New Zealand Emissions Trading Scheme
Encyclopedia
The New Zealand Emissions Trading Scheme (NZ ETS) is a national all-sectors all-greenhouse gas
es all-free allocation uncapped emissions trading scheme. The NZ ETS was first legislated
in September 2008 by the Fifth Labour Government of New Zealand
and then amended in November 2009 by the Fifth National Government of New Zealand
.
Although the NZ ETS covers all sectors, individual sectors of the economy have different 'entry dates' when their obligations to report emissions and surrender emission units have effect. Forestry, a net sink which contributed net removals of 14 Mts of CO2e
in 2008 or 19% of NZ's 2008 emissions, entered on 1 January 2008. The stationary energy, industrial processes and liquid fossil fuel sectors (34 Mts, 45% of 2008 emissions) entered the NZ ETS on 1 July 2010. The waste sector (landfill operators) will enter on 1 January 2013. Methane and nitrous oxide emissions from agriculture (35 Mts or 47% of 2008 emissions) are scheduled to enter the scheme from 1 January 2015.
The NZ ETS will allow the use of most Kyoto emission units and it creates a specific domestic unit; the 'New Zealand Unit' (NZU), which will be issued by free allocation to emitters, with no auctions intended in the short term. Free allocation of NZUs will vary by sector. The commercial fishery sector (who are not participants) will receive a free allocation of units on a historic basis. Owners of pre-1990 forests will receive a fixed free allocation of units. Free allocation to emissions-intensive industry, and agriculture will be provided on an output-intensity basis. For these two sectors, there is no 'cap' as there will not be a set limit on the number of units that may be allocated. The number of units allocated to eligible emitters will be based on the average emissions per unit of output within a defined 'activity'. Bertram and Terry (2010, p 16) state that as there is no 'cap' on emissions, hence the NZ ETS is not a cap and trade scheme as understood in the economics literature.
A transition period will operate from 1 July 2010 until 31 December 2012. During this period the price of NZUs will be capped at NZ$25. Also, one unit will only need to be surrendered for every two tonnes of carbon dioxide equivalent emissions, effectively reducing the cost of emissions to NZ$12.50 per tonne (MfE 2009, second bullet point).
Some stakeholders have criticized the New Zealand Emissions Trading Scheme for its generous free allocations of emission units and the lack of a carbon price signal (the Parliamentary Commissioner for the Environment
), and for being ineffective in reducing emissions (Greenpeace Aotearoa New Zealand
).
The NZ ETS was recently reviewed by an independent panel, which reported to the public in September 2011.
for the atmosphere
(Goldemberg et al.., 1996, p. 29). The atmosphere is a global public good
, and GHG emissions are an international externality
(p. 21). The emissions from all sources of GHGs contribute to the overall stock of GHGs in the atmosphere. In the cap-and-trade variant of emissions trading, a limit on access to a resource (the cap) is defined and then allocated among users in the form of permits. Compliance is established by comparing actual emissions with permits surrendered including any permits traded within the cap. The environmental integrity of emissions trading is depends on the setting of the cap, not the decision to allow trading.
(fairness) (Goldemberg et al.., 1996, p. 29). Economists generally agree that to regulate emissions efficiently, all polluters need to face the full costs of their actions (that is, the full marginal
social cost
s of their actions) (pp. 29, 37). Regulation of emissions that is applied only to one economic sector or region drastically reduces the efficiency of efforts to reduce global emissions (p. 30). There is, however, no scientific consensus over how to share the costs and benefits of reducing future climate change (mitigation of climate change), or the costs and benefits of adapting to any future climate change (see also economics of global warming).
) to another region or sector with less regulation (p. 21). Leakages may be positive, where they reduce the effectiveness of domestic emission abatement efforts. Leakages may also be negative, and increase the effectiveness of domestic abatement efforts (negative leakages are sometimes called spillover) (IPCC, 2007). For example, a carbon tax
applied only to developed countries might lead to a positive leakage to developing countries (Goldemberg et al., 1996, pp. 27–28). However, a negative leakage might also occur due to technological developments driven by domestic regulation of GHGs (Barker et al.., 2007). This can help to reduce emissions even in less regulated regions.
for the sector in question. Free allocation of permits was opposed by the Garnaut Climate Change Review
as it considered there were no circumstances that justify it and that governments could deal with market failure or claims for compensation more transparently with the revenue from full auctioning of permits. The economically efficient option would, however, be border adjustments (Neuhoff, 2009; Newbery, 2009). Border adjustments work by setting a tariff on imported goods from less regulated countries. A problem with border adjustments is that they might be used as a disguise for trade protectionism
(Grubb et al., p. 5). Some types of border adjustment may also not prevent emissions leakage.
