New Zealand Budget 2016: Industry's ETS subsidy axed, $25 a tonne carbon cap remains

The subsidy elimination was widely anticipated. Photo / Christine Cornege

Electricity producers, transport fuel providers and industries with high carbon emissions will lose access to the subsidy that requires them to offset only half their emissions, Climate Change Minister Paula Bennett announced in the Budget.

Major emitters who don't face export competition are currently subject to a 'one-for-two' subsidy scheme over the next three years, with a benefit to the government in avoided costs of $356 million over the next four years, assuming carbon valued at $12 a tonne.

The subsidy elimination was widely anticipated. Bennett also announced there will be no change to the upper limit for the price of New Zealand Units of carbon of $25 a tonne.

"We looked at it closely but think that $25 is fair and reasonable," Bennett told BusinessDesk. "Certainly, at around that 14 to 15 dollar mark we're going to be growing a lot of trees and forestry starts stepping in."

The government had no intention of further reviewing the ETS, beyond the current examination of a variety of technical aspects of its operations, within the next two years, she said.

NZUs have been trading above $14 a tonne in recent weeks, with plantation forestry incentivised to begin planting once the price gets to between $15 and $18 a tonne.