The Carbon Fund welcomes the Government’s ETS Reforms

Wednesday, July 01, 2020

The Carbon Fund welcomes the Government’s ETS Reform progress

The Climate Change Response (Emissions Trading Reform) Amendment Bill has passed
onto the law books which will see the first scheduled auction of New Zealand carbon
credits going ahead in March 2021.

The ETS reforms includes several necessary changes to limit the total emissions allowed
within the ETS per year and align the ETS framework and processes with the targets set in
the Zero Carbon Bill, which passed last year.

OMF, a NZ carbon credit broker have summarised where we are at; “From 2021, we have
a well-crafted proper, effective Cap & Trade ETS. With a cap on emissions driven by rolling
five-year budgets, a wide price path and regular reducing supply via auctioning and
allocations. An ETS that is fit for purpose to help us meet our Paris commitments and then
drive on towards a net zero future in 2050 or before. The old ETS was a jalopy, the new
ETS is a Merc.”
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An annual cap will be set on emissions covered by the scheme, which will decrease in line
with Emission Budgets set by the Climate Change Commission. Industrial free allocations
will also decrease each year to motivate carbon emitters to reduce their carbon emissions
over time; 1% every year until 2030, 2% from 2031-2040, and 3% from 2041-2050.

The Fixed Price Option will increase from $25 to $35 for the 2020 emissions year and will
overlap with the start of auctioning in 2021, with the first NZU auction set for March
2021. The annual allocation of units will be split evenly over the four quarterly auctions.
Price controls have been set for auctions to mitigate extreme volatility with a $20 floor
and $50 cost containment reserve (CCR) trigger, both of which will be adjusted for
inflation over time. The CCR enables the Government to dampen the auction price when
the trigger is hit by releasing additional units from reserves, or by procuring equivalent
emissions reductions or removals.

A provisional emissions budget for the 2021 – 2025 period has been determined,
reflecting 90 million tonnes of CO2 equivalent greenhouse gases for the five years. The
Climate Change Commission will provide the first three emission budgets by the end of
July 2021, which may include a revised budget for the 2021-25 period.



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The Carbon Report, OMF, 19 June 2020

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