Tinkering With ETS Settings Could Spell Disaster

Tinkering with price settings in the Emissions Trading Scheme (ETS) will create major uncertainties and cost increases for Kiwi households and businesses, says Straterra CEO Josie Vidal.

Straterra, the industry association representing New Zealand minerals and mining sector, has submitted on the consultation document, Proposed changes to New Zealand Emissions Trading Scheme limit and price control settings for units 2022 saying it does not support the proposed changes and asking for the status quo.

"The document shows that energy prices could increase quickly and dramatically if the Climate Change Commission’s proposals are accepted," Vidal says. "This at a time of an international energy crisis and high inflationary environment.

"Many businesses would have a heightened risk of closure, especially businesses that must be internationally competitive, while emissions would simply transfer offshore.

"Households would also be affected. Petrol could go up by as much as 36.5 cents per litre in one hit and residential electricity prices by as much as 5.17 cents per kilowatt. The petrol price will be a double hit when the 25 cents per litre fuel excise tax removal is reversed, currently scheduled for 31 January 2023. Even if the Government continues this initiative aimed at reducing cost pressures on households, it will effectively be giving with one hand and taking back with the other if the Commission’s proposals go ahead.

"Straterra supports the Government’s steps for New Zealand to meet its obligations under the 2015 Paris Agreement. Allowed to work properly, emissions pricing in the existing ETS is the least-cost way of reducing emissions.

"But most of the proposals in the consultation document pave the way for significantly higher New Zealand Unit (NZU) prices, much higher than market participants and businesses generally anticipate under the existing settings.

"This will create higher prices generally throughout the economy, largely through increased energy costs.

"This would be significantly disruptive and contribute to major uncertainty for the New Zealand economy. We see no advice on managing that risk. In fact, the document acknowledges it (page 40): ‘if prices rose to reach the Commission’s recommended CCR (cost containment reserve) trigger prices, this price rise, in combination with the phase-out of industrial allocation, may have the impact of closing down firms in some industries in New Zealand unless they rapidly decarbonise.’

"Given the inability for such rapid decarbonisation to occur, this statement cannot be emphasised enough as a rationale for maintaining status quo ETS settings. This is very much a case of if it isn’t broken, don’t try and fix it," Vidal says.

Straterra’s submission is available here.

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