Allocating permits based on past emissions is called "grandfathering" (Goldemberg et al.., 1996, p. 38). Grandfathering permits, just like the other option of selling (auctioning) permits, sets a price on emissions. This gives permit-liable polluters an incentive to reduce their emissions. However, grandfathering permits can lead to perverse incentives, e.g., a firm that aimed to cut emissions drastically would then be given fewer permits in the future. Allocation may also slow down technological development towards less polluting technologies (Fisher et al., 1996, p. 417). The Garnaut Climate Change Review
noted that 'grandfathered' permits are not 'free'. As the permits are scarce they have value and the benefit of that value is acquired in full by the emitter. The cost is imposed elsewhere in the economy, typically on consumers who cannot pass on the costs. However, profit-maximising firms receiving free permits will raise prices to customers because of the new, non-zero cost of emissions.
A second method of "grandfathering" is to base allocations on current production of economic goods, rather than historical emissions. Under this method of allocation, government will set a benchmark level of emissions for each good deemed to be sufficiently trade exposed and allocate firms units based on their production of this good. However, allocating permits in proportion to output implicitly subsidises production. Garnaut considers that any method for free permit allocation will have the disadvantages of high complexity, high transaction costs, value-based judgments, and the use of arbitrary emissions baselines.
On the other hand, auctioning permits provides the government with revenues. These revenues could be used to fund low-carbon investment, and also fund cuts in distortionary tax
es. Auctioning permits can therefore be more efficient and equitable than allocating permits (Hepburn, 2006, pp. 236–237). Ross Garnaut states that full auctioning will provide greater transparency and accountability and lower implementation and transaction costs as governments retain control over the permit revenue.
Such recycling of revenue from permit auctions could offset a significant proportion of the economy-wide social costs of a cap and trade scheme. As well as reducing tax distortions, Kerr and Cramton (1998) note that auctions of units are more flexible in distributing costs, they provide more incentives for innovation, and they lessen the political arguments over the allocation of economic rents.
and by Federated Farmers
. Environmental organisations and opposition political parties opposed intensity based allocations.
General equilibrium modeling commissioned by the Emissions Trading Scheme Review Committee and performed by NZIER and Informetics, based on the New Zealand economy, showed allocations were only welfare enhancing when linked to production.
The NZIER-Infometrics report of 2009 supports basing allocations on intensity of production rather than historical emissions. The NZIER-Infometrics report commented; “If free allocation is based on a lump sum payment to compensate firms for stranded assets, the welfare loss is greater than under a production subsidy approach...Free allocation linked to output can be a cost-reducing mechanism of dealing with high costs of abatement and a lack of action by other countries (leakage and competitiveness at risk issues). Free allocation as compensation for stranded assets does not have this effect, though may be justified on equity grounds.”
adopted the Climate Change Response Act 2002
(the Act) in order for New Zealand to ratify the Kyoto Protocol
and to meet obligations under the United Nations Framework Convention on Climate Change
.
In 2008, the Labour Government enacted the Climate Change Response (Emissions Trading) Amendment Act 2008
which added the first version of the New Zealand Emissions Trading Scheme to the Climate Change Response Act 2002. The Labour Government subsequently lost the 2008 New Zealand election
to the coalition led by National Party, who had campaigned on amending the NZ ETS.
In December 2008, the National-led Government
set up the Emissions Trading Scheme Review Committee
to review the NZ ETS.
On 14 September 2009, following the reporting back of the committee, the National Government Minister for Climate Change Issues Nick Smith announced that it had reached an agreement with the Māori Party
about revisions to the NZ ETS and that an amending bill would be drafted in order to “make the ETS workable and affordable”.
On 24 September 2009, the Climate Change Response (Moderated Emissions Trading) Amendment Bill had its first reading in Parliament and was sent to the Finance and Expenditure Select Committee for public submissions.
Allocating New Zealand units to eligible emitters in proportion to their production means that there is no cap on the total amount of emissions units that can be allocated, and therefore no cap on total emissions within New Zealand.
