The government’s flagship climate policy is facing mounting pressure, with the Climate Change Commission warning the Emissions Trading Scheme (ETS) could fail within the next decade without reform.
In its latest advice, the commission highlighted growing concerns about volatility in the scheme, cautioning that the current setup risks serious disruption by the 2030s if left unchanged.
The ETS operates as a government-run market where a price is placed on greenhouse gas emissions, requiring polluters to pay for the right to emit. As this price increases over time, it pushes firms to reduce their emissions to avoid higher costs.
But cracks are beginning to show, with uncertainty around pricing and supply raising questions about whether the system can deliver stable, long-term results.
The commission has advised the government to hold auction settings steady for now in an effort to avoid further destabilising prices. However, chief executive Jo Hendy warned that a looming shortfall in emissions units as early as 2028 could trigger sharp price spikes.
Such spikes, she said, could have real economic consequences, including forcing factories to shut down rather than invest in cleaner technology, undermining both jobs and productivity.
The commission suggested the government should move early to address the issue by consulting on potential fixes before the situation worsens.
Environmental group Forest and Bird also raised concerns, warning the scheme risks becoming unworkable. Climate spokesperson Scott Burnett said confidence in the ETS had already been shaken by price swings and recent policy changes, including the rollback of agricultural emissions measures.
He said the scheme urgently requires reform and greater stability so businesses can make confident, long-term investment decisions about decarbonisation.
The commission has repeatedly flagged vulnerabilities in the ETS in recent years, raising questions about whether policymakers have acted quickly enough to keep the system on track. Climate Minister Simon Watts said the government would consider the advice carefully before making decisions on future auction settings, signalling that changes may be on the table.