NZ Initiative Submission - ETS Review and Permanent Forestry

Dr Eric Crampton
11 August, 2023

This submission in response to the Review of the Emissions Trading Scheme and permanent forestry category changes. 

In summary, we submit:

(a) The Emissions Trading Scheme can usefully be strengthened;

(b) The proposed options do not usefully strengthen the ETS. Accurate problem definition is needed if effective improvements are desired;

(c) The ETS should maintain its focus on net emissions, rather than gross. The Climate Commission should maintain a sharp focus on ensuring the accounting is sound;

(d) Policy problems unrelated to net emissions should not be addressed through the ETS. They require their own separate instruments;

(e) Permanent forest considerations in the ETS should be guided solely by sound carbon accounting, with other considerations and consequences left to the levels and branches of government best placed to deal with those considerations;

(f) The ETS should be strengthened by:

a. Reforming the price cap to track a weighted average of international carbon prices in emission trading schemes that the Commission considers credible;

b. Legislating the number of unbacked units available to be issued or allocated between now and 2050;

c. Complementing the ETS with policies addressing other issues as they arise, rather than trying to address each through tweaks to ETS settings;

d. Maintaining regime certainty by avoiding threats to the underlying institutional structure or the property rights inherent in emission certificates;

e. Addressing equity issues that arise as carbon prices rise by redistributing collected ETS revenues as a carbon dividend rather than using those revenues for industrial subsidies or other projects.

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