There is also no cap on total emissions during the transition period as the Government will supply the market with unlimited New Zealand units at the fixed price of NZ$25 per NZU.
For the free allocation of units to agriculture, there are no eligibility tests. Allocations to agricultural activities will also be made on an intensity basis. The baseline will be the sector average emissions per unit of output.
This method of allocation is often referred to as 'intensity based allocations'. Intensity based allocations are allocations that are based on the volume of production of a firm. Allocations are given at the beginning of the period and then balanced at the conclusion to reflect actual output.
Bill English
, and
Nick Smith
in his speech on the third reading of the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009.
The cost of free allocation of units to emitters is a highly contentious subject. The Sustainability Council argued that the allocation of units to industry is highly costly to taxpayers.
Dr Christina Hood, a climate change and energy policy consultant, submitted to the Finance and Expenditure Select Committee that the use of uncapped intensity based allocation of units will result in a taxpayer subsidy to emitters of about $NZ105 billion up to 2050.
Economist Geoff Bertram estimated that at a carbon price of $NZ50 a tonne, the cost to taxpayers of the free allocation of NZ units to emitters will be $NZ99 billion between 2010 and 2091.
Nick Smith's Cabinet Paper noted that the New Zealand Treasury
had estimated that the long-term costs of intensity-based allocation of units to industry and agriculture would be 'very significant', in the order of $NZ900 million per annum by 2030.
The Clerk of the House invited Economist Dr Suzi Kerr to give independent specialist advice on the Climate Change Response (Moderated Emissions Trading) Amendment Bill. Kerr's advice was that the free allocation of emission units significantly raised the overall cost of the NZ ETS to the economy and transferred it to taxpayers.
The level of allocations per unit of output for EITE activities will decrease at 1.3% per year from 2013, however, as production may increase, allocations may also increase over time.
. Although transitional measures are legislated to end after 2012, the Government has suggested that they will be extended in the event that major trading partners such as the USA and Australia do not implement emissions trading schemes of their own before then.
During the transition period participants in energy, fossil fuels and industry will only need to surrender one NZU for two tonnes of carbon dioxide equivalent
emissions. Free allocation of units to energy-intensive and trade-exposed activities will also be halved. Secondly, participants may pay a fixed price of NZ$25 instead of buying and surrendering units. This measure means that firms will face a cost of no higher than NZ$12.50 per tonne of emissions. There is a restriction on the sale of units oversea during this transition period, except for forest removal credits.
(Minister for Climate Change Issues) states that the reason for this was due to the difficulties in measuring and monitoring agricultural emissions and the lack of possible mitigation opportunities meaning limited reductions would likely result.
The regulatory impact assessment conducted by NZIER and Infometrics also reached this conclusion. The report stated:
The Parliamentary Commissioner for the Environment considered that there was insufficient evidence to justify leaving agriculture out of the NZ ETS until 2015. A submission from the Institute of Policy Studies (New Zealand)
and The New Zealand Climate Change Research Institute considered that the delayed entry of agriculture into the NZ ETS will reduce long term competitiveness of the New Zealand economy by supporting industry that can not compete in an emissions constrained world.
On 7 December 2009, the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009 received the royal assent.
| Sector || Entry date || Transitional obligation until December 2012 (CP1) || Unit allocation terms
|-
| pre-1990 forest || 1 January 2008 || Fixed surrender price $NZ25/tonne || Allocation of 60 free units per hectare to pre-1990 forests (which may be sold internationally), otherwise units to be purchased for deforestation
|-
| post-1989 forest || 1 January 2008 || Fixed surrender price $NZ25/tonne || Afforestation (carbon removal) earns units, otherwise units to be purchased for deforestation
|-
| Transport (Liquid fossil fuels) || 1 July 2010 || One emission unit for two tonnes emissions (50%) and fixed surrender price $NZ25/tonne || Units to be purchased
|-
| Stationary energy || 1 July 2010 || One unit for two tonnes (50%) and fixed surrender price $NZ25/tonne || Units to be purchased
|-
| Emission-intensive industrial processes that are not trade-exposed || 1 July 2010 || One unit for two tonnes (50%) and fixed surrender price $NZ25/tonne || Units to be purchased
|-
| Trade-exposed emission-intensive industrial processes || 1 July 2010 || One unit for two tonnes (50%) and fixed surrender price $NZ25/tonne || Free allocation on intensity/production basis phasing out from 2013 at 1.3% each year.
