The carbon price subsequently plummeted and a group of lawyers, worried about climate change, took Climate Change Minister James Shaw to court.
The lawyers claimed Shaw didn’t have reasonable grounds to be satisfied the ETS settings decided upon were consistent with the Climate Change Response Act.
Shaw (who personally supported the CCC advice) acknowledged the mistake. The judge directed him to reconsider ETS unit limit and price control settings for 2023 to 2027.
The Government will now need to update the settings by September 30 – two weeks before the October 14 election.
Because the judicial review was about the decision-making process around ETS settings, the Government could in theory gather sufficient evidence to support the decision it made in December. In this instance, not much would change.
The more likely outcome is that it’ll have to limit the issuance of new units to allow the price to rise.
The CCC has been clear that without more drastic action, New Zealand risks failing to meet its climate obligations, defined in the law.
So, just before the election, the Government will likely have to tell voters it’s changing ETS settings, possibly to the detriment of households struggling in the face of rising living costs.
The argument that it would be prioritising climate change wouldn’t fly, as it would only be making changes because it was being forced to correct a mistake.
Importantly, changing the ETS in line with CCC advice might not actually push the carbon price up very much.
Salt Funds managing director Paul Harrison believed a $20 unit price rise would increase the cost of petrol at the pump by about 5 cents per litre.
While the carbon price jumped by about $10 following the outcome of the judicial review, to $49.50 on Monday afternoon, it’s largely being suppressed by another major review of the ETS, which is causing a lot of uncertainty.
The Government is worried businesses aren’t reducing their emissions as much as they could, because it’s easy for them to offset their emissions using forestry. So it’s consulting on a range of potential changes, including removing forestry from the ETS altogether.
The outcome of the review will be decided after the election.
Labour will struggle to say immediate changes to ETS settings, in line with CCC advice, might not actually exacerbate the cost of living crisis, because a more controversial review of the ETS is undermining confidence in the system to the extent it’s keeping the carbon price well below where it needs to be to address climate change.
The issue will be too dense to capture the hearts and minds of swathes of swing voters.
Nonetheless, it will make Labour look shambolic when it comes to key themes – delivery, the cost of living and climate change.
National will want to steer clear of the matter.
Like the Government, it would’ve worried about the cost of living in December. It would also have been wary of adding costs to businesses.
But on the other hand, preventing the price of carbon from rising would’ve contradicted National’s view that the ETS (ie, the market) should do a lot of the heavy lifting when it comes to addressing climate change.
Ironically, Shaw (the loser of the court case) could end up looking good, as policymakers relook at how ETS settings were decided upon in December.
He is right when he says the situation shows the system is working as it should. Indeed, the law is holding politicians to account.
The situation also illustrates what Shaw’s been telling his voters – that the Green Party can make change from within government; it just needs the numbers to have more influence.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
