Climate Change Response (Emissions Trading) Amendment Act 2008
Encyclopedia
The Climate Change Response (Emissions Trading) Amendment Act 2008 was a statute enacted in September 2008 by the Fifth Labour Government of New Zealand
that established the first version of the New Zealand Emissions Trading Scheme
, a national all-sectors all-greenhouse gas
es uncapped emissions trading
scheme.
announced that it intended to establish an emissions trading scheme in order to respond to climate change. Prime Minister Helen Clark
stated; “The Government believes that an emissions trading scheme which puts a price on emissions creates the right incentives across the economy to use fuel and energy more efficiently”.
On 4 December 2007, the Labour Government
introduced the Climate Change (Emissions Trading and Renewable Preference) Bill into Parliament. The bill amended the Climate Change Response Act 2002
by inserting an emissions trading scheme
including all sectors of the economy and all greenhouse gases. The bill also a restricted the commissioning of any new fossil-fuelled thermal power stations for 10 years.
On 9 September 2008, the sections of the Climate Change (Emissions Trading and Renewable Preference) Bill establishing the NZ ETS were separated into the Climate Change Response (Emissions Trading) Amendment bill.
On 10 September 2008, the Climate Change Response (Emissions Trading) Amendment Act 2008 had its third reading in Parliament and was adopted 63 votes to 57 with support from the Green Party
and New Zealand First
. The Climate Change Response (Emissions Trading) Amendment Act 2008 received the royal assent on 25 September 2008.
es specified in the Kyoto Protocol
, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6). It would be economy wide, covering all sectors including agriculture. 'Participants' who must account for their emissions will be few and high in the production chain of each sector and will have to surrender one internationally tradable Kyoto-compliant NZ unit for each tonne of emissions. Emission units will be capped in number and distributed to participants either by grandparenting (gifting) or auctioning. Sectors would enter the NZ ETS at staggered dates, from January 2008 (forestry) through until January 2013 (agriculture), and have differing allocations of free units. In general, participants who can pass on costs of the ETS, such as fuel companies to motorists, would not be allocated free units. While participants whose produce is priced internationally, such as dairy exporters, would be allocated a level of free units.
Ministry for the Environment Fact Sheet 16 stated “There is no cap on the emissions that occur within New Zealand.” However, the Ministry for the Environment still regarded the NZ ETS as operating within the cap on emissions established by the Kyoto Protocol for the first commitment period of 2008–2012.
Greenpeace noted that the proposed NZ ETS placed no limit on the number of permits that could be imported into New Zealand and it did not include a domestic emission reduction target. Greenpeace considered that in operation the NZ ETS would be a carbon tax with the rate set by the world market price. Bertram and Terry (2008, p35) concluded that the NZ ETS is not a cap-and-trade scheme as described in the economics literature because it does not place a cap on New Zealand's emissions of greenhouse gases.
. It is the NZUs that will be allocated by 'grandfathering" to forestry, industry, energy, fishing and agriculture under an allocation plan.
As noted in the previous paragraph, participants in the NZ ETS could also use most of the 'Kyoto Units' to meet their surrender obligations. The permitted units were: Assigned amount units
(AAUs), Emission Reduction Unit
s (ERUs), Removal Units
(RMUs), and Certified Emission Reduction
s (CERs). However, temporary CERs and iCERS cannot be used, and neither can CERs and ERUs generated from nuclear projects.
In the final version as set out in the Climate Change Response (Emissions Trading) Amendment Act 2008, forest owners with pre-1990 forests were to receive a fixed one-off free allocation of units. Transport (Liquid fossil fuels), stationary energy and industrial processes would not receive any free allocation of units.
