My column from Friday's Insights newsletter:
Carbon prices are the best way of getting us to Net Zero. The Emissions Trading Scheme can get the job done if the government lets it.
This week’s petrol tax holiday is a worrying portent.
Politics has always been the biggest risk facing the ETS.
Carbon prices have quadrupled over recent years, to little fanfare. But what would the government do if carbon prices jumped from $70 to $120 in a hurry? Would it let carbon prices adjust while finding ways to help poorer families? Or would it throw sand into the ETS’s workings and force up the overall cost of reducing net emissions?
The Initiative has advocated a more sustainable approach for reducing that risk.
The government will earn over a billion dollars auctioning new credits into the ETS this year. It could tally its expected ETS earnings, split the money five million ways, and give each family of four a carbon dividend of just over $1000 – right now.
The best way of adapting to permanently higher energy prices is different for each of us. Government cannot know what is best for you and your family. A carbon dividend would help each household adapt in ways suited to its own circumstances. The ACT Party announced its support for a carbon dividend on Sunday.
Increasing carbon prices would then mean a bigger carbon dividend for Kiwi households, helping families adjust while protecting the system.
At the same time, a better ETS price cap would reduce the risk of serious carbon price spikes.
If our carbon prices rose to match prices in reputable international markets, like Europe’s, the government could buy carbon permits there to sell here. Our prices could then never rush ahead of prices elsewhere, reducing the political risk to the ETS while reducing the cost of reaching Net Zero.
The case is now more urgent. We have had a warning that our government responds badly to rising energy costs.
Nothing in the past weeks’ rising petrol prices is due to carbon charges. But being able to adapt to permanently higher energy costs matters.
The government could have announced a carbon dividend or found other ways of supporting poorer households.
Instead, it chose to meddle with prices, in a knee-jerk response to a small hit in the political polls.
It does not bode well for our path to Net Zero.
I do get how tradable emissions permits are supposed to work. When the price of buying a permit is higher than the cost of not emitting, rational actors don't emit. But where are the real-worl examples of this actually happening? Which ETS participants have taken action to reduce emissions rather than buy permits?
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