The Economy Hub: Climate costs rise faster than house prices

The cost of the credits New Zealand businesses have to buy to offset carbon emissions is skyrocketing. The price of a unit has more than doubled in the past year and is up from just $2 a tonne to nearly $19 in the past five years.

The price spike follows Government moves to tighten the rules which previously allowed local businesses to buy cheaper foreign carbon credits and offered other concessions which effectively allowed a buy-one-get-one-free deal.

But further increases in the cost of carbon were inevitable in the wake of the Paris Agreement signed late last year, New Zealand Herald economics columnist Brian Fallow told The Economy Hub today.

New Zealand has signed up to new targets which commit it to reducing greenhouse gas emissions equivalent to 11 per cent below 1990 levels by 2030.

Based on our current emissions track New Zealand would have another 200 million or so tonnes of carbon it had to deal with, Fallow said.

Fallow, who moderated the Climate Change and Business Conference in Auckland this week, said it was becoming clear business could no longer to push the issue into the too-hard basket.

The best solutions would be to reduce carbon emissions or offset with more tree planting, he said.

But New Zealand would hit limits in both areas because of our reliance on agriculture and the time-frame to plant more trees.

That meant the country would have to rely on buying credits on foreign markets and that was a cost that would have to be dealt with, he said.

OM Financial's Nigel Brunel, who specialises in carbon unit trading, said he expected to see the market go higher.

The price of trees has been so good that foresters just haven't been selling credits, Brunel said.

The advantage for New Zealand - beyond the incentive to reduce emissions that more realistic prices provided - was that the higher carbon unit price would make it easier to integrate with foreign markets when they eventually got up and running.

At this stage New Zealand was well seasoned and well regarded for having had an emissions trading scheme in place for so long.

The Government is due to announce a review to the emissions trading scheme next year.

While it was unlikely to make any changes effecting New Zealand's 2020 target to reduce emissions to 5 per cent below the 1990 level it will have to look at changes to ensure carbon is priced to meet the 2030 target.