The carbon price jumps to news of successful climate lawsuit
News that climate activists won a lawsuit late last week appears to bumped up the faltering carbon price. This year, the cost for big emitters to produce greenhouse pollution went into freefall limiting the Governments ability to cut the countrys carbon footprint. But the carbon price jumped significantly on Monday, which experts say is a good sign. The lawsuit related to the Governments handling of the Emissions Trading Scheme (ETS), which requires large polluters to surrender one carbon unit for every tonne of greenhouse emissions. Every year, the Government must make decisions on many carbon units should be available at quarterly auctions, for the upcoming four years. It can also tweak the protections designed to keep the price from moving too low or too high, and it has an independent panel to advise it on this the Climate Change Commission. The Zero Carbon Act states the Climate Change Minister must be sure these choices align with domestic climate targets and the countrys international promises. The Government made a controversial decision in December not to follow the commissions suggestions in full. Although Climate Minister James Shaw backed the commissions settings, Cabinet ministers chose to follow some recommendations and reject others including advice to raise the price lid from $78 to $171. Lawyers for Climate Action thought this move breached the Act, and asked the High Court to review it. Member James Every-Palmer KC said these settings had a major influence over the countrys carbon footprint. Cabinet was worried about the cost-of-living impact and wrongly gave that priority. After markets closed for Matariki weekend, the High Court produced a surprise ruling. The hearing scheduled for August would not go ahead, because the Government conceded in a preliminary hearing it had not done what was required of it under the Zero Carbon Act. It had not objectively assessed whether the piecemeal settings chosen by Cabinet aligned with the emissions budgets, national and international targets, Crown lawyers said. The court ordered the Government back to the drawing board. When markets opened on Monday, the carbon price jumped by more than $10 to $48 each with units trading at nearly $50 on Tuesday, according to Jarden. Every-Palmer was very pleased with the outcome. But were still a long way short of the level of ambition required for 1.5C. The price bounce-back was a good sign, he added, though he wouldnt read too much into it. Separately, ministry officials are also looking to revamp the ETS. Thats also affecting the carbon price, experts say. For example, the Government intended to crack down on the number of carbon units given for free to trade-exposed polluters. But it April, it emerged that the proposed changes could instead award even more units. Motu and University of Auckland researcher Troy Baisden said the tweaks could flood the market with units, dampening demand. He agreed the partial price recovery after the court ruling was a good sign. And last month, the Government suggested it could limit the carbon units coming from forestry a comparatively cheap way for emitters to offset their footprint. The consultation document projected that there could be a glut of forestry credits in the coming decade. Carbon market analyst Christina Hood said that information also influenced the carbon price. Since December, the carbon price (what one buyer is prepared to pay for one carbon unit on the secondary market) more than halved. Late last year, units were selling for roughly $87 each, according to trader Jarden Securities. Earlier this month, a unit cost just $34 . On one litre of petrol, the carbon penalty moved from 20 cents to just 8 cents. Baisden said the carbon price fall indicated people had lost faith in the Governments handling of the ETS. We were heading towards having a cap-and-trade system without a cap. The carbon price is designed to encourage businesses and families to ditch fossil-fuelled systems for clean tech, but a low penalty undermined that incentive, he added. Carbon market analyst Christina Hood who took a break from her work to be an independent expert witness for Lawyers for Climate Action said the lawsuit was very important. This weeks price bounce is a start, but we still have a long road ahead before the ETS is driving significant change, Hood said. The ETS needed to both cut pollution and support reforestation, she added. Until this major question around ETS structure is resolved, which could take a couple of years to work through, there will be uncertainty in the market. The court judgement would set a precedent, Hood said, ensuring future Governments make decisions consistent with achieving climate targets. Court reviews are one of the few ways to hold the Government accountable to the law, Baisden said. But hes still concerned that so few people understand the ETS. While the lawsuit might cause the price of fossil fuels to lift, Hood said a high carbon price is not inevitable. Heavier use of regulations or subsidies to reduce emissions would mean the ETS price doesn't need to rise as high to achieve the target. Our weekly email newsletter, by the Forever Project's Olivia Wannan, rounds up the latest climate events. Sign up here .