The New Zealand Initiative today welcomed the government’s intention, stated in the Draft Emissions Reduction Plan, to rely on the Emissions Trading Scheme to achieve the Zero Carbon Act’s goal of net zero emissions from 2050.

But it also urged measures that would strengthen the ETS.

Initiative Chief Economist Dr Eric Crampton said, “Policies like EV subsidies, industrial subsidies, and fuel emission standards were never going to affect net emissions. Any reduction in one sector’s demand for carbon credits would simply free up carbon credits for other sectors to use instead. These policies change where emissions happen rather than reducing emissions – and often at very high cost.”

He continued, “The only thing that reduces emissions in the covered sector is a reduction in the number of units that the government allocates to firms, or auctions.”

The Initiative was encouraged by the government’s refusal to break the ETS in dealing with forestry credits.

“The path to net zero will have many unforeseeable challenges. Forestry conversions are best dealt with through measures targeting specific problems with forestry. Some had urged the government to pretend that trees do not sequester carbon, which would not have been encouraging for an ETS-led response.”

The Initiative was more sceptical about other measures.

“Pricing agricultural emissions by 2030 is great, but government needs to establish credibility that the deadline will not just be pushed out again in response to sector pressure. Shifting long-lived gasses like agricultural nitrous oxides into the ETS would be a great start.”

Crampton also noted the continued need to legislate the quantity of allowed net emissions through 2050. The government could set the number of ‘unbacked’ carbon credits that could be auctioned or allocated between now and 2050.

“The biggest risk to the ETS remains political: that a future government will respond to political pressure by issuing more carbon credits than had been planned. Credits backed by sequestration through trees or otherwise are fine – they’re net zero. But the quantity of unbacked units should be fixed in legislation.”

He concluded, “An ETS-led approach is the right approach. Strengthening the ETS would help.”

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