New Zealand to review carbon pricing amid pollution concerns

WELLINGTON – New Zealand is reviewing the way it puts a price on carbon emissions amid concerns that the current system is failing to adequately reduce pollution.

The country’s Emissions Trading Scheme (ETS) may not be incentivising companies to cut emissions because it is cheaper for most of them to just buy offsetting units instead, Climate Change Minister James Shaw said on Monday in Wellington. The government published four options to amend the scheme in a consultation document released on Monday.

New Zealand has committed to

achieving net zero emissions by 2050,

and has set up structures such as the ETS to push towards that target. Government policy is helping to replace coal-fired boilers and generation and encouraging the switch to electric vehicles, but many large-scale polluters have relied on carbon credits generated from increased forestry to meet their obligations.

“In its current state, the price of carbon is not high enough to drive significant change,” said Mr Shaw. “We know a higher carbon price leads to faster emissions reductions. We want to find out whether changes are needed to provide a stronger incentive for businesses to transition away from fossil fuels.”

All sectors of New Zealand’s economy, apart from agriculture, pay for their emissions through the ETS. The scheme requires polluters to surrender “emissions units” to offset their emissions. Units are issued to activities that remove emissions, such as forestry, and can then be bought by polluters. The government also auctions units.

The design of the ETS means it has become lucrative to plant forests. Large swathes of New Zealand farmland have been bought by local and foreign investors and planted with trees, either for eventual harvest or as permanent forests that attract carbon credits.

The government is considering ways to push up the carbon price. It may reduce the number of units it offers through auction, or it could increase demand by allowing overseas buyers to purchase them, according to the consultation documents. 

Another option is to create separate incentives for gross emission reductions and removals through a new market, which would include removing forestry from the ETS.

The government today also opened a consultation on whether permanent non-native forests should be allowed in the ETS.

“Encouraging afforestation should not replace or delay gross emissions reductions,” Forestry Minister Peeni Henare said. “We need to consider how the ETS can provide the necessary price for... gross emissions reductions while continuing to incentivise the planting of trees.”

Under existing policy, as much as 1.4 million ha of new forests is needed to meet New Zealand’s 2050 target, Mr Henare said.

The consultation will assess whether to allow only permanent native forests to be in the ETS, or to allow non-native planting in limited circumstances, such as using only long-lived species or only those located on Maori-owned land. BLOOMBERG