ETS Review Submission from Adrian Macey

Guest Post by Adrian Macey, Senior Associate, Institute for Governance and Policy Studies, Adjunct Professor, New Zealand Climate Change Research Centre, Victoria University of Wellington, Vice Chair then Chair, UN Kyoto Protocol negotiations 2010-2011, New Zealand Climate Change Ambassador 2006-2010, Chief Trade Negotiator 2000-2002.

This is a direct transcript of Adrian Macey's submission to the ETS Review. You can also check out Motu's submission and that of Z Energy.

General points

The discussion paper is a good overview and addresses some important longer term issues. The minister’s introduction correctly identifies the purpose of the ETS as the gradual transition to a low emissions economy.  

The Paris Agreement shifts the focus to domestic measures more than international compliance, and this needs to be reflected in the fundamental orientations of the ETS.

The “priority” issues are not the most important ones that will need to be addressed, as the discussion paper acknowledges. 

There needs to be a greater flow and improved quality of information, research and modelling results if public input is to be effective.  The latest ‘technical notes’ accompanying the review (e.g. NZIER’s modelling of removal of the ‘transition’ measures) contain huge caveats and uncertainties. This needs to be complemented by a more open approach from government officials in their interactions with stakeholders.  

The opacity in the land sector, especially forestry, must be remedied as a priority.

The horizon of the ETS review should be at least 2050, accompanied by clear government policy orientations. The focus, as mentioned above, should be much more on the domestic transition and much less on international markets.  The role of the latter needs a complete rethink.

The overarching principle of the ETS must be to cover the whole economy, consistently with its design – there is no case for a permanent exclusion of agriculture or a category of “biological emissions”. There is however an unassailable case for distinct treatment of agriculture, including gas-specific provisions and transition measures, within the ETS. 

Specific questions

[Q3]There is no case for retaining the 1 for 2. It is important that a strong signal is given that carbon prices will increase (consistently with the Paris Agreement), and the 1 for 2 means they are unrealistically low. 

The priority of the ETS should be the NZU price.  Auctioning is an appropriate tool. 

[Q11]Any EITE provisions beyond 2020 should be subject to empirical evidence and tests 
The $25 fixed price option, if a ceiling is retained, should be lifted to match the pricing in the government’s own modelling assumptions. This would have the useful result of creating some stability of expectations for business. 

A price floor should accompany any price ceiling (as Treasury has recommended); alternatively, or additionally, there could be a quantitative restriction on use of international units.

Public understanding and support of the ETS will be increased if revenues from it are  visibly used for purposes consistent with an optimal transition to a low emissions economy. These could include assistance to households disproportionately affected, promotion of and incentives for renewables and green technologies, adaptation etc.