As part of a slew of climate policy changes released on Tuesday evening, the Government announced it was amending the Climate Change Response Act to remove the requirement that Emissions Trading Scheme settings and volumes align with international climate targets, and that it would strip the independent Climate Change Commission of one of its core roles.

The market immediately tanked off the back of the news, with the secondary market dropping $10 to trade as low as $41.50 – a 20% drop overnight, and more than 50% down on the market’s all-time high of $88.50 in November 2022.

The Coalition Government has repeatedly promised a “strong and stable” Emissions Trading Scheme would be its key tool to decarbonise the economy but, unfortunately for the carbon market, its policy doesn’t seem to be walking the talk.

Not requiring ETS settings to align with our international climate target or nationally determined contribution (NDC) only matters if the NDC requires sooner and larger emissions reductions than our targets and plans for domestic emissions reductions require, Carr explains. “The 2035 domestic target and NDC are aligned so the problem is the 2030 NDC, which requires fewer units to be auctioned and a higher price if ETS settings align with the 2030 NDC.”

The change will mean more units at a lower price are available this decade, he says. 

“Adding more sources of units without reducing free allocations or extending coverage to include agriculture, long haul aviation or shipping will add further units, have a lower unit price and further reduce the ability of the ETS to reward emissions reductions in line with targets and plans.

“This undermines the credibility of the Government’s reliance on emissions pricing to achieve targets and plans.”

Coupled with weaker regulation of emissions – for example for tail pipe emissions – and less ambition for the Government to reduce emissions from its own activities, the policy is clearly targeted to appease vested interests, Carr says.

“It is clear climate policy in the Coalition Government is set by stakeholders with vested interests in delaying emissions reductions by as much as possible, for as long as possible, whatever the impact on the health of New Zealanders,  whatever the impact on access to foreign markets, whatever the impact on energy security, whatever the impact on future generations.

“If the Coalition is judged by its actions not by its words, the agenda for climate response is not in the hands of the Prime Minister, the Minister of Climate Change or the National caucus.”

However, Carr says that it matters to some extent what the details are. “We won’t know that until the first reading next year.”

Carr agrees that it was a duplication to have both the Commission consult publicly on its ERP draft advice and for the Ministry to consult publicly on the Government’s draft ERP. “So long as the Commission provides its advice, which is made public, before the Government consults publicly on its draft ERP, I understand the reasoning.”

However, moving ETS settings reviews to bi annual won’t avoid the fundamental flaws in the ETS, Carr says.

Carr was the inaugural chair of the Climate Change Commission, and was the independent organisation’s public face from 2019 until his term ended in late 2024.

Under Carr’s leadership, the Commission repeatedly called for a review of the Emissions Trading Scheme, saying the current design was incentivising afforestation rather than decarbonisation.

Carr became increasingly vocal in criticising the government’s approach to climate as his term drew to a close, saying the ETS was broken and that the government would “fiddle the numbers” on climate targets.