Trade-exposed industry & energy would receive a free allocation of 90% of 2005 emissions annually to 2018. From 2019 to 2029 the free allocation would phase out at the rate of a 1/12 (8.3%) reduction each year. Agriculture would receive a free allocation of 90% of 2005 emissions each year to 2018. From 2019 to 2029 the free allocation would phase out at the rate of a 1/12 (8.3%) reduction each year. Fishing would receive a free allocation of 50% of 2005 emissions each year from July 2010 to January 2013.
at Victoria University of Wellington, commented that the 2008 NZ ETS will be less effective in reducing emissions because of political compromises such as the delayed sector entry dates and the extended period of free allocation of emissions units.
Dr Suzi Kerr, an economist and Senior Fellow at Motu Economic and Public Policy Research, commented that the NZ ETS would be costly to tax payers as it provided for very high levels of free allocation of emission units to emitters.
In August 2007, Infometrics economist Adolf Stroombergen wrote an opinion article about permit auctions and free allocation for the Dominion Post
. Stroombergen noted that giving permits to emitters instead of selling them in an auction had very different wealth distribution effects, with major emitters the biggest beneficiaries. So he asked why allocate and not auction? One reason is to compensate firms for 'stranded' assets that have less value due to emissions trading. In that case the compensation should only be the loss in asset value. Stroombergen considered New Zealand was only likely to have a few 'stranded' assets. The second reason is to compensate firms who may be at competitive disadvantage with overseas firms whose emissions are without a carbon price. Stroombergen considered that only basic commodities competing entirely on price would face this competitive risk, and that he would expect to see most permits auctioned, not given away as there is no economic basis for ongoing free allocation of permits.
In May 2008, Chris Schilling, an economist at the New Zealand Institute of Economic Research (NZIER), argued that free allocation of emissions units to ‘at-risk’ firms competing in export markets was necessary to maintain their competitiveness. Schilling also argued that the assumption that allocation is a transfer of wealth from households to industry may also be incorrect. This is based on NZIER modelling which suggests that because allocation protects the competitiveness of New Zealand firms, it reduces the economic impact of the ETS. So the cost of allocation needs to be measured against the cost of not giving allocation. Finally Schilling states that allocation is needed to maintain the environmental integrity of the scheme. Allocation to efficient New Zealand firms reduces the risk that emissions will 'leak' offshore. Reducing the output of New Zealand firms, it is argued, will result in increased production in another nation, and perhaps a net increase in global emissions.
Economist Geoff Bertram compared the price incentives of the 2008 NZ ETS with a carbon or greenhouse gas tax for Kyoto commitment period 1, 2008 to 2012. A tax of $NZ30 per tonne, on the 386 million tonnes of emitted greenhouse gases likely to be emitted from 2008 to 2012, would give a price signal (or government revenue) of $NZ11.6 billion. The exemptions and subsidies in Labour's ETS would have reduced that to about $NZ1 billion. In terms of the obligation to surrender emissions permits, Labour's ETS would have reduced the gross hypothetical surrender obligation of 386 million credits (one for each tonne) for the five years down to 35 million credits.
climate change spokesman Nick Smith described the NZ ETS as 'rushed', 'flawed' and 'riddled with errors'.
Jeanette Fitzsimons
, the Co-Leader of the Green Party
said that she thought the NZ ETS was a 'first step' and that New Zealanders should avoid thinking that the NZ ETS 'fixed' climate change.
Greenpeace Aotearoa
described the 2008 NZ ETS as 'weakened and watered down' and too generous to agriculture and other big polluters. Greenpeace Aotearoa considered that the NZ ETS would not drive the deep emission cuts needed to prevent global warming. Spokesperson Simon Boxer said “This is very much a case of something being better than nothing.”
To express opposition to the NZ ETS, the ACT Party put on a piece of street theatre where a "witch" whipped a "farmer" who was dragging an oversized cheque made out to Russia for $NZ 5 billion from the New Zealand taxpayer.
During the development of the scheme, John Stephenson of NZIER commented that the Government should "Take a breath and have a cup of tea" before proceeding. In Stephenson's opinion the negative effect of ETS on economic growth was too great. NZIER economic modeling was reported to have shown the Labour ETS would take $3000 off individual household spending annually and cost 20,000 jobs. The modelling also showed that the Labour ETS would reduce the value of dairy land by 40 per cent and reduce dairy exports by 13 per cent.
