Government reducing carbon allocation

The Herald reports:

The carbon price is expected to rise on news the Government is slashing the number of tonnes of planet-heating emissions for sale by more than half.

Climate Change Minister Simon Watts said advice he has received suggests the impact on household bills should be “minimal”, adding only 3-4c a litre to petrol by 2029.

“We need the carbon price to encourage businesses and individuals to reduce their emissions to meet our climate targets,” he said.

The coalition is hoping that by selling fewer permits-to-pollute, it will flush out stockpiles of carbon credits companies are holding onto. Tuesday’s announcement means it will offer radically fewer units or permits than previously announced from 2025-2029.

This is a good thing. The whole idea of the ETS is that the number of units for sale reduces over time. This sends a market signal around investment, and allows individuals businesses to respond to demand, rather than have age Government trying to dictate what should happen.

But Watts said advice he had received suggested the impact would be small.

“The impact on inflation, our estimate is it could increase CPI inflation by 0.03 of a percentage point by 2029 so that pretty insignificant,” he said.

“Petrol you’re potentially looking at 1% by 2029 or around 3-4 cents a litre.”

That seems a small impact.