The burning question in a warming world
Large parts of Europe have been struck by an intense and prolonged period of extreme heat over the past few weeks. On the other side of the planet, here in New Zealand, snow on the ski fields has been elusive, and only this past weekend and only in Canterbury it seems, did it snow and not in the key ski resort areas of Queenstown or Wanaka.
We are seeing wildfires, droughts, desertification, and some heat-related deaths in Europe. Scientists and climate experts are constantly reminding us that extreme weather events will continue to increase because of climate change. As we enter an El Niño weather cycle more heat records will likely be broken. Apparently, Europe has been warming at twice the rate of the global average since the 1980s, according to a report released earlier this year by the UN. And as all readers will know, New Zealand, too has had a very varied year so far regarding the weather. We have seen warm temperatures in the south, incessant rain and flooding in the north and many parts of the country are still reeling from the tragic Cyclone Gabrielle and other weather disturbances.
During her time as Prime Minster, Dame Jacinda Ardern was on record as saying climate change is her “generation’s nuclear free moment”. With the stroke of a pen, her Labour government banned new fossil fuel exploration and initiated policies to address climate change and put us on a path to reach our 2050 climate obligations. How’s that going…???
A key tool in meeting our targets is the New Zealand Emissions Trading Scheme (NZ ETS). The scheme is intended to reduce emissions three main ways:
- Companies must measure and report their greenhouse gas emissions
- These companies must surrender one ‘emissions unit’ (NZU) to the Government for each one tonne of emissions they emit; and lastly
- Limiting the number of NZUs available to emitters.
The Government controls the number of units supplied into the scheme, which limits what emitters can emit, in line with our emission reduction targets.
Businesses who participate in the scheme can buy and sell units from each other and the price reflects supply and demand. This price signal allows businesses to make economically efficient choices about how to reduce their emissions. The Government sells NZUs directly to the market through an auction process. Other NZUs are available from secondary market participants – either through trading platforms or people directly trading with each other.
The agricultural sector so far has been excluded from key aspects – and quite rightly so – and only needs to disclose its emissions but there is no requirement to offset. Just over 50% of the country’s greenhouse gas emissions are covered by the ETS.
Add to the mix, the Climate Change Commission (CCC) which was established in November 2019 to provide independent, evidence-based advice to the Government of the day. The CCC released its first major piece of advice in July last year that recommended a strong NZ ETS was needed to incentivise changes and recommended reducing the number of NZUs available and raising the price. The timing was not great as it coincided with a massive inflation spike which caused a “cost of living crisis” for many New Zealanders. The Labour Government baulked on the conclusions and seem to be hypersensitive to be blamed for inflation hence didn’t want a higher carbon price, which would push up already high prices for everyday items (such as fuel, gas etc).
NZU prices peaked at NZ$88.50 last November but fell sharply after the Government rejected the CCC’s advice to tighten the scheme. With the falling price, not one of the auctions have cleared this year and the Government has sold no NZUs meaning no tax income. Secondary market prices also collapsed.
The Government proposed four options to improve the scheme in June with no decision expected until after the October election. This all changed a couple of days ago when the Government announced it would be implementing the CCC’s original advice, effective in time for the December auction. A cynic might say they wanted some good news in a week of much bad news. Either way, this very welcome news has seen NZU prices receive a decent shot in the arm in trading following James Shaw’s announcement.
Interestingly Ampol (which bought Z Energy, NZ’s largest fuel retailer, last year) also released a report this week that the length of car ownership in New Zealand means demand for petrol will remain “robust” well into the 2030s.
So here we stand, a month with the highest temperatures ever recorded, recorded being the operative word, ski-fields dealing with a world with no snow, New Zealand likely to use petrol cars for the indefinite future and a Government up until this week too scared to do anything. It is a highly encouraging step but I did laugh to myself when out for a walk recently when a rather loud Maserati roared past me with the number plate “RIP EV”….