Commissioner backs tighter rules for New Zealand ETS

Published 04:13 on February 18, 2016  /  Last updated at 10:38 on February 18, 2016  /  Asia Pacific, New Zealand  /  No Comments

New Zealand’s parliamentary commissioner for the environment on Thursday backed tighter rules for the country’s emissions trading scheme, but said the price cap should stay for now to avoid rapidly increasing NZU prices.

New Zealand’s parliamentary commissioner for the environment on Thursday backed tighter rules for the country’s emissions trading scheme, but said the price cap should stay for now to avoid rapidly increasing NZU prices.

Commissioner Jan Wright released her submission to the government’s ongoing ETS review a day before the deadline to comment on the two priority issues, namely whether the 2-for-1 provision should be dropped and whether to keep the NZ$25 ($16.66) NZU price cap.

“The two-for-one surrender obligation should be phased out as soon as possible. This protective mechanism has already been extended three years beyond what was envisaged when it was introduced,” Wright said.

“It will also lead to the earlier surrender of banked units that are essentially ‘hot air’, helping to restore the integrity of the ETS.”

The collapse in UN offset prices in 2011 meant New Zealand emitters after 2012 used almost exclusively those credits to meet their targets, and mostly ERUs from projects in Russia and Ukraine.

But researchers at the Stockholm Environment Institute last August said as many as three-quarters of all ERUs were unlikely to have been backed by any actual emission cuts.

May 2015 was the last time NZ emitters could use units those for compliance, but years of ERU purchases have allowed a surplus of some 140 million NZUs build up in the national registry.

PRICE CAP

While Wright welcomed the prospect of increased demand, she warned against the NZ$25 fixed price option for compliance, which in practice works as a price cap.

“It is my view that a price ceiling should remain for now, while New Zealand does not have access to international carbon markets. In the same way as the carbon price fell very rapidly due to the sudden supply of very cheap carbon units, a rapid increase to a high price for carbon would be very destabilising,” she said.

“For the same reason – providing a stable environment for business – a floor should be set on the price of a carbon unit. Over time, both the ceiling price and the floor price would need to be raised.”

Spot NZUs traded Thursday at NZ$9.20, up 5 NZ cents on the day after slipping to a 9-week low of NZ$9.15 on Wednesday.

By Stian Reklev – stian@carbon-pulse.com

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