Big industrial emitters of greenhouse gases will lose their right under the emissions trading scheme to offset only half of their emissions, Climate Change Minister Paula Bennett told an international energy conference in Wellington.
It was a matter of "when not if" the so-called "two-for-one" concession would be removed, she said, leaving open the impression that the current $25 a tonne upper limit "cap" on carbon prices may also be removed or placed at a higher level.
"It was always a temporary measure," said Bennett of the concession. "It is abundantly clear that if the ETS is going to work, carbon must cost more than it does right now."
It appears the widely expected decision has not yet been made formally by the Cabinet, but Bennett said she expected to conclude the review of the ETS within "the next couple of months".
Most affected by the decision are likely to be the electricity and transport fuels sector because the removal will double the cost of offsetting the carbon emissions from burning coal, natural gas, petrol and diesel.
The price of carbon in the New Zealand scheme has already been rising towards $11 a tonne in anticipation of such a decision after collapsing to below 50c a tonne for a period after 2011, when Kiwi emitters had access to carbon units from international markets. That access has since ended, meaning major emitters can only buy carbon as New Zealand Units (NZUs) under the local ETS.
"This will have a direct impact on every part of the economy," Bennett said, without nominating the impact on electricity, gas or petrol prices. "Whether it's forestry, farming, households or the transport sector, the effects of the decisions we make will be widespread."
A transition period lasting several years has been mooted for the two-for-one removal, which is seen as vital to raising carbon prices to a level capable of encouraging forestry plantations, which soak up carbon from the atmosphere and are an essential element of New Zealand's plan to meet its long-term greenhouse gas emissions reductions targets.
The impact of the ETS on Kiwi emissions had been limited "due to the artificially low carbon price, which the Government instituted following the global financial crisis so as not to further cost businesses that were already struggling," Bennett said. "I'm ... considering the options and potential implications of removing these artificial measures, including pricing emissions units at two-for-one, and the cap of $25."
Carbon trader OMF was quoting NZUs trading at $10.75 a tonne yesterday morning, having gone as high as $10.85 in the previous day, and says $11 a tonne by the end of the month is possible. A carbon price of $15 a tonne is regarded as a trigger price for forest planting.