New Zealand needs a market stability reserve
Climate Change Commission's advice fails to achieve "predictable and stable market"
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The price of emission allowances in New Zealand’s carbon market has dropped by a quarter since mid-March as concerns over the advice given by the Climate Change Commission, an independent advisory body tasked with advising the government on climate change policy, weighs on sentiment. The New Zealand Unit (NZU) price has dropped by around NZ$15 per tonne over the past few months to NZ$50 per tonne (~€25) in early May.
The Commission was founded in 2019 under the Zero Carbon Act (ZCA). In addition to issuing climate policy advice, it also monitors the governments progress towards meeting New Zealand’s emission reduction goals. To that end, New Zealand has followed the example set by the UK. In 2008 the UK government established the Climate Change Committee (CCC), considered to be a trailblazer in institutional climate restraint, bolstering the country’s climate policy credibility in the eyes of investors (see New Zealand's carbon market is close to resolving its commitment issues).
Since mid-2022 the Commission has also published an annual report to the Minister of Climate Change outlining its advice on updating the NZ ETS unit limits and price control settings. By adjusting the availability of units over the subsequent five year period, the Commission’s recommendations are meant to ensure that the number of units decline in a manner consistent with New Zealand’s climate targets.