New Zealanders, however, our modelling suggests the impact will be minimal.”
The idea behind the Emissions Trading Scheme (ETS) was simple — a polluter paid to cover the amount of carbon or greenhouse gases released into the environment.
A business that produced 10,000 tonnes of carbon needed to buy 10,000 carbon credits. But, the price of those credits changed depending on how many units were up for grabs.
Q+A with Jack Tame is made with the support of New Zealand On Air