Wednesday, July 26, 2023

Point of Order: Buzz from the Beehive - 26/7/23

James Shaw steps in to put things right with the Emissions Trading Scheme (and add a tad to household costs)

The public will be paying as consumers for one policy initiative announced yesterday. They will pay as taxpayers for three other initiatives.

The first announcement was made by Climate Change Minister James Shaw under a bland headline, Emissions Trading Scheme settings updated.

At, the headline on this announcement and its immediate effects more informatively was headed said Government complies with Climate Change Commission’s advice and sharply reduces the number of ETS units available in the next five years.

This report said New Zealand Emissions Trading Scheme (ETS) units had jumped to $65 today after the Government lifted auction prices and reduced the number of available units.

Units had been trading on the secondary market at just $45 on Tuesday, and had fallen as low as $36.50 earlier in July. While the price was up 44% overnight, units are still about 11% lower than they were six months ago.

The minister’s statement mentions modelling which shows a modest impact on household costs: an increase of $10 per NZU will increase average annual household costs by about $1.67 per week. For lower income households, the increase is estimated at $0.88-0.95 per week.

Taxpayers will cough up for the initiative announced under the heading Government strengthens cyber security.

This involves the establishment of “a lead operational agency” (which means further expanding the country’s public service)

“to strengthen cyber security readiness and response as well as make it easier for people and organisations to get help”.

This is a response to the recommendation of the Cyber Security Advisory Committee to bring New Zealand’s Computer Emergency Response Team (CERT NZ) into the National Cyber Security Centre (NCSC).

The cost of doing this has not been specified but the press statement says the government has invested $94 million in improved cyber security capability since 2018.

It further says $5.8 million of direct financial losses from cyber incidents were reported to CERT NZ in the first quarter of the year and the NCSC prevented $33 million of harm to our economy over the whole of last year.

Operational integration of CERT NZ into the NCSC will begin on 31 August and will be phased in over several years. All current services will be maintained in the interim.

State owned Enterprises Minister Duncan Weir has announced a decision to review the country’s weather-forecasting system.

The agencies once simply known as MetService and NIWA – the Government prefers to call them MetService Te Ratonga Tirorangi and NIWA Taihoro Nukurangi – will be examined by the review.

Adding te reo to agency names suggests press secretaries are now being paid by the word.

Webb said our forecasting systems should reflect the interrelationship between climate science, forecasting, hydrology, and coastal hazards to help us better plan for, and respond to weather events.

The review will commence in September and the final report is expected to be with the government (led by whom?) in February 2024.

The budgeted costs are not mentioned in the press statement.

The last of the latest batch of government announcements tells us of the latest dip into a trough grandly called Civil Defence Emergency Management Resilience Fund grants.

The Resilience Fund is distributed annually and will allocate $844,000 to eight projects. Applications were considered by a panel against criteria with emphasis on improved collaboration, improved resilience locally and regionally, and consistent approaches.

The demand presumably was greater than the fund’s ability to satisfy it:

‘There was strong competition for funding this year, and the successful projects will boost New Zealand’s resilience to major events, “ Kieran McAnulty said.

Latest from the Beehive

The Government has commissioned a review of New Zealand’s weather forecasting system, State Owned Enterprises Minister Duncan Webb says.

Grass-roots projects to help communities respond to a large earthquake on the South Island’s Alpine Fault are among this year’s recipients of Civil Defence Emergency Management (CDEM) Resilience Fund grants.

A lead operational agency will be established to strengthen cyber security readiness and response as well as make it easier for people and organisations to get help, Minister for the Public Service Andrew Little says.

The Government has made its annual decision on unit limits and price control settings for the New Zealand Emissions Trading Scheme (NZ ETS) for 2023 – 2028, to drive stronger action on emissions reduction targets.

In his ETS statement, Shaw said the new settings put New Zealand “in lock step” with advice provided by the Climate Change Commission in 2022 and 2023.

The Government has also reviewed its 2022 unit limits and price control settings decisions for 2023 – 2027, following the recent Judicial Review initiated by the Lawyers For Climate Action New Zealand Incorporated. As a result, settings for the December 2023 auction will also be changed.

This fixes a cockup.

“The judicial review was about the process followed for the 2022 NZ ETS settings decisions, not the decisions themselves. The government accepts there were deficiencies in the process and has moved quickly to fix them,” said James Shaw.

The Government has accepted the Climate Change Commission advice to raise the auction floor and cost-containment reserve (CCR) trigger prices more sharply.

The CCR is a mechanism designed to keep the carbon price from rising too high.

“We believe the new settings will prevent market participants from trying to hit the ceiling price, thus releasing more units, and will instead allow the market to operate in a more sophisticated manner,” said James Shaw.

Auction price floor settings will rise from the current level of $33.06 to $60 in December 2023.

A two-tier cost containment reserve trigger price will also be introduced in December 2023. The Tier 1 cost containment reserve trigger price will increase from $82 to $173 in the December NZ ETS auction.

Cabinet has decided to change the overall limit in carbon units (sometimes called the cap on emissions). This means that there will be 17.6 million fewer NZUs auctioned over 2023 – 2028 when compared to the current settings.

“This will drive the use of emission units stockpiled over time”.

Changes will be made to settings from the 6th December auction onwards.

An outfit called Halt NZU Grab noted the ETS announcement had been made after close of business yesterday.

Its statement was headed Shaw Corrects One Mistake – But The Most Important One Still To Be Fixed.

Halt NZU Grab noted the government has accepted most of the Climate Commission’s 2023 recommended unit limit and price settings for the ETS.

The only significant difference was with auction volumes, where the Government has gone with unit levels for 2024 and 2025 “which look to be 50% higher than those recommended by the Commission”.

These unit limit and price settings were not due until 30 September 2023.

The report explains that ETS prices had been falling since December 2022. when the Labour cabinet chose to ignore the Climate Change Commissions’ advice and opted for looser auction settings.

This was intended to protect households from higher carbon-related prices during a cost of living crisis and related to the auctions between ​​2023 and 2027.

However, a group of lawyers challenged this decision and a High Court judge ordered Labour’s Cabinet to remake its decision alongside its settings for the 2026-2028 period.

After the market had closed on Tuesday night, James Shaw announced Cabinet had agreed to significantly tighter settings for the 2023 to 2028 periods.

This means there will be fewer units and higher reserve prices in the December auction. The auction floor prices will rise from $33.06 to $60, and a two-tier cost containment reserve trigger price will also be introduced.

Usually the Government would not be able to change ETS settings in the next two years, so the Commission’s 2023 advice only recommended changes from 2025 onwards.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton

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