|-
| Agricultural Gases (methane and nitrous oxide from biological processes) || 1 January 2015 || No obligation in CP1 except reporting from 1 January 2012. || Free allocation on intensity/production basis phasing out from 2016 at 1.3% each year.
|-
| Fishing || 1 July 2010 || Not participants. No requirement to report emissions or surrender NZUs || 700,000 NZUs (90% of 2005 emissions) allocated free to fishing quota holders until 1 January 2012.
|}
unit in terms of compliance with the Kyoto Protocol, and can only be surrendered or traded within New Zealand. Participants in the NZ ETS are also able to purchase and surrender international Kyoto
units such as Emission Reduction Unit
s (ERUs), Certified Emission Reduction
s (CERs) and Removal Units
(RMUs) and Assigned amount units
(AAUs) issued in other countries. During the transition phase (July 2010 to December 2012), only the forestry sector will be able to convert the NZUs allocated to them to Assigned amount units
that can be sold to overseas buyers. However, temporary CERs and iCERS cannot be used in the NZ ETS, and neither can CERs and ERUs generated from nuclear projects.
and the Greenhouse Policy Coalition (representing the energy intensive sector) welcomed the introduction of a temporary price cap and the principle of basing free allocations of units on the basis of intensity of production.
On September 2009, the Greenhouse Policy Coalition described the proposed changes to the NZ ETS as “a welcome move in the right direction”. The Coalition stated that it approved of the half-cost unit surrender obligation in the first commitment period, the $12.50 price cap on carbon, and the slower phase-out of assistance to industry.
Business New Zealand
welcomed National's revisions to the NZ ETS of 14 September 2009 as better balancing environmental and economic needs and it stated that it was pleased that the Government had accepted the intensity basis for allocation of units.
The Business Council for Sustainable Development stated that New Zealand was risking 'being left behind' in proposing an all-sectors, all-gases ETS that in 2015 would have almost no impact on heavy emitting industries facing international competition.
Federated Farmers
commented that “there is no place for agricultural emissions in the ETS”, “the Government must seek to remove agriculture at Copenhagen in December” and that the NZ ETS is “the road to economic hell being paved with good intentions”.
described the Climate Change Response (Moderated Emissions Trading) Bill as “backward legislation” and a “miserable offering to the international effort”.
The Dominion Post
commented that the NZ ETS is a failure because “those responsible for the emissions don't have to foot the bill”.
The New Zealand Listener
stated “Our poorly thought-out emissions trading scheme does nothing to enhance our reputation” and predicted that the lack of bi-partisan support for the NZ ETS would lead to further uncertainty in New Zealand's climate-change policy.
commented in a Sunday Star Times column that the National Government's changes to the NZ ETS were “a giant step backwards” which would “drive up emissions, perpetuate old technology, necessitate ever-greater subsidies and reduce New Zealand's international competitiveness and reputation.” Oram considered that the amendments to the NZ ETS destroyed its effectiveness. His examples were: removing limits on emissions by adopting intensity-based allocation of free carbon credits, slavishly following climate-laggard Australia, minimising the price incentive by extending the free allocation of credits for 75 years, muting the price signal with a $NZ25 per tonne of carbon cap, forcing forestry holders of credits to sell them overseas because of the $NZ25 per tonne cap, cancelling complementary measures such as fuel efficiency standards, giving in to special pleading via subsidies, and creating uncertainty for business.
Colin James
described the National ETS as “...the ETS you have when you are not having an ETS - no cap on emissions (so no "cap" in the "cap-and- trade"), a cap on price (so no "trade", just tickle the taxpayer) and languorous phase-downs of gross emissions which push out hard decisions (if needed) into a misty future”
The New Zealand Herald
's economics editor Brian Fallow said “Clearly emissions will peak higher and later than they would have done under the existing scheme. But the higher and later the peak in emissions, the steeper and more economically costly the subsequent decline will have to be”.
noted that the allocation of credits to emitters on a 'intensity' basis, with no cap on emissions, meant that emitters would have an incentive to continue to emit greenhouse gases. Taxpayers would have to fund the long period of assistance by allocation of free units to industry at a cost of up to $NZ2 billion by 2030.
Labour Party climate change spokesman Charles Chauvel
said that the National NZ ETS “is fundamentally flawed on multiple levels. It is economically irrational, socially inequitable, environmentally counter-productive and fiscally unsustainable”.
