Photo: RNZ / Rebekah Parsons-King
Forestry sector groups are welcoming the government's updated settings of the Emissions Trading Scheme as instilling much-needed confidence in the scheme.
The government has been working out how to improve the Emissions Trading Scheme (ETS) as part of its election promises.
An oversupply of New Zealand units has contributed to a depreciated price of carbon, which threatened New Zealand's ability to meet climate targets and emissions budgets.
Climate Change Minister Simon Watts announced this week it would keep the current auction floor price, cost containment reserve price and reserve volumes of New Zealand units.
But in efforts to drive up that low carbon price it was going to halve reduce the number of units available between 2025 and 2029, from 45 million to 21 million.
"Reducing the number of units will likely see the carbon price rise," Watts said.
"We need the carbon price to encourage businesses and individuals to reduce their emissions to meet our climate targets.
He warned consumer prices may be affected, but said advice suggested the impact on household bills should be "minimal", adding only 3-4c a litre to petrol by 2029.
New Zealand Carbon Farming, which helps farmers, landowners and iwi grow trees to capture carbon to mitigate climate change, supports the ETS changes.
Head of business development Scott Pollard said the challenge had been to get some certainty back into the market.
It was helpful that the government had largely followed the advice of the Climate Change Commission in terms of the emission unit limits and price control settings," Pollard said.
"[This] means that for the auction process that the government controls, there's less volume that goes in and the minimum price is higher, which means that the carbon units are more scarce and the price should go up, which is an important signal in terms of communicating to the market that there is that level of certainty."
Pollard said the government was letting the market drive the carbon price, something he said was crucial for building confidence in the scheme.
"I think the the current government has done a good job in terms of instilling some degree of confidence that the Emissions Trading Scheme is the workhorse.
"That's also been important to let the market find its own discovery around price and investment for what is a massive issue for us.
"If we consider climate change and it's not just about our 2030 and 2050 targets, it's also about remediating the damage that's been done, in my lifetime and before, in terms of removing carbon from the atmosphere."
New Zealand Institute of Forestry president James Treadwell said there was optimism about the Government's approach in stabilising the market.
The institute advocates for climate forestry, and represents foresters, scientists and others involved in forest management.
"This announcement is a clear signal from the government they are committed to restoring credibility to the ETS," said Treadwell.
"The stability provided by maintaining the current settings, along with the reduction in units available, should help rebuild market confidence, which has been shaken in recent years.
While it was a positive start more needed to be done, he said.
"It's crucial the government continues to support the ETS and allows it to operate effectively without further disruptions.
"With a stable ETS and a rising price for carbon units, we expect to see increased investment in the actions necessary to meet New Zealand's international climate commitments. "
The unit number changes will take effect from the first carbon auction of 2025.
