Government admits it made a mistake when keeping a lid on the carbon price
The Government has failed to follow its own climate law, it admitted in court today. In December, Cabinet led by then-Prime Minister Jacinda Ardern chose to keep a tight lid on how much companies pay for heating the planet. A group of lawyers sued the Government, saying it had breached the Zero Carbon Act. In a surprise move during a preliminary hearing, the Government admitted Lawyers for Climate Action was right: it had made a mistake. The court ordered the Government back to the drawing board. Each year, the Government must make decisions about its Emissions Trading Scheme, which requires large polluters to surrender one carbon unit for every tonne of carbon emissions. The Zero Carbon Act states the Climate Change Minister must be sure these choices align with domestic climate targets and the countrys international promises. Before they decide, ministers receive advice from the Climate Change Commission. The expert body recommends how many carbon units should be available at quarterly auctions, in the upcoming four years. It also makes recommendations about the price protections designed to keep the price of carbon from moving too low or too high. The lowness of the price lid was problematic in 2021 and 2022, meaning the Government sold 14 million more carbon units than it had intended, allowing 14m tonnes of additional emissions. To fix the issue, the commission recommended the price lid be raised from $78 to $171. That could have raised the cost of petrol, natural gas and coal-fired electricity. Although Climate Change Minister James Shaw backed the commission in full, the Labour Cabinet took a piecemeal approach following some but not all the commissions advice. It chose not to lift the price lid to $171. As well as resulting in the lawsuit, the decision became a long-running headache for the Government. Shortly after, the price of carbon plummeted which some experts say was a result of emitters and investors losing faith in the Governments commitment to the system. Consequently, the two pollution auctions held this year did not meet the reserve and failed. The Government, which raised roughly $1b in revenue in previous years from these auctions, walked away empty-handed in March and June. Lawyers for Climate Action were preparing for an August court date. But during the preliminary hearing, Crown lawyers said the minister did not adequately consider whether the piecemeal settings chosen by Cabinet aligned with the emissions budgets, national and international targets. Officials did not complete, and the minister did not consider, any objective evaluation or analysis, according to the ruling from High Court judge Matthew Palmer. Since that did not happen, Crown lawyers said, the Government was in breach of the Zero Carbon Act as Lawyers for Climate Action claimed. The Government argued that the chosen settings may still be compatible with the law, only admitting that sufficient analysis was not conducted to demonstrate that. Justice Palmer ruled that Cabinets piecemeal settings and the ministers process breached the Act, and ordered the Government to reconsider the commissions advice and the ETS details. However, he did not quash the settings themselves because that could prevent the next auction, scheduled for September, from going ahead. Lawyers for Climate Action president Bronwyn Carruthers KC was pleased by the developments. It is vital that the ETS settings are made in accordance with our emissions budgets and not out of political concerns about the ETS price going too high. Carruthers praised the Government for admitting its mistake early. We hope that by reconsidering the regulations, the Government can restore confidence in the ETS, she added. We will be watching closely to ensure that the settings are tightened in accordance with the science. Our weekly email newsletter, by the Forever Project's Olivia Wannan, rounds up the latest climate events. Sign up here .