The retooling of the Emissions Trading Scheme looks capable of swelling government coffers by hundreds of millions of dollars a year.

The Government revealed the blueprint for altering the ETS including provisions to allow it to issue and auction New Zealand carbon credits (known as NZUs), as was revealed first by the Sunday Star-Times in reports in February and March.

The plan is intended to end what is projected to become a politically untenable flood of cash being exported each year by the likes of petrol retailers and power companies to buy foreign carbon credits to cover a gap in supply here in New Zealand.

Figures obtained by the Sunday Star-Times indicate a shortfall in 2015 of 19.2 million NZUs, which would have to be funded by purchasing overseas units. That is projected to rise year-on-year to 26.7m in 2020 (see table).

Even if the Government issued just 10 million NZUs in 2015 – which assumes it allows a level of importation at $25-a-tonne, the official long-term price of carbon regularly projected by the Government – that would equate to a windfall of $250m.

Forest owners, while welcoming the move to staunch the outflow of cash, are concerned that the amount of NZUs printed and auctioned each year will be left to the discretion of the sitting Government. That would mean the price of NZUs will depend in part on the whim of politicians, as the more they print the greater the supply.

The ETS is designed to change the behaviour of emitters by making it more expensive to emit carbon. The mechanism for doing that is through forcing emitters to buy and surrender carbon credits, currently either NZUs or credits from overseas.

But a sitting government may decide to use its discretion to keep ETS costs low for emitters, placing the interests of the wider economy above those of foresters, who earn carbon credits as their trees grow.

Source: stuff