Jeanette Fitzsimons
of the Green Party
commented that the ETS would not reduce emissions and would be “the biggest wealth transfer in New Zealand history from the taxpayer to the big polluters”.
John Boscawen
of the Act Party commented that the NZ ETS was a grand experiment, without precedent in any other nation in the world. Boscawen was critical of the effect that the ETS will have on households and farmers, stating that the average power bill will rise 10%, fuel bills will rise by 7 cents per litre and dairy farms will face an increase in costs before agriculture enters the scheme of NZ$7,500 per year as a result of associated increases in fuel, electricity and the cost of processing milk products. Boscawen called for the NZ ETS to be scrapped or delayed indefinitely.
noted that the intensity-based allocation of NZ Units to industry and the slow phase-out of free units would allow emissions to grow and described the NZ ETS as “pathetic”. Greenpeace's Simon Boxer described the NZETS to TV3
as “the worst emissions trading scheme in the world”.
Gary Taylor, of the Environmental Defence Society
, said that “An emissions-trading scheme welcomed by polluters and coal producers is not going to work” and “New Zealand is now a climate change laggard”.
ECO (the Environment and Conservation Organisations of Aotearoa New Zealand
) described the NZ ETS as a “major disappointment” and said that “The changes allow 65 large companies long periods of subsidisation by taxpayers, particularly households, right out to 2050, with farmers and the fishing industry getting especially large subsidies.”
World Wide Fund for Nature
(WWF) New Zealand described the New Zealand Emissions Trading Scheme as “a complete shambles” because it sets no limit on total pollution, it allows emissions to grow and it transfers the cost of emissions from polluters to taxpayers.
Carbon Trade Watch
have described it “as a taxpayer subsidy for plantations and energy companies”.
, made a submission to the Select Committee considering National's amendments to the NZ ETS. The submission stated that the allocation of free units to industry was too generous and the length of the phase-out of free allocation was too slow. Without a carbon price signal to invest in low carbon technologies, emissions would continue to rise.
In November 2009, Wright was sufficiently concerned that the Climate Change Response (Moderated Emissions Trading) Amendment bill would result in increased emissions that she publicly urged politicians three times not to adopt the National Government's legislation. She opposed the removal of a firm cap on emissions, the reduction of price incentives to reduce emissions, and the heavy subsidies from taxpayers granted to emissions-intensive industry and agriculture by the intensity-based allocation of free units.
When the Climate Change Response (Moderated Emissions Trading) Act was adopted, Wright said in a radio interview “It's virtually certain our emissions will grow and the burden on the taxpayer will be uncurbed”.
As the energy and liquid fossil fuels were about to enter the NZ ETS in July 2010, Dr Wright expressed her concern that although the NZ ETS was the right framework, the subsidies to big emitters would limit the incentives to reduce emissions and impose significant costs on the taxpayer.
reported that the amended NZ ETS allowed unlimited imports of offsets and that business groups largely backed the changes, while environmental groups largely felt that the NZ ETS would not do enough to reduce emissions. In March 2010, Reuters reported that the NZ ETS had “no emissions cap nor any limit on the number of free carbon permits for energy-intensive companies that export their products”. Reuters noted that the absence of a cap and the two-tonnes-for-one-unit surrender arrangement had led to “accusations of some big polluters getting a free ride and that the scheme will fail to cut emissions of planet-warming gases”.
In March 2010, The Economist
commented on the delayed entry of agriculture into the scheme and noted the environmental concerns over the “generous allocations of free carbon credits to business”.
The report's major recommendations include:
. A 52-page report on the policy background to and detail of the 2008 NZ ETS.
. A two-page leaflet.
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 all-free allocation uncapped emissions trading scheme. The NZ ETS was first legislated
Climate Change Response (Emissions Trading) Amendment Act 2008
The Climate Change Response 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 gases uncapped emissions trading...
in September 2008 by the Fifth Labour Government of New Zealand
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,...
and then amended in November 2009 by the Fifth National Government of New Zealand
Fifth National Government of New Zealand
The Fifth National Government of New Zealand is the current government of New Zealand. It is led by Prime Minister John Key.After the 2008 general election the National Party and its allies were able to form a government, taking over from Helen Clark's Fifth Labour Government. The National party...
.
