The Government has made its annual decision on unit limits and price control settings for the New Zealand Emissions Trading Scheme (NZ ETS) for 2023 – 2028.
Minister of Climate Change James Shaw said the New Zealand ETS is a key tool for meeting our climate change obligations and for ensuring that those responsible for environmental damage pay to cover the costs.
“Annual reviews of the unit settings and price control limits provide an important opportunity to ensure the settings are fit for purpose,” said Mr Shaw.
“Today is an important step forward in helping us to meet our domestic and international climate targets. The new settings put us in lock step with advice provided by the Climate Change Commission in 2022 and 2023.
“At the same time the Government is mindful of any impacts these decisions may have on living costs in the short term. This is expected to be minimal.”
Modelling shows that an increase of $10 per NZU will increase average annual household costs by about $1.67 per week. For lower income households, the increase is estimated at $0.88-0.95 per week, the Minister said.
“The Government has also taken another look at its 2022 unit limits and price control settings decisions for 2023 – 2027, following the recent Judicial Review initiated by the Lawyers For Climate Action New Zealand Incorporated. As a result, settings for the December 2023 auction will also be changed,” he said.
“The judicial review was about the process followed for the 2022 NZ ETS settings decisions, not the decisions themselves. The government accepts there were deficiencies in the process and has moved quickly to fix them.”
The Government has also accepted the Climate Change Commission advice to raise the auction floor and cost-containment reserve (CCR) trigger prices more sharply.
“The CCR is a mechanism designed to keep the carbon price from rising too high. We believe the new settings will prevent market participants from trying to hit the ceiling price, thus releasing more units, and will instead allow the market to operate in a more sophisticated manner,” said Minister Shaw.
Auction price floor settings will rise from the current level of $33.06 to $60 in December 2023.
A two-tier cost containment reserve trigger price will also be introduced in December 2023. The Tier 1 cost containment reserve trigger price will increase from $82 to $173 in the December NZ ETS auction.
“Cabinet has also decided to change the overall limit in carbon units (sometimes called the cap on emissions). This means that there will be 17.6 million fewer NZUs auctioned over 2023 – 2028 when compared to the current settings. This will drive the use of emission units stockpiled over time,” Mr Shaw said.
Changes will be made to settings from the 6th December auction onwards.