Government moves to restore confidence in carbon credit pricing

Thursday, 13 April 2023

1News Jordyn Rudd takes a look at the Emissions Trading Scheme.

Carbon credit prices appear to be recovering strongly after Climate Change Minister James Shaw issued a statement on Thursday that seemed intended to restore confidence in the Government’s intentions towards the Emissions Trading Scheme.

Carbon credit prices slumped to a low of about $54.40 in late March, well down on their $88.50 annual high, after the Government did not take up a recommendation made by the Climate Change Commission late last year that it should raise the minimum price at which it issues credits and tighten their supply.

That prompted the failure of a carbon credit auction in March, when credits offered by the Government failed to reach their reserve price.

But Shaw said updated advice from the commission that the Government released on Thursday, in which the commission strongly reiterated its original advice that ETS’ settings needed to be tightened “would guide Cabinet in its decisions”.

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Confidence appears to be returning to the carbon credit market after concerns government policy towards the ETS might be influenced by the rising cost of living.

Salt Funds Management carbon fund manager Paul Harrison forecast last week that the Government was likely to issue a statement along those lines to fix what he assessed had been a mistake in its previous messaging to the market, and said Shaw’s comments “probably would calm people’s nerves”.

Buyers were offering $60 for carbon credits on secondary markets on Thursday morning, but offers had largely dried up, with the lowest sitting at $67, he said.

Shaw said officials would now consider the commission’s latest recommendations and provide further advice to ministers.

“There will then be an opportunity for people and organisations to have their say during a forthcoming public consultation,” he said.

The wobble in confidence in the carbon market had threatened to cut off a $1.3 billion income stream for the Government from the auction of carbon credits this year, that is earmarked to fund climate initiatives.

Climate Change Commission chairperson Rod Carr stated bluntly in its latest report, which the Government would have originally received in March, that current price settings for the ETS meant it “cannot function as effectively as it should”.

“If the Government chooses to accept the commission’s recommendations for ETS settings, then it will enable the ETS to do the job it was set up to do. It will also bring the ETS settings back into step with Aotearoa New Zealand’s emissions budgets and targets,” Carr said.

But if the Government declined the recommendations, then it would need “a much stronger policy approach to achieve emissions budgets than the one outlined in the emissions reduction plan,” he said.

Carr appeared to acknowledge that concerns over the rising cost of living might have impacted the Government’s thinking on its recommendations, which has been carbon traders’ underlying concern.

Higher prices for carbon credits could be expected to feed through into inflation by raising the cost of supplying a wide range of goods and services.

But Carr said the Government had “other social policy tools to empower households and businesses with limited choices and to manage the risk of any short-term cost of living impacts”.