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  • CarbonCrop Team

A Better ETS is Possible

Our Submission on the Climate Change Commission’s Draft Advice on the Second Emissions Reduction Plan

A panorama of cape palliser. Hills and native new zealand bush.
Photo Credit: Rebecca Hunink

Last Tuesday we submitted our feedback on the Climate Change Commission’s (CCC) draft advice on the second Emissions Reduction Plan, which included suggestions to amend the New Zealand Emissions Trading Scheme (ETS). The Government has released more information about the options it's considering for amending the ETS and we'll release our thoughts on the Review and these options soon.

CarbonCrop believes that the current ETS settings should be adjusted within the existing structure to decrease the supply of NZUs and drive both emissions reductions and carbon removals.

CarbonCrop’s General Feedback

  1. New Zealand must massively reduce greenhouse gas emissions. Carbon removals alone aren’t enough to tackle climate change.

  2. Scaling up carbon removals is as crucial as reducing emissions. We must remove huge amounts of carbon from the atmosphere and provide a solution for hard-to-eliminate emissions sources.

  3. Forests alone can’t provide all the removals needed - we must keep looking at new and different options.

  4. Market design should incentivise high-quality forest carbon removals from biodiverse native forests across various landscape types.

On the NZ ETS and Decarbonisation

  1. Emissions Trading Schemes, like the NZ ETS, are effective in driving net emissions reductions if the right settings are in place. The ETS should not be used solely as a financing mechanism but as a tool to achieve emissions reductions.

  2. To achieve net emissions reductions, massive reductions in gross emissions are essential.

On Afforestation and Emissions Reductions

  1. Both emissions reductions and removals should be incentivised. Any changes should focus on NZU supply and eligibility settings rather than the ETS structure.

  2. We need durable carbon sinks with high integrity and desirable co-benefits. Restrictions on forest types and management methods should be introduced.

On the Emissions Pricing System

  1. The structure of the ETS does not need significant changes. Instead, the settings should be adjusted to increase the scarcity of NZU supply and drive emissions reductions.

  2. NZU supply should be reduced through auction settings and restricting forest registration eligibility to encourage native forests with desirable co-benefits as well as biodiverse mixed-species exotic forests.

Opinions on Amendment Options

  1. Limiting the proportion of NZUs from forestry that can be used by emitters would decrease the price for forestry NZUs and harm afforestation efforts.

  2. Introducing a minimum emissions price via an additional levy for emitters preserves the existing ETS structure, allows for ongoing management, and incentivises both emissions reductions and forestry removals.

  3. Limiting the area of new forest land registered into the ETS each year constrains afforestation efforts and reduces flexibility.

  4. Moving forestry into a separate project-based mechanism creates setup and implementation challenges, regulatory instability, and misalignment with climate outcomes.

  5. Introducing an exchange rate between forestry and other NZUs or reducing the quantity of NZUs allocated for carbon sequestration creates concerning accounting complexity, integrity, and distortion of ETS accounting and true climate accounting.

We must combine ambitious emissions reductions with scaled-up, high-quality carbon removals. With the right settings, the NZ ETS can drive decarbonisation efforts with scarcity of NZUs and incentivising emissions reductions. Afforestation should be supported, especially biodiverse native forest, but other carbon removal methods should be explored. With a better ETS, New Zealand can make significant progress towards achieving its emissions reduction targets and addressing the urgent challenges of climate change.

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