The Climate Change Commission wants the government to change the rules for the way emissions are priced, with current settings incentivising tree planting instead of actual cuts to damaging gases.
File photo. Photo: onas Walzberg / DPA / dpa Picture-Alliance via AFP
On Wednesday it released the first of what will be annual advice on the Emissions Trading Scheme (ETS).
What's the ETS again?
The ETS is a major tool to try to avoid catastrophic consequences of climate change.
Read RNZ's what you need to know on the ETS
It is a market managed by the government, and businesses that generate damaging gases have to buy units from it.
The number of units available shrinks over time, causing the price to go up and incentivising businesses to find ways to emit less.
Trees absorb carbon, so eligible forest owners can sell units to polluters at a price set by the ETS market.
Revenue gathered from the scheme is used to fund efforts to reduce emissions - with nearly $3 billion in spending in the next four years announced during Budget week this year.
What is the Climate Commission's advice?
Commission chair Dr Rod Carr said the ETS needed to be as effective as possible at reducing damaging gases.
He wanted the government to let the price of carbon increase substantially, and quickly - but more on that a little later.
The commision wanted the limit on the number of units available for auction needed to be reduced, while there should be an increase in the price ceiling which triggers the release for sale of extra units (as well as a boost to the auction reserve price), he said.
Read the commission's full report here
These extra units have contributed to stockpiles which can undermine the ability of the government to achieve its emissions reductions targets.
The government last week announced it was moving to limit the allocation of free units in the scheme.
"We need a strong NZ ETS to incentivise the changes needed in investment and production, and support consumer choices," Carr said.
The limits aimed to cap the emissions allowed by the scheme, in line with the country's emissions reduction targets, he said.
Carr said other changes to the ETS were needed to keep emissions below the net-zero target by 2050 in the long term.
He wanted the government to clarify how the ETS would differentiate between actual emissions reductions by firms, and carbon removed by planting trees.
"Unless this is addressed, the NZ ETS is likely to deliver mostly new plantation forestry rather than gross emission reductions."
The government is looking at changing the ETS to discourage the planting of new permanent exotic forest by excluding them from the ETS (though not trees destined to be logged).
Doing so would put our economy on the back foot compared to other countries and shift the cost of making emissions cuts onto future generations, Carr said.
The government also needed to clarify if our domestic ETS would be utilised in meeting our international promises to slash emissions, he added.
The government has promised to halve climate pollution by the end of the decade - but two thirds of these cuts will come from paying other countries to make reductions on our behalf.
But there is no international carbon market available yet to facilitate this, with the Government indicating it will initially do it via direct relationships with countries our groups of countries.
"It is essential that the government secure access to sources of offshore mitigation as soon as possible, and decide how this will affect the NZ ETS.
"This is not a matter that can be left until later this decade."
Changes will speed up end of coal, but could hurt consumers
Massey University distinguished professor Robert McLachlan said the Climate Commission's advice to let the price of emissions rise steeply would help speed up the phase-out of coal for making electricity and powering factories.
The Climate Change Commission wants to more than double the price lid, which triggers extra units to be released from $70 to more than $170 a unit.
It wants a second, upper trigger of $214 dollars.
A unit of carbon currently costs about $72.
The trigger price was only supposed to be hit rarely, but it has been reached half the time since auctions started last year.
McLachlan said the proposed changes would cause large emitting firms like Fonterra and the Huntly power station to stop burning coal sooner.
But he said the price rises could also hurt consumers, with Māori disproportionally affected.
The Commission said the Government should bring in targetted support, separate from the ETS, to help those worst affected.
Climate Minister welcomes 'non-partisan advice'
Minister of Climate Change James Shaw welcomed the recommendations, saying for the ETS to do its job it was vital the right settings were in place.
ETS settings were updated every year but this was the first time the commission's independent advice would help with that process, he said.
Any changes from the commission's recommendations would not apply until March 2023.