The government is making changes to strengthen market governance of the Emissions Trading Scheme, climate change minister Simon Watts announced this morning.
Watts admits that New Zealand is lagging behind other countries with an ETS when it comes to market oversight.
“Right now, there is limited visibility to much of our ETS trading. This makes our market vulnerable to market misconduct risks such as price manipulation. These changes will help align us with our international peers but won’t disrupt New Zealand’s established ETS market practices.”
Watts says a ‘credible’ ETS is our most powerful and cost-effective tool to drive down net emissions across the economy. “To do its job, the ETS must have good market governance in place. That’s exactly what these changes are about.
“Talk about changing market governance settings has been happening for years. This Government is committed to a credible ETS-led approach to reducing emissions, so is now turning talk into actions.”
Key changes include:
- Requiring trading platforms to report and record price and volume data to the Ministry for the Environment.
- Requiring market participants to record trading information into the ETS Register.
- Introducing market conduct obligations into the Climate Change Response Act, prohibiting price manipulation and misleading conduct.
- Allowing monitoring agencies to obtain information from market participants and share relevant information with each other.
Sebastian Gehricke, director of the Climate and Energy Finance Group at Otago University, welcomed the change but said it didn’t address ongoing long-term problems with the ETS.
“This is a welcome change as some of the oversight was lacking. However, the most pressing issues in the ETS remain unsolved. Unlimited forestry – a cheap supply of credits as long as we have land to convert to pines, industrial allocation – a direct counter-incentive to the carbon price in a business case, the stockpile – built up during cheap international credit import, and finally the non pricing of agriculture emissions.”
John O’Brien, managing director, Carbon Market Solutions, agreed the move to regulate and improve NZ ETS market governance was a step in the right direction. “However, the question remains as to why an NZU in New Zealand is still not a regulated financial product as is the case with ACCUs in Australia or with EUAS in the European Union.”
Lizzie Chambers, Carbon Match, said the changes appear to be a sensible approach in line with a light-touch regulation system, but one which might deliver increased disclosure and transparency.
However she noted that the announcement lacked some important details: the depth of data to be collected, how it will be required to be submitted, the frequency, timeliness, and who the ‘monitoring agencies’ would be. “The Financial Markets Authority was floated as a possibility in past consultations, as were the Ministry for the Environment and Environmental Protection Agency.
“We look forward to further detail before the end of the year!”
Watts says the changes will be likely introduced alongside other potential amendments to the Climate Change Response Act before the end of the year.
“These changes have been carefully designed to address risks without adding unnecessary costs or red tape. We’ve deliberately avoided more expensive options like creating a government-run exchange or clearing house which was considered by the last Government.”