The Emissions Trading Scheme (ETS) has a profound impact on New Zealand's environmental and economic landscape. Our shared commitment to improving climate resilience, biodiversity restoration and improved land use means engaging in this process is a matter of both business alignment and our dedication to shaping a sustainable future for the nation.
Understanding the Four Options
The consultation document presents four primary options for the ETS redesign:
Option 1: Maintain the current ETS structure but with revised settings.
Option 2: Introduce additional market-based incentive mechanisms.
Option 3: Limit the proportion of forestry units that emitters can surrender.
Option 4: Create a separate market for emissions entitlements vs removals.
CarbonCrop's Perspective on the Options
CarbonCrop supports this option. We believe the structure of the ETS works, but the current settings are not working as best they could. We think the ETS settings should change to increase the scarcity of NZU supply, driving emissions reductions. This can be done by aligning unit supply with net-emission targets through auctions and restricting new ETS registration eligibility to forests that serve as permanent carbon sinks.
We view Option 2 as an enhancement to Option 1. Introducing additional market-based incentive mechanisms creates stronger market dynamics. However, if introducing international buyers, we must make adjustments to ensure the integrity of NZUs.
CarbonCrop does not support this option. We believe it would neither incentivise emissions reductions nor carbon removals effectively. Limiting the proportion of forestry units could distort the market, harm market confidence, and compromise the business case for carbon forestry.
While this option has potential, our primary concern revolves around the uncertainty of demand and price levels. We are wary of the government's role as a monopoly buyer and the implications it might have on market dynamics.
CarbonCrop's Preferred Option
We prefer Option 2.
We believe that the current NZ ETS structure, with its robust climate accounting integrity, can deliver cost-effective climate change mitigation and net emissions reductions. By limiting NZU supply, we can drive both emissions reductions and carbon removals, all within the existing ETS structure.
We would potentially support Option 4 if the implementation and settings can deliver a fair outcome to all participants, and give the market confidence in a sustainable incentive framework that can drive the necessary long term commitment and investment.
We propose introducing a minimum emissions price through an additional levy or fee for emitters. This approach would preserve the ETS's existing structure, maintain market confidence, and incentivise both emissions reductions and forestry removals.
Broader Environmental Outcomes
We strongly advocate for prioritising removals with environmental co-benefits, such as indigenous afforestation.
Limiting eligibility of exotic forests for the permanent category.
Waiving all fees for indigenous forests in the ETS.
Providing a premium price for NZUs from indigenous forests.
We also believe in the potential of other carbon removal methods, such as direct air capture and enhanced mineral weathering. They should have a pathway to inclusion in the ETS.
We have also submitted on the redesign of the permanent category. We believe that with the right adjustments and considerations, the ETS can pave the way for a greener, more sustainable New Zealand.