First published at www.interest.co.nz on 29 March 2023
The value of New Zealand carbon credits has dropped to $58 on the spot market as of 4pm on 29th March 2023, the time of writing this article. This has happened because the Government didn’t take the Climate Change Commission’s advice to set the floor price to $60, and the trigger price to somewhere between $171-$214 this year. The Government did this because it was concerned a higher credit value would fuel inflation.
The Government set its auction floor price to just over $30 and trigger value to $80.64 and so the price crashed. That meant the March 2023 credit auction failed, the big buyers low-bid, the Government sold no credits and lost out on about $300 million. By comparison, the EU credit price is €89.40 ($NZD155). It has been up over €100 ($NZD173), so the Commission’s recommendation was spot on.
This may be great for credit buyers and critics of the NZETS, but in the longer term if the NZETS is ineffective because the carbon price is too low, we face the risk of failing to meet our Paris Agreement obligations and will expose our exporters to carbon tariffs from the EU and USA. This represents another home goal, as other commentators have noted.
But more importantly, failure to make meaningful efforts to mitigate climate change and keep to international agreements will reduce our influence, our export market net value, and ability to persuade others to greatly reduce their emissions. Market-based instruments only understand price after all, and Planet Earth responds only to the laws of physics, not commercial markets.
The carbon price needs to go up, gradually, until it hurts. Then, emissions will come down.
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