Although the NZ ETS covers all sectors, individual sectors of the economy have different 'entry dates' when their obligations to report emissions and surrender emission units have effect. Forestry, a net sink which contributed net removals of 14 Mts of CO2e
Carbon dioxide equivalent
Carbon dioxide equivalent and Equivalent carbon dioxide are two related but distinct measures for describing how much global warming a given type and amount of greenhouse gas may cause, using the functionally equivalent amount or concentration of carbon dioxide as the reference.- Global warming...
in 2008 or 19% of NZ's 2008 emissions, entered on 1 January 2008. The stationary energy, industrial processes and liquid fossil fuel sectors (34 Mts, 45% of 2008 emissions) entered the NZ ETS on 1 July 2010. The waste sector (landfill operators) will enter on 1 January 2013. Methane and nitrous oxide emissions from agriculture (35 Mts or 47% of 2008 emissions) are scheduled to enter the scheme from 1 January 2015.
The NZ ETS will allow the use of most Kyoto emission units and it creates a specific domestic unit; the 'New Zealand Unit' (NZU), which will be issued by free allocation to emitters, with no auctions intended in the short term. Free allocation of NZUs will vary by sector. The commercial fishery sector (who are not participants) will receive a free allocation of units on a historic basis. Owners of pre-1990 forests will receive a fixed free allocation of units. Free allocation to emissions-intensive industry, and agriculture will be provided on an output-intensity basis. For these two sectors, there is no 'cap' as there will not be a set limit on the number of units that may be allocated. The number of units allocated to eligible emitters will be based on the average emissions per unit of output within a defined 'activity'. Bertram and Terry (2010, p 16) state that as there is no 'cap' on emissions, hence the NZ ETS is not a cap and trade scheme as understood in the economics literature.
A transition period will operate from 1 July 2010 until 31 December 2012. During this period the price of NZUs will be capped at NZ$25. Also, one unit will only need to be surrendered for every two tonnes of carbon dioxide equivalent emissions, effectively reducing the cost of emissions to NZ$12.50 per tonne (MfE 2009, second bullet point).
Some stakeholders have criticized the New Zealand Emissions Trading Scheme for its generous free allocations of emission units and the lack of a carbon price signal (the Parliamentary Commissioner for the Environment
Parliamentary Commissioner for the Environment
The Parliamentary Commissioner for the Environment is an independent Officer of the New Zealand Parliament appointed by the Governor-General on the recommendation of the House of Representatives for a five-year term under the Environment Act 1986...
), and for being ineffective in reducing emissions (Greenpeace Aotearoa New Zealand
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:...
).
The NZ ETS was recently reviewed by an independent panel, which reported to the public in September 2011.
Pricing the externality
An emissions trading scheme for greenhouse gas emissions (GHGs) works by establishing property rightsProperty rights (economics)
A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals. All economic goods have a property rights attribute...
for the atmosphere
Atmosphere
An atmosphere is a layer of gases that may surround a material body of sufficient mass, and that is held in place by the gravity of the body. An atmosphere may be retained for a longer duration, if the gravity is high and the atmosphere's temperature is low...
(Goldemberg et al.., 1996, p. 29). The atmosphere is a global public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...
, and GHG emissions are an international externality
Externality
In economics, an externality is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit...
(p. 21). The emissions from all sources of GHGs contribute to the overall stock of GHGs in the atmosphere. In the cap-and-trade variant of emissions trading, a limit on access to a resource (the cap) is defined and then allocated among users in the form of permits. Compliance is established by comparing actual emissions with permits surrendered including any permits traded within the cap. The environmental integrity of emissions trading is depends on the setting of the cap, not the decision to allow trading.
Efficiency and equity
For the purposes of analysis, it is possible to separate efficiency (achieving a given objective at lowest cost) and equityEquity (economics)
Equity is the concept or idea of fairness in economics, particularly as to taxation or welfare economics. More specifically it may refer to equal life chances regardless of identity, to provide all citizens with a basic minimum of income/goods/services or to increase funds and commitment for...
