Known as revenue hypothecation, the money would be raised via the Government’s now quarterly carbon credit auctions, and required to be put into programmes or tech aimed specifically at emissions reductions.
Climate Change Minister James Shaw has labelled it the most significant announcement relating to climate change in the budget, providing an estimated revenue source of $3 billion over five years.
Shaw has labelled it a “game-changer”, removing the budget-by-budget policy approach to instead enable a longer-term, well-funded approach to dealing with the issue.
Canterbury University professor in forestry Euan Mason welcomed the move to back the ETS credits with definitive reduction steps.
He has voiced his past concerns over the much-maligned international carbon credits commonly used 5-10 years ago that were sourced from countries like Ukraine, but not backed by legitimate carbon reducing practices.
“This is a step in the right direction,” Mason said.
“The problem with auction credits is they could just go elsewhere. I have to add though, it will be good to show the amount of money coming from credits results in X amount of CO2 being removed from the atmosphere, so people buying them know they will see a result.”
He says the obvious next step is to ensure the projects the money goes into actually result in a measurable CO2 reduction.
“This also removes the risk of them simply becoming fraudulent and printed without any end result,” he said.
Carbon Match director Lizzie Chambers says between now and when the ETS hypothecation scheme kicks in next June, there would also be up to $1 billion of credits that, in the meantime, would most likely be funnelled into government’s consolidated funds.
“The ETS provision is growing considerably and there is big money out there,” Chamber said.
“The idea of revenue recycling is a good one, it also wins hearts and minds and brings people on board. The major area of emissions growth is in transport, and there is the tech there to deal with that, and ETS proceeds need to go into every possible area of reduction.
“It (hypothecation) could also draw more farmers into a more positive state of mind about this. There could be tech like anaerobic digesters, methane inhibitor projects that could benefit from this.”
Another budget funding area the primary sector may benefit from is the additional $300 million the Government is adding to its NZ Green Investment Finance Fund, a green investment bank established to accelerate investment into low-carbon technology.
The areas targeted include transport, processing and agriculture. To date no agriculture projects have been funded by the bank.
Chambers noted it was possible the Government could in the coming year earn even more from carbon credits, subject to a rise in key auction values of the floor price from $20 a unit to $30 a unit and the trigger price from $50-$70 a unit.
“People with liabilities under ETS will then have even less comfort about emissions, with that wider and higher price corridor. This only applies to credits sold by the Government at auction. It is not a floor price for the secondary market, but it does set a tone for a much higher price going forward,” she said.
The next government carbon credit auction is scheduled for June 23.