In April 2009, the Sustainable Energy Forum described the NZ ETS as an 'almost completely ineffective means of reducing New Zealand's gross greenhouse gas emissions'.
. A 52-page report on the policy background to and detail of the 2008 NZ ETS.
Fifth Labour Government of New Zealand
The Fifth Labour Government of New Zealand was the government of New Zealand between 10 December 1999 and 19 November 2008.-Overview:The fourth National government, in power since 1990, was widely unpopular by 1999, with much of the public antagonised by a series of free-market economic reforms,...
that established the first version of the New Zealand Emissions Trading Scheme
New Zealand Emissions Trading Scheme
The New Zealand Emissions Trading Scheme is a national all-sectors all-greenhouse gases all-free allocation uncapped emissions trading scheme...
, a national all-sectors all-greenhouse gas
Greenhouse gas
A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...
es uncapped emissions trading
Emissions trading
Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
scheme.
Legislative history 2007–2008
On 20 September 2007, after consulting on policy options for climate change and energy, the Labour-led GovernmentFifth Labour Government of New Zealand
The Fifth Labour Government of New Zealand was the government of New Zealand between 10 December 1999 and 19 November 2008.-Overview:The fourth National government, in power since 1990, was widely unpopular by 1999, with much of the public antagonised by a series of free-market economic reforms,...
announced that it intended to establish an emissions trading scheme in order to respond to climate change. Prime Minister Helen Clark
Helen Clark
Helen Elizabeth Clark, ONZ is a New Zealand political figure who was the 37th Prime Minister of New Zealand for three consecutive terms from 1999 to 2008...
stated; “The Government believes that an emissions trading scheme which puts a price on emissions creates the right incentives across the economy to use fuel and energy more efficiently”.
On 4 December 2007, the Labour Government
Fifth Labour Government of New Zealand
The Fifth Labour Government of New Zealand was the government of New Zealand between 10 December 1999 and 19 November 2008.-Overview:The fourth National government, in power since 1990, was widely unpopular by 1999, with much of the public antagonised by a series of free-market economic reforms,...
introduced the Climate Change (Emissions Trading and Renewable Preference) Bill into Parliament. The bill amended the Climate Change Response Act 2002
Climate Change Response Act 2002
The Climate Change Response Act 2002 is an Act of Parliament passed by the government of New Zealand.The Climate Change Response Act 2002 creates the legal framework for New Zealand to ratify the Kyoto Protocol and to meet obligations under the United Nations Framework Convention on Climate...
by inserting an emissions trading scheme
Emissions trading
Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
including all sectors of the economy and all greenhouse gases. The bill also a restricted the commissioning of any new fossil-fuelled thermal power stations for 10 years.
On 9 September 2008, the sections of the Climate Change (Emissions Trading and Renewable Preference) Bill establishing the NZ ETS were separated into the Climate Change Response (Emissions Trading) Amendment bill.
On 10 September 2008, the Climate Change Response (Emissions Trading) Amendment Act 2008 had its third reading in Parliament and was adopted 63 votes to 57 with support from the Green Party
Green Party of Aotearoa New Zealand
The Green Party of Aotearoa New Zealand is a political party that has seats in the New Zealand parliament. It focuses firstly on environmentalism, arguing that all other aspects of humanity will cease to be of concern if there is no environment to sustain it...
and New Zealand First
New Zealand First
New Zealand First is a political party in New Zealand that was founded in 1993, following party founder Winston Peters' resignation from the National Party in 1992...
. The Climate Change Response (Emissions Trading) Amendment Act 2008 received the royal assent on 25 September 2008.
Summary of Labour NZ ETS
The proposed scheme was to cover all six greenhouse gasGreenhouse gas
A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...
es specified in the Kyoto Protocol
Kyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...
, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6). It would be economy wide, covering all sectors including agriculture. 'Participants' who must account for their emissions will be few and high in the production chain of each sector and will have to surrender one internationally tradable Kyoto-compliant NZ unit for each tonne of emissions. Emission units will be capped in number and distributed to participants either by grandparenting (gifting) or auctioning. Sectors would enter the NZ ETS at staggered dates, from January 2008 (forestry) through until January 2013 (agriculture), and have differing allocations of free units. In general, participants who can pass on costs of the ETS, such as fuel companies to motorists, would not be allocated free units. While participants whose produce is priced internationally, such as dairy exporters, would be allocated a level of free units.
The lack of a cap
In 2007, the Ministry for the Environment acknowledged that the NZ ETS would not have a binding, absolute limit on the total level of emissions allowed in New Zealand. While the quantity of NZ Units gifted to eligible emitters would be fixed, the quantity of international 'Kyoto-compliant' units that could be bought in to match emissions would not be limited.Ministry for the Environment Fact Sheet 16 stated “There is no cap on the emissions that occur within New Zealand.” However, the Ministry for the Environment still regarded the NZ ETS as operating within the cap on emissions established by the Kyoto Protocol for the first commitment period of 2008–2012.
Greenpeace noted that the proposed NZ ETS placed no limit on the number of permits that could be imported into New Zealand and it did not include a domestic emission reduction target. Greenpeace considered that in operation the NZ ETS would be a carbon tax with the rate set by the world market price. Bertram and Terry (2008, p35) concluded that the NZ ETS is not a cap-and-trade scheme as described in the economics literature because it does not place a cap on New Zealand's emissions of greenhouse gases.
Units of trade
The 2008 NZ ETS created a new emission unit, the New Zealand Unit (NZU), which the Ministry for the Environment described as being the 'primary domestic unit of trade'. The NZU is equivalent to one metric tonne of greenhouse gases in a one-year compliance period. The NZU is 'backed' by an assigned amount unitAssigned amount units
An Assigned Amount Unit is a tradable 'Kyoto unit' or 'carbon credit' representing an allowance to emit greenhouse gases comprising one metric tonne of carbon dioxide equivalents calculated using their Global Warming Potential....
. It is the NZUs that will be allocated by 'grandfathering" to forestry, industry, energy, fishing and agriculture under an allocation plan.
As noted in the previous paragraph, participants in the NZ ETS could also use most of the 'Kyoto Units' to meet their surrender obligations. The permitted units were: Assigned amount units
Assigned amount units
An Assigned Amount Unit is a tradable 'Kyoto unit' or 'carbon credit' representing an allowance to emit greenhouse gases comprising one metric tonne of carbon dioxide equivalents calculated using their Global Warming Potential....
(AAUs), Emission Reduction Unit
Emission Reduction Unit
The Emission reduction unit is a trading unit under the Kyoto Protocol representing a reduction of greenhouse gases under the Joint Implementation mechanism, where it represents one tonne of equivalent reduced....
s (ERUs), Removal Units
Removal Units
A Removal Unit is a tradable carbon credit or 'Kyoto unit' representing an allowance to emit one metric tonne of greenhouse gases absorbed by a removal or Carbon sink activity in an Annex I country....
(RMUs), and Certified Emission Reduction
Certified Emission Reduction
Certified Emission Reductions are a type of emissions unit issued by the Clean Development Mechanism Executive Board for emission reductions achieved by CDM projects and verified by a DOE under the rules of the Kyoto Protocol...
s (CERs). However, temporary CERs and iCERS cannot be used, and neither can CERs and ERUs generated from nuclear projects.