(fairness) (Goldemberg et al.., 1996, p. 29). Economists generally agree that to regulate emissions efficiently, all polluters need to face the full costs of their actions (that is, the full marginal
Margin (economics)
In economics, a margin is a set of constraints conceptualised as a border. A marginal change is the change associated with a relaxation or tightening of constraints — either change of the constraints, or a change in response to this change of the constraints.- Extensive and intensive margins...
social cost
Social cost
Social cost, in economics, is generally defined in opposition to "private cost". In economics, theorists model individual decision-making as measurement of costs and benefits...
s of their actions) (pp. 29, 37). Regulation of emissions that is applied only to one economic sector or region drastically reduces the efficiency of efforts to reduce global emissions (p. 30). There is, however, no scientific consensus over how to share the costs and benefits of reducing future climate change (mitigation of climate change), or the costs and benefits of adapting to any future climate change (see also economics of global warming).
Carbon leakage
A domestic ETS can only regulate the emissions of the country having the trading scheme. In this case, GHG emissions can "leak" (carbon leakageCarbon leakage
Carbon leakage occurs when there is an increase in carbon dioxide emissions in one country as a result of an emissions reduction by a second country with a strict climate policy.Carbon leakage may occur for a number of reasons:...
) to another region or sector with less regulation (p. 21). Leakages may be positive, where they reduce the effectiveness of domestic emission abatement efforts. Leakages may also be negative, and increase the effectiveness of domestic abatement efforts (negative leakages are sometimes called spillover) (IPCC, 2007). For example, a carbon tax
Carbon tax
A carbon tax is an environmental tax levied on the carbon content of fuels. It is a form of carbon pricing. Carbon is present in every hydrocarbon fuel and is released as carbon dioxide when they are burnt. In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not...
applied only to developed countries might lead to a positive leakage to developing countries (Goldemberg et al., 1996, pp. 27–28). However, a negative leakage might also occur due to technological developments driven by domestic regulation of GHGs (Barker et al.., 2007). This can help to reduce emissions even in less regulated regions.
Competitiveness risks
One way of addressing carbon leakage is to give sectors vulnerable to international competition free emission permits (Carbon Trust, 2009). This acts as a subsidySubsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
for the sector in question. Free allocation of permits was opposed by the Garnaut Climate Change Review
Garnaut Climate Change Review
The Garnaut Climate Change Review was a study by Professor Ross Garnaut, commissioned by then Opposition Leader, Kevin Rudd and by the Australian State and Territory Governments on 30 April 2007...
as it considered there were no circumstances that justify it and that governments could deal with market failure or claims for compensation more transparently with the revenue from full auctioning of permits. The economically efficient option would, however, be border adjustments (Neuhoff, 2009; Newbery, 2009). Border adjustments work by setting a tariff on imported goods from less regulated countries. A problem with border adjustments is that they might be used as a disguise for trade protectionism
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
(Grubb et al., p. 5). Some types of border adjustment may also not prevent emissions leakage.
Issuing the permits: 'grandfathering' vs auctions
Tradable emissions permits can be issued to firms within an ETS by two main ways: by free allocation of permits to existing emitters or by auction.Allocating permits based on past emissions is called "grandfathering" (Goldemberg et al.., 1996, p. 38). Grandfathering permits, just like the other option of selling (auctioning) permits, sets a price on emissions. This gives permit-liable polluters an incentive to reduce their emissions. However, grandfathering permits can lead to perverse incentives, e.g., a firm that aimed to cut emissions drastically would then be given fewer permits in the future. Allocation may also slow down technological development towards less polluting technologies (Fisher et al., 1996, p. 417). The Garnaut Climate Change Review
Garnaut Climate Change Review
The Garnaut Climate Change Review was a study by Professor Ross Garnaut, commissioned by then Opposition Leader, Kevin Rudd and by the Australian State and Territory Governments on 30 April 2007...
noted that 'grandfathered' permits are not 'free'. As the permits are scarce they have value and the benefit of that value is acquired in full by the emitter. The cost is imposed elsewhere in the economy, typically on consumers who cannot pass on the costs. However, profit-maximising firms receiving free permits will raise prices to customers because of the new, non-zero cost of emissions.
A second method of "grandfathering" is to base allocations on current production of economic goods, rather than historical emissions. Under this method of allocation, government will set a benchmark level of emissions for each good deemed to be sufficiently trade exposed and allocate firms units based on their production of this good. However, allocating permits in proportion to output implicitly subsidises production. Garnaut considers that any method for free permit allocation will have the disadvantages of high complexity, high transaction costs, value-based judgments, and the use of arbitrary emissions baselines.
