In a debate on Newshub Nation, Climate Change Minister James Shaw and National’s Climate Change spokesman Simon Watts both support the idea of a carbon dividend, which recycles at least some of the money raised from the ETS back to households.
There appeared to be large disagreement over the details, including whether the refund should be in the form of a direct payment or using revenue to help households adapt to climate change.
The ETS puts a price on pollution. Polluters have the option of polluting less, or paying the cost. Those costs are then passed on to households in the form of higher prices. Modelling published by the Government showed that an increase of $10 per NZU - a single ETS unit, equivalent to emitting a tonne of carbon - sees average annual household costs by about $1.67 per week. For lower-income households, the increase is estimated at $0.88-0.95 per week.
NZUs are currently trading at just over $60, well down on their peak of over $80, but higher than earlier this year after the price crashed.
Recently, groups like the free market think tank the New Zealand Initiative and the Act Party have proposed the idea of a carbon dividend paid back to households. The household could either use this money to help them deal with higher prices, or shift to lower emitting products and bank the proceeds.
“The concept of a carbon dividend is something we support,” Watts told the Nation.
“We’re supportive that elements of that ETS are distributed out to households. The reality is it is simple and pragmatic tax on polluters. We have a cost of living crisis. People are really struggling,” Watts said.
Shaw said he was “supportive of it as well”.
“We’ve got a work programme to establish the extent to which the increases in the cost of carbon affect households disproportionately,” Shaw said.
But Shaw added the solution was “to get households off fossil fuels”, and pointed to a policy announced by his party last weekend which used ETS revenue to provide grants and loans to households to install solar panels and make low-emissions investments that would help them reduce energy bills.
Act’s climate change spokesman Simon Court calls the idea a “Carbon Tax Refund”.
“The Carbon Tax Refund would take each year’s revenue from ETS auctions and divide it by the population. Every adult would receive a reduction in their tax bill by that amount, plus their dependent children’s share. For people whose tax bill was lower than this credit, any remaining amount would be paid directly to them by Inland Revenue,” Court said earlier this year.
Previously, ETS revenue was absorbed into core Crown spending just like all other government revenue, allowing finance ministers to pocket the cost of pollution.
Under changes announced this term, ETS revenue is now ringfenced for the Climate Emergency Response Fund, meaning it is used to help the country reduce its emissions and adapt to climate change.
The Climate Emergency Response Fund spends money on investing in transitioning energy to low emissions alternatives and economy-wide climate fixes, whereas the carbon dividend, as it is commonly understood, directs this revenue directly back at households.
