The Climate Change Commission says the Government needs to do a better job of explaining itself when it next rejects official advice.

Late last year, Cabinet ignored the commission and Climate Change Minister James Shaw’s recommendations about setting price controls in the Emissions Trading Scheme. Instead of widening the price corridor to allow the market to find the necessary price for decarbonisation, Cabinet took steps to artificially depress it.

That has since had the effect of crashing the carbon market, with the first ever auction failure occurring last week.

Cabinet overrides Shaw and Commission on carbon price
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When it made the decision, the Government was then required to table a report in Parliament explaining why it diverged from the advice. Shaw submitted the report in late December.

In February, Climate Commission chair Rod Carr wrote to Shaw, expressing concern about the lack of detail in that report. The letter, which has since been released by the commission, says the Government needs to do better in future such reports and the poor explanation has affected its ability to advise on the next round of price control setting.

“In the commission’s view the level of detail that should be delivered in response to departing from the commission’s advice was not in the report. The report should have provided a reason for each of the key points where the Government chose to depart from the commission’s advice,” Carr wrote.

“The advice of the commission informs the Government, and the decisions of the Government inform how the commission approaches its advice. The cycle of advice and policy response needs a fair and frank flow of information to work. Your report did not provide enough detail for the commission to properly consider the Government’s judgments and the reasons for them, and their implications, as we develop our next advice, due to be delivered to you at the end of March 2023.”

Carr added that delaying climate action until economic conditions improved was a risky move.

“I would caution however that deferring decisions during times of adverse economic conditions, which climate change is only likely to exacerbate, is not sustainable in the long run and will greatly compromise our chance of meeting the climate change targets set out in the [Zero Carbon] Act.”

In a statement to Newsroom, Carr elaborated on the importance of the Emissions Trading Scheme and the commission’s advice.

“The commission has raised concerns since 2021 about the impact the current NZ ETS structure may have on the pathway to achieving our targets in years to come,” he wrote.

“The market needs confidence in the NZ ETS to make investments aligned with this ambition. Price discovery by market participants helps inform regulators and equally emissions prices reflect participants’ assessment of likely policy impacts. If the Government chooses to constrain price discovery, the NZ ETS will play a weaker role and the Government – now and in the future – is more likely to need to adjust the emissions reduction plan to include further regulations and other policies to drive emissions reductions and ensure budgets will be met.”

Shaw’s office did not respond to a request for comment.

Marc Daalder is a senior political reporter based in Wellington who covers climate change, health, energy and violent extremism. Twitter/Bluesky: @marcdaalder

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