NZ Emissions Trading Scheme

Government Introduces the Climate Change
(Emissions Trading and Renewable Preference) Bill

On the 11th of September, the New Zealand Government passed legislation for the introduction of the New Zealand Emissions Trading Scheme (NZ ETS) 

• Minister's Press Release

Below we highlight:

• Key design parameters
• The Bill Content
• Links to Government and External Reports
• How the NZ ETS differs from the former NGA Policy

Key Design features

Below are listed just a few of the NZ ETS design parameters.

Which Sectors and When?

Sectors will be phased in over time:

• 2008 Forestry
• 2010 Stationary energy and Industrial processes
• 2011 Liquid fossil fuels and transport (originally 2009)
• 2013 Agriculture, waste and all remaining sectors

Which Gases?

• All six Kyoto Protocol Greenhouse gases
  • CO₂, CH₄, N₂O, PFCs, HFCs, SF₆ (from 2013)

Where is the Point of Obligation?

The point of obligation determines who in each sector has unit obligations and within brackets below are the anticipated number of participants with trading obligations in each sector:

• Forestry - landowners (or forestry rights holders)
  • pre-1990 forest  if deforested [potentially > 1000]
  • Post 1989 credits and obligations [2000-9000]
• Liquid fossil fuels and transport - fuel suppliers [5]
  • domestic aviation may opt in and take on obligations
• Stationary energy - coal, gas, geothermal suppliers [45]
  • large users may opt in and take on obligations
• Industrial processes - end emitter [35+]
• Agriculture
  • nitrogen fertilisers - suppliers [10]
  • meat/dairy - processors [25]
• Waste - landfill operators [60]

What will be the Unit of Trade?

The unit of trade will be an NZ Unit (NZU). Each NZU represents one tonne of CO₂ equivalent emissions.

International Linking

NZUs will be "backed up" by a Kyoto unit to enable linking with international Kyoto Protocol flexibility mechanisms. These can be used to meet trading obligations:

• Clean Development Mechanism (CERs)
• Joint Implementation (ERUs)
• Emissions Trading (AAUs) but restricted to:
  • Greened AAUs;
  • Imported AAUs originating from a country with a domestic ETS linked to the NZ ETS
  • Imported AAUs from county where AAUs represent emission reductions
• Forestry lCERs and tCERs are disallowed.

This means that the price of an NZU on the NZ ETS will reflect the international price of carbon emissions. learn more

Link with Au-NETS?

Talks between the New Zealand Government and the new Australian administration assessing the potential for a link between the Australian National Emissions Trading Scheme (Au-NETS) are underway. Check this site for updates on progress.

How are Emission Units (NZUs) Allocated to Firms?

The Government will not provide assistance to firms whose profits will be significantly unaffected by the NZ ETS.  For others assistance will be provided through gifting of NZUs, however:

• No free allocation will be provided to the upstream points of obligation in the liquid fossil fuel and stationary energy sectors (including electricity generators) and landfill operators.
• The pool of units for eligible industrial producers will be based on 90 per cent of 2005 emissions from those eligible industrial producers.
  • Indirect emissions associated with the consumption of electricity, as well as direct emissions from stationary energy and direct emissions from non-energy industrial processes will be included in the concept of emissions from industrial producers.
• Starting from 2019, the free allocation pools for industrial producers and agriculture will decrease on a linear basis so as to phase out assistance completely in 2030.
• The agricultural sector will be provided with a free allocation pool equal to 90 per cent of 2005 emissions when it is brought into the ETS.
• In the forestry sector, free allocation will be provided such that the Crown assumes a total liability (taking the cost of the provision of the de minimus thresholds into account) for deforestation emissions as follows:
  • from 2008 to 2012, 21 Mt CO₂-e for plantation forest, plus a relatively small allocation set aside for forest weed control (eg, wilding pine)
  • from 2013, an additional 34 Mt CO₂-e for plantation forest.
• Firms that cease trading will not retain any free allocation.

What is the Trading Period?

• The trading period is a calendar year.
• At the end of the trading period the emitter must relinquish enough allowances to cover that year's emissions.

Detailed NZ ETS Parameter Assessment

We are providing our clients with detailed tailor made assessments of the NZ ETS proposal. Contact Us if you need assistance for your business.

Bill Content

• Final Bill
• Agreed changes from original Bill
   
• Older Versions and Reports
  • Original Bill
  • Report back from Select Committee
  • PM's announcement 28 August 2008; Emissions Trading Scheme legislation to proceed [32kb pdf]

Important features of the Bill:

• Introduces a 10 year moratorium on the construction of new base load thermal electricity generation of 10MW and above (with some exceptions);
• Free unit allocation: The legislation includes default provisions for all sectors, including a regulation-making power to determine which individuals and firms within the sectors will receive a free allocation of units, and on what basis. Those default provisions have dates of commencement which align with the announced dates of entry.
• The bill extends the scope of the NZ Emissions Units Register to allow the creation, holding and transfer of NZUs between account holders, the linking of the scheme to the international Kyoto market, and the potential linking of the scheme to other countries’ domestic trading schemes;
• Formally includes the ability to restrict the type of emission units that may be traded under the ETS;

Links to Government and External Reports

NZ Government Materials

• View a copy of the Bill here.

• Ministry for the Environment fact sheet on the new Bill.

• Other NZ ETS Fact sheets
• Framework Document (2.8MB PDF)

3rd Party Resources

• Analysis from Castalia Strategic Advisors: Castalia Report - The New Zealand Emissions Trading Scheme: How do we make it work?
• Read the Review of the proposed New Zealand Emissions Trading Scheme from Motu policy consultants.
• Report produced for Business New Zealand on the potential for Emissions Trading in New Zealand, from the NZIER - "Emissions Trading Scheme for New Zealand"
• NZIER Economic analysis of proposed emissions trading scheme and alternative approaches
• Key Government ETS documents can be found on the Ministry for the Environment website here.

How does the NZ ETS differ from the former NGA Policy?

Under the old Negotiated Greenhouse Agreement (NGA) policy, firms deemed Competitiveness at Risk (CAR) were to be exempted from a carbon tax up to a level consistent with an emissions pathway to World's Best Practice (WBP).

The NZ ETS framework document:

• plays down CAR as a driver for assistance:
  • discounts carbon leakage as being "small from a global viewpoint"
  • indicates that should there not be a post 2012 international agreement, at this stage it is the Government's intent to still remove all free allocation progressively between 2019 and 2030.
• constrains the allocation pool to 90% of 2005 emissions.
• does not describe how those firms eligible for assistance will be determined.

Considerable uncertainty therefore exists for former CAR firms under the NZ ETS.

Learn More about Emissions Trading

• Overview
• Market Prices
• Design Parameters

Contact us for advice on emissions trading