Carbon’s creative destruction

Matt Burgess
Insights Newsletter
21 May, 2021

Clean air is certainly the flavour of the month in Europe judging from the skyrocketing price of carbon.

Since April last year, emissions units on the EU’s Emissions Trading Scheme (“ETS”) have nearly quadrupled from €15 to above €56 (NZ$95) this week. The ETS price is the cost of emitting one tonne of greenhouse gases.

These record prices follow a decision by European leaders in December to tighten their emissions target.

The rapid rise in the carbon price has led to non-compliance and bankruptcies. One of the affected companies is Zander, a paper manufacturer based near Cologne in Germany with 380 staff. It was established in 1829 and closed its doors on April 30.

The Federal Environment Agency in Germany must now decide whether to go after the bankrupt company for its unmet ETS obligations.

This is how carbon prices are meant to work. Bankruptcies are regrettable – better that firms cut emissions while remaining solvent – but the world’s largest carbon market is showing emissions prices can pack a punch.

But higher carbon prices are bringing more than just pain for emitters. They are driving innovation.

Europe’s prices are turning carbon capture into a business.

In 2019, the US National Academies of Sciences surveyed six so-called “negative emissions” technologies, or NETs. These pull carbon directly from the air.

The two most promising NETs are carbon capture in soils, and a modified form of bioenergy. These promise double the emissions benefits of another carbon capture technology, forestry.

Together, NETs could remove up to 10 gigatonnes of greenhouse gases per year, nearly a third of global emissions.

The technologies are all “safe,” the report says. None will cause “adverse societal, economic, and environmental impacts”.

And the NETs can all remove carbon from the air for less than US$100 per tonne, or NZD$139.

That is significant because it means NETs could cap what we pay to cut emissions.

Nearly all of the government’s emissions policies spend more than $139 per tonne. The Climate Change Commission says carbon costs could rise above NZ$800 under its plan. Right now, the government is spending more than $1,000 in some places.

We can cap emissions costs simply by allowing New Zealand’s Emission Trading Scheme to recognise carbon capture.

Rising carbon prices do more than just hit the back pocket of emitters. They unlock new ways to meet our emissions targets genuinely, and for less cost and risk. We should be open to the opportunity.

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