Climate Change Response (ETS Price Settings) Amendment Bill

Project discussion:

Climate Change (ETS Price Settings) Amendment Bill

Member's Bill

Explanatory note

The Climate Change Response Act 2002 includes provisions for price settings in the Emissions Trading Scheme to provide limits to the market. One of these is the cost-containment reserve trigger price, which would trigger the release of new units into the ETS to keep carbon prices low. These units must be backed by the government within five years, and the expected method of backing is the purchase of units from the EU ETS, where carbon prices are twice those in New Zealand. The price settings are specified by regulation, but to provide market certainty, the Minister's ability to change them at short notice is limited.

When the trigger price was set, carbon prices were low. The market is now approaching those limits, threatening to trigger the cost-containment reserve in the ETS's first real year of operation. This would undermine the credibility of the ETS, and present a significant fiscal risk to the government. The Climate Change Commission has recommended that the trigger price be immediately increased to prevent this, and to set a clear pathway allowing for a carbon price of $150 per ton by 2030. The legislative restrictions on changing the regulations means this must be done directly by legislation.

This bill amends the Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020 to immediately raise the trigger price for the cost containment reserve to prevent the reserve from being triggered, and to allow such changes to be made in the future.

Climate Change Response (ETS Price Settings) Amendment Bill

The Parliament of New Zealand enacts as follows:

1. Title
This Act is the Climate Change Response (ETS Price Settings) Amendment Act 2021.

2. Commencement
This Act comes into force on the day after the date on which it receives the Royal assent.

3. Principal regulations
This Act amends the Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020.

4. Schedule 3 amended

In Schedule 3, table of price control settings, column 3, replace the entries for each year with the following (for 2021 — 2025 respectively):


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