Allocation of emission units
Under the Labour Government's initial proposal, allocation of NZUs would have been by a mix of auctioning and "grandfathering" (free allocation to existing emitters based on historic emissions). Forestry, transport, energy and industry would have had to obtain units by auction. Industries defined as 'trade-exposed' would have received a free allocation of 90% of their 2005 emissions. Agriculture would have received an allocation of units equivalent to 90% of 2005 emissions.In the final version as set out in the Climate Change Response (Emissions Trading) Amendment Act 2008, forest owners with pre-1990 forests were to receive a fixed one-off free allocation of units. Transport (Liquid fossil fuels), stationary energy and industrial processes would not receive any free allocation of units.
Trade-exposed industry & energy would receive a free allocation of 90% of 2005 emissions annually to 2018. From 2019 to 2029 the free allocation would phase out at the rate of a 1/12 (8.3%) reduction each year. Agriculture would receive a free allocation of 90% of 2005 emissions each year to 2018. From 2019 to 2029 the free allocation would phase out at the rate of a 1/12 (8.3%) reduction each year. Fishing would receive a free allocation of 50% of 2005 emissions each year from July 2010 to January 2013.
Effectiveness of price incentive for emission reduction
Professor Jonathan Boston, Director of the Institute of Policy Studies (New Zealand)Institute of Policy Studies (New Zealand)
The Institute of Policy Studies is a policy studies think tank founded in 1983 at the Victoria University of Wellington, New Zealand.The Institute of Policy Studies was established in 1983 as part of Victoria University of Wellington. Over the decades, the university environment has changed...
at Victoria University of Wellington, commented that the 2008 NZ ETS will be less effective in reducing emissions because of political compromises such as the delayed sector entry dates and the extended period of free allocation of emissions units.
Dr Suzi Kerr, an economist and Senior Fellow at Motu Economic and Public Policy Research, commented that the NZ ETS would be costly to tax payers as it provided for very high levels of free allocation of emission units to emitters.
In August 2007, Infometrics economist Adolf Stroombergen wrote an opinion article about permit auctions and free allocation for the Dominion Post
The Dominion Post (Wellington)
The Dominion Post is a metropolitan broadsheet newspaper published in Wellington, New Zealand, owned by the Australian Fairfax group, owners of The Age, Melbourne, and The Sydney Morning Herald.- Foundation :...
. Stroombergen noted that giving permits to emitters instead of selling them in an auction had very different wealth distribution effects, with major emitters the biggest beneficiaries. So he asked why allocate and not auction? One reason is to compensate firms for 'stranded' assets that have less value due to emissions trading. In that case the compensation should only be the loss in asset value. Stroombergen considered New Zealand was only likely to have a few 'stranded' assets. The second reason is to compensate firms who may be at competitive disadvantage with overseas firms whose emissions are without a carbon price. Stroombergen considered that only basic commodities competing entirely on price would face this competitive risk, and that he would expect to see most permits auctioned, not given away as there is no economic basis for ongoing free allocation of permits.
In May 2008, Chris Schilling, an economist at the New Zealand Institute of Economic Research (NZIER), argued that free allocation of emissions units to ‘at-risk’ firms competing in export markets was necessary to maintain their competitiveness. Schilling also argued that the assumption that allocation is a transfer of wealth from households to industry may also be incorrect. This is based on NZIER modelling which suggests that because allocation protects the competitiveness of New Zealand firms, it reduces the economic impact of the ETS. So the cost of allocation needs to be measured against the cost of not giving allocation. Finally Schilling states that allocation is needed to maintain the environmental integrity of the scheme. Allocation to efficient New Zealand firms reduces the risk that emissions will 'leak' offshore. Reducing the output of New Zealand firms, it is argued, will result in increased production in another nation, and perhaps a net increase in global emissions.
Economist Geoff Bertram compared the price incentives of the 2008 NZ ETS with a carbon or greenhouse gas tax for Kyoto commitment period 1, 2008 to 2012. A tax of $NZ30 per tonne, on the 386 million tonnes of emitted greenhouse gases likely to be emitted from 2008 to 2012, would give a price signal (or government revenue) of $NZ11.6 billion. The exemptions and subsidies in Labour's ETS would have reduced that to about $NZ1 billion. In terms of the obligation to surrender emissions permits, Labour's ETS would have reduced the gross hypothetical surrender obligation of 386 million credits (one for each tonne) for the five years down to 35 million credits.
