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The Government isn’t happy that its key climate policy is planting oodles of carbon-absorbing trees instead of driving clean energy.
It has publicly presented ideas to get its Emissions Trading Scheme (or ETS) to more effectively reduce pollution.
A revamp is likely to make fossil fuels such as petrol, diesel, natural gas, coal and fossil-fuelled electricity slightly more expensive.
Currently, a large emitter can buy carbon units from forests to cover its entire greenhouse footprint, which effectively offsets the pollution rather than affecting how much is produced in the first place. This relatively inexpensive option could come to an end, after the official review.
The Government hasn’t backed any one of the four options. The consequences for pollution and energy bills are unique to each idea.
Each option would increase the penalty that polluters pay for every tonne of emissions they release to the atmosphere – since that is the way the ETS incentivises them and their customers to ditch fossil fuels in favour of clean energy.
Currently, the ETS penalty adds roughly 13 cents to the cost of a litre of petrol – down from 20 cents in late 2022. Each idea could affect this share to a different degree.
The consultation document says two options are likely to boost the amount of money the Government would generate to help struggling businesses and families adapt to the higher costs. The other two could reduce this pool of cash.
When it was first designed in the late 2000s, the ETS aimed to drive down net emissions – which counts the release of greenhouse gas from coal, oil and gas plus any removals from carbon-sequestering forests.
If it was cheaper for companies to fund tree-planting than to ditch fossil fuels, the ETS would incentivise lots of new forests.
That’s currently what’s happening, according to the Government’s adviser the Climate Change Commission. It estimated more than 60,000 hectares of exotic forest were planted last year.
DAVID WHITE/Stuff
The country added more than 60,000 hectares of exotic trees in 2022, says the Climate Commission.
The commission has repeatedly recommended the Government address this issue. If left as is, commission chair Rod Carr said, “it will ultimately put our economy at a competitive disadvantage relative to a decarbonised global economy and shift cost burdens onto future generations”.
Climate Change Minister James Shaw and Forestry Minister Peeni Henare presented four ideas and launched a public consultation on Monday morning.
Under one proposal, large emitters would only be allowed to use a limited number of forestry credits to offset their pollution. This echoes the Californian Emissions Trading Scheme.
While the Californian scheme allows between 4 and 6% of a companies’ footprint to come from approved “offsets”, Kiwi officials have not suggested a percentage.
Other limits – including an idea that companies would need to buy two forestry credits for every tonne of pollution – are also outlined in the consultation.
Another proposition could mean polluters are no longer able to use any forestry units at all – similar to the British and European Emissions Trading Schemes.
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There would still be other avenues for businesses to buy and trade units, for example the four “pollution auctions” held each year. Since the Government has control over the number of units for sale at auction, it could exercise more control to reduce gross emissions.
Forestry would be incentivised separately. The Government could become the sole purchaser of carbon units from trees, potentially “buy[ing] removals from indigenous forests at a premium price”, boosting biodiversity.
Two of the four proposals came from the public. Neither limit forestry.
The Government and offshore organisations could purchase some forestry units to increase demand, which could in theory reduce gross emissions.
Alternatively, the Government could reduce the number of units for sale in the pollution auctions.
However, officials provided scepticism – including issues raised by the Climate Change Commission – about these two options within the consultation document.
Speaking during a press conference, Minister Shaw said that all options have consequences, and these issues have been flagged. “We are maintaining an open mind on where this lands.”
Since the options aren’t mutually exclusive, the final package of reforms could include parts from multiple options, he added.
“We need the ETS to incentivise both emissions reductions and carbon removals from forestry.”
Although carbon-absorbing forests were “critically important”, the design of the ETS has dulled the incentive for widespread transformation, Shaw said. “[It] should not be a static institution.”
Minister Henare said the reforms were in the forest industry’s best interests. An oversupply of forestry units – projected to occur in the 2030s – would reduce demand and the profits of forest owners.
A related consultation was also launched, on how permanent forests would be regulated.
Henare said forests offered many benefits, beyond absorbing greenhouse gas.
The public can provide feedback on the ideas from Monday until Friday August 11.
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