Simon Watts: Climate Change Minister on the Government's latest carbon credit auction

The latest carbon credit auction found little success, but the Climate Change Minister says there's still some positives. 

The Government’s auction attracted no bidders, increasing the chances of millions of tonnes of permits going up in smoke come December. 

The Government has announced measures to address the issue, shrinking the number of permits available over the next five years in an effort to flush out surplus credits. 

Minister Simon Watts said that there is demand for the credits, as there is an active secondary market that is trading with good liquidity. 

He said that the function of the government’s market is to introduce supply to the market if necessary, and the purpose of the credits is to reduce emissions, not generate revenue for the government. 

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Episode Transcript

Speaker 1 (00:00):
We find out yesterday it turns out this government's no
better at running carbon auctions than the last one. Yesterday's
auction got exactly nobody is, so millions more credits get
dumped into the final December auction and the government yet
again misses out on millions of dollars climate change Minster.
Simon Watts is with a Simon Morning to you.

Speaker 2 (00:16):
Morning, Mike, thanks for having met not at all.

Speaker 1 (00:17):
Do you remember being on this very fine program on
June twenty.

Speaker 2 (00:21):
I do, Mike, and you know the reality is the
changes that we put in place are coming into effect
next year. The fact the auction not clearing is not
a sign that the auction is not operating effectively. Actually
it is the effectiveness of the ETS scheme is not
deemed by those auction outcomes. But our in my job
is to make sure there's credibility in that market, and

(00:41):
we're seen affirming up of the prices, which is the
direction we need to.

Speaker 1 (00:44):
See it heading as regards credibility. I've got a good
question for you in just a moment, But let me
remind you of what you said on June twenty.

Speaker 3 (00:50):
What I am focused on is making sure we've got
a credible market. Hence why we stopped the review that
the current the last government had in play while we've
been putting through what we think is from pretty sensible changes.
But the big key aspect is the release of our
emissions reduction plan.

Speaker 1 (01:05):
Right, So when we talk about credibility, what's credible about
an auction where know and turns up?

Speaker 2 (01:09):
Well, the credibility the areas is that the auction price
for the nz view was pretty much reasonably low and
was floundering for a period. We took out a number
of the units. It's a supply and demand marketplace. We've
taken out supply from that market and that you've seen
the overarching price firm up. But you know, the end

(01:30):
of the day, there is another secondary market where people
can buy units and that's trading effectively. So there's pretty
liquidity there at the moment. But next year, when those
units get taken out of the market, then you know,
we'll see what happens in terms of the overarching.

Speaker 1 (01:44):
Auction What nothing happens, Well, look, if.

Speaker 2 (01:47):
Nothing happens in the markets operating effectively, people can get
units through the secondary market. People are doing that. That
market's trading with some good liquidity at the moment, which
is positive and you know, we'll see where that price
point goes. Has increased.

Speaker 1 (02:01):
If people only want to trade through the secondary market,
what's the point of your market.

Speaker 2 (02:06):
Well, our market brings more supply into the market if
it's required and at the moment, but it's not. Well
at the moment, there's enough supply out there for the
people that want those units, and you know that's that's
what's happening.

Speaker 1 (02:20):
You see, you sound like a guy who's sort of
I mean, I agree, I mean what the previous government
did was ridiculous, but it's very core here. What you've
done is not you specifically, but generally. We've invented something
that doesn't exist, ie a carbon market, and we're trying
to convince people to give you money on something they
may or may not want to buy into. And as
far as your versions concerned, they don't.

Speaker 2 (02:42):
Well, the purpose of the market is to reduce emissions,
it's not to create revenue for the government that is
a byproduct of the market. So the objective for me
as Minister is ensure that that marketplace is operating with
in a credible manner. The more less be clear when
government starts dabbling with bad things happen, which off the

(03:04):
steering wheel you're part of.

Speaker 1 (03:07):
You didn't invent it, but you're now running something that
people don't want and you're interfering with the market, which
you've just admitted is not good.

Speaker 2 (03:15):
No, it's definitely not that people don't want it. It's
an active secondary market out there at the moment. But
what we've done is we dealt with the issue that
the market have identified, which is oversupply, and we've taken
that oversupply out of the market from next year and
we believe that that will provide stability in that market
for people to trade.

Speaker 1 (03:34):
Okay, part of the problem, and the argument wasn't the
previous government is worth the government keep coming into the
market and interfering and changing the rules. What that does
is provide uncertainty. And the worst thing you want is
a person who might purchase a carbon credit is uncertainty.
And you've just provided more uncertainty. And look how many
people turned up And the answer is no one, No.

Speaker 3 (03:51):
We haven't.

Speaker 2 (03:52):
I've been really clear, and that the uncertainty came from
the last government saying we're not sure if forestry is
going to be in or out of the ETS. I
mean forestry is a thirty forty year investment horizon. That
volatility just sent shockwaves through the system. We've been really
clear forestry is are removal as part of the model
that we do to reduce emissions, and that's part and
partial of that marketplace. And we've been very clear, and

(04:14):
I've had some very positive feedback back from the sector.
We appreciate the certainty that you're putting into that market
and the markets operating as it should do it the most.

Speaker 1 (04:22):
Ok So can you say and directly connect the two.
Can you say, our emissions as a country are dropping
and if they are dropping, it as a direct result
of a market working nicely In the carbon credit sector, the.

Speaker 2 (04:35):
ETS is definitely playing a role in regards to.

Speaker 1 (04:38):
Reduce carbon The ETS is the big picture. The carbon
market is part of the ETS. So is the carbon
market providing to a direct reduction in our emissions? As
is the plan it is.

Speaker 2 (04:50):
There's the objective of that overarching marketplace is providing the
tension required between those that produce emissions and those that
need to be able to reduce it, and that price
point is allowing that trajectory of missions reductions to come down,
which is where we need to get to. But we're
aiming for twenty fifty. This is a long period of

(05:12):
trajectory and you know, we've just got to be you know,
stable and calm and just let it, let the market
do what the market needs to do, and not continually
try and you send signals to the market that causes
volatility for sectors like the big players that you know,
it's not helpful.

Speaker 1 (05:29):
Oh man, I'm good to talk to you. Appreciate it. Simon,
what's the climate change Minister? For more from the Mic
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