Sector entry dates
In the Climate Change Response (Emissions Trading) Amendment Act 2008, the sector entry dates were;- 1 January 2008 : Forestry
- 1 January 2010 : Stationary energy, Industrial processes, Trade-exposed Industry & Energy, Fishing
- 1 January 2011 : Transport (Liquid fossil fuels):
- 1 January 2013 : Agriculture:
Reactions
In September 2008, National PartyNew Zealand National Party
The New Zealand National Party is the largest party in the New Zealand House of Representatives and in November 2008 formed a minority government with support from three minor parties.-Policies:...
climate change spokesman Nick Smith described the NZ ETS as 'rushed', 'flawed' and 'riddled with errors'.
Jeanette Fitzsimons
Jeanette Fitzsimons
Jeanette Mary Fitzsimons, CNZM is a New Zealand politician and environmentalist. She was the co-leader of the Green Party of Aotearoa New Zealand from 1995 to 2009, and was a Member of Parliament from 1996 to 2010.-Career:...
, the Co-Leader of the Green Party
Green Party of Aotearoa New Zealand
The Green Party of Aotearoa New Zealand is a political party that has seats in the New Zealand parliament. It focuses firstly on environmentalism, arguing that all other aspects of humanity will cease to be of concern if there is no environment to sustain it...
said that she thought the NZ ETS was a 'first step' and that New Zealanders should avoid thinking that the NZ ETS 'fixed' climate change.
Greenpeace Aotearoa
Greenpeace Aotearoa New Zealand
Greenpeace Aotearoa New Zealand is one of New Zealand's largest environmental organisations, and is a national office of the global environmental organisation Greenpeace.-History:...
described the 2008 NZ ETS as 'weakened and watered down' and too generous to agriculture and other big polluters. Greenpeace Aotearoa considered that the NZ ETS would not drive the deep emission cuts needed to prevent global warming. Spokesperson Simon Boxer said “This is very much a case of something being better than nothing.”
To express opposition to the NZ ETS, the ACT Party put on a piece of street theatre where a "witch" whipped a "farmer" who was dragging an oversized cheque made out to Russia for $NZ 5 billion from the New Zealand taxpayer.
During the development of the scheme, John Stephenson of NZIER commented that the Government should "Take a breath and have a cup of tea" before proceeding. In Stephenson's opinion the negative effect of ETS on economic growth was too great. NZIER economic modeling was reported to have shown the Labour ETS would take $3000 off individual household spending annually and cost 20,000 jobs. The modelling also showed that the Labour ETS would reduce the value of dairy land by 40 per cent and reduce dairy exports by 13 per cent.
In April 2009, the Sustainable Energy Forum described the NZ ETS as an 'almost completely ineffective means of reducing New Zealand's gross greenhouse gas emissions'.
See also
- Climate change in New ZealandClimate change in New ZealandClimate change in New Zealand, in the sense of anthropogenic global warming during the 20th century, is apparent in the instrumental record, in New Zealand's participation in international treaties and in social and political debates. Climate change is being responded to in a variety of ways by...
- Energy in New ZealandEnergy in New ZealandDespite a comparatively small population and abundant natural resources, New Zealand is a net importer of energy, in the form of oil products. Approximately 35% of primary energy is from renewable sources. Energy consumption is 4.53 TOE per capita, just less than the OECD average of 4.67...
- List of climate change initiatives
Further reading
A 20-page analysis.. A 137-page analysis.. A 52-page report on the policy background to and detail of the 2008 NZ ETS.
External links
- Factsheets emissions trading scheme Ministry for the Environment, September 2008; INFO 317-329
- The Framework for a New Zealand Emissions Trading Scheme: Executive Summary Ministry for the Environment, September 2007, Ref. ME810.