The Climate Change Minister agreed with activist lawyers that the Government erred in considering the cost of living when it set carbon price controls last year, Marc Daalder reports
In a major shake-up for the carbon market, the High Court has ruled Climate Change Minister James Shaw must reconsider Emissions Trading Scheme settings - including those in force this year - by the end of September.
The judgment was released publicly on Thursday evening, after markets closed, and says Shaw agreed with the concerns of Lawyers for Climate Action New Zealand (LCANZI). On May 9, LCANZI took Shaw to court over the December decision by Cabinet to set ETS price controls that deviated from the advice of the Climate Change Commission.
The commission's preferred settings would have likely kept the carbon price elevated, with flow-on effects to fuel and energy bills. While the commission said these distributional effects should be managed through policies outside of the ETS, Cabinet ultimately decided to keep the status quo settings with minor adjustments due to the cost of living.
READ MORE: * Govt taken to court for ignoring Climate Commission on ETS * 'Decisions have consequences' - Climate Commission scolds Govt * Cabinet overrides Shaw and commission on carbon price
While Shaw had argued for the commission's recommendations to be adopted in full, he was overridden by the rest of Cabinet. As the Climate Change Minister, he was legally responsible for that decision.
Under the Zero Carbon Act, ETS price controls must be set in a manner consistent with meeting our emissions budgets and other climate targets. There is allowance for deviation in some circumstances, but the cost of living is not one of them.
In its statement of claim from May, LCANZI said the settings "were based on an error of law because the advice given to Cabinet and the minister, and implicitly the Cabinet decision and the minister’s decision, wrongly assumed that the settings need not be in accordance with the Emissions Budgets, the [nationally determined contribution] or the 2050 target and that accordance with these matters could be traded off against other considerations such as the cost of living".
The judgment released on Thursday says Shaw "admits that he erred in recommending the unit limits and price control settings for 2023 to 2027 adopted in the Amendment Regulations" and that Cabinet's settings were unlawful because he didn't have reasonable grounds to say they were consistent with meeting the emissions budgets and climate targets.
Specifically, the material provided to Shaw by officials didn't contain adequate analysis of the settings which were ultimately chosen, because Cabinet had gone in a different direction from the official advice.
In particular, Shaw accepts that he didn't adequately evaluate whether the number of units available for auction – which translates to the amount of emissions allowed under the ETS – was consistent with those budgets.
The judge said Shaw wasn't necessarily saying the settings are inconsistent with the budgets, but that there was no analysis about whether they were consistent prior to their adoption.
"For completeness, the Minister does not — for the purposes of this proceeding — admit that the combination of settings contained in the Amendment Regulations was necessarily unavailable to him under the Act following a proper analysis. The Minister’s admission is based on the deficiencies in the analysis presented to him regarding the settings that were preferred by Cabinet and ultimately adopted," the judge wrote.
Shaw and LCANZI jointly sought a court order requiring him to reconsider the current settings by September 30, when the next round of settings are also due by. This means the next ETS auction, on September 6, will proceed under the old settings but the final auction of the year could be conducted under new rules.
The decision also allows Shaw to reconsider settings for 2024 and 2025, which under normal circumstances would be locked in place. If Shaw can get a drastic change past Cabinet, this could have the effect of undoing some of the damage done by the original decision last year to reject the commission's advice.
"We appreciate the cooperation of the Minister in promptly acknowledging that the process leading to the December decision was flawed and working to resolve this judicial review without the time and expense of a full hearing," Bronwyn Carruthers KC, President of LCANZI, said.
"While it will be for the Government to reconsider the ETS settings, we will be watching closely to ensure that the settings are tightened in accordance with the science."
In a statement to Newsroom, Shaw acknowledged the ruling.
"The next step is for myself and the Government to work through how we can apply this decision through the Cabinet process. I can’t comment further on that," he said.
"I will say is that this is the system working. It is important that NZ citizens can challenge Government decisions on climate change via the courts. This is the process working."