On the other hand, auctioning permits provides the government with revenues. These revenues could be used to fund low-carbon investment, and also fund cuts in distortionary tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es. Auctioning permits can therefore be more efficient and equitable than allocating permits (Hepburn, 2006, pp. 236–237). Ross Garnaut states that full auctioning will provide greater transparency and accountability and lower implementation and transaction costs as governments retain control over the permit revenue.
Such recycling of revenue from permit auctions could offset a significant proportion of the economy-wide social costs of a cap and trade scheme. As well as reducing tax distortions, Kerr and Cramton (1998) note that auctions of units are more flexible in distributing costs, they provide more incentives for innovation, and they lessen the political arguments over the allocation of economic rents.
Lobbying for free allocation
According to Hepburn (2006, pp. 238–239), “it should be expected that industry will lobby furiously against any auctioning.” Hepburn et al. (2006) state that it is an empirical fact that while businesses tend to oppose auctioning of emissions permits, economists almost uniformly recommend auctioning permits. Garnaut notes that the complexity of free allocation, and the large amounts of money involved, encourage non-productive rent-seeking behaviour and lobbying of governments. These actions dissipate economic value.New Zealand allocation
In the NZ ETS, intensity-based allocation was favoured over allocations based on historical emissions by business groups, and representatives of large emitters, by FonterraFonterra
Fonterra Co-operative Group Limited is a New Zealand multinational dairy co-operative owned by almost 10,500 New Zealand farmers. The company is responsible for approximately 30% of the world's dairy exports and with revenue exceeding NZ$19.87 billion, is New Zealand's largest company.- History :In...
and by Federated Farmers
Federated Farmers
Federated Farmers of New Zealand Incorporated is an organisation in New Zealand which lobbies on behalf of its member farmers.It has a network of 24 provinces and seven industry groups. Federated Farmers provides a locally based, democratic organisation that lobbies on farming issues both...
. Environmental organisations and opposition political parties opposed intensity based allocations.
General equilibrium modeling commissioned by the Emissions Trading Scheme Review Committee and performed by NZIER and Informetics, based on the New Zealand economy, showed allocations were only welfare enhancing when linked to production.
The NZIER-Infometrics report of 2009 supports basing allocations on intensity of production rather than historical emissions. The NZIER-Infometrics report commented; “If free allocation is based on a lump sum payment to compensate firms for stranded assets, the welfare loss is greater than under a production subsidy approach...Free allocation linked to output can be a cost-reducing mechanism of dealing with high costs of abatement and a lack of action by other countries (leakage and competitiveness at risk issues). Free allocation as compensation for stranded assets does not have this effect, though may be justified on equity grounds.”
History
In 2002, the Fifth Labour Government of New ZealandFifth 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,...
adopted 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...
(the Act) in order for New Zealand to ratify 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...
and to meet obligations under the United Nations Framework Convention on Climate Change
United Nations Framework Convention on Climate Change
The United Nations Framework Convention on Climate Change is an international environmental treaty produced at the United Nations Conference on Environment and Development , informally known as the Earth Summit, held in Rio de Janeiro from June 3 to 14, 1992...
.
In 2008, the Labour Government enacted the Climate Change Response (Emissions Trading) Amendment Act 2008
Climate Change Response (Emissions Trading) Amendment Act 2008
The Climate Change Response 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 gases uncapped emissions trading...
which added the first version of the New Zealand Emissions Trading Scheme to the Climate Change Response Act 2002. The Labour Government subsequently lost the 2008 New Zealand election
New Zealand general election, 2008
The 2008 New Zealand general election was held on 8 November 2008 to determine the composition of the 49th New Zealand parliament. The conservative National Party, headed by its Parliamentary leader John Key, won a plurality of votes and seats, ending 9 years of government dominated by the social...
to the coalition led by National Party, who had campaigned on amending the NZ ETS.
In December 2008, the National-led Government
Fifth National Government of New Zealand
The Fifth National Government of New Zealand is the current government of New Zealand. It is led by Prime Minister John Key.After the 2008 general election the National Party and its allies were able to form a government, taking over from Helen Clark's Fifth Labour Government. The National party...
set up the Emissions Trading Scheme Review Committee
Emissions Trading Scheme Review Committee
The Emissions Trading Scheme Review Committee was a special committee of the Parliament of New Zealand which conducted a review of the Fifth Labour Government's Emissions Trading Scheme between December 2008 and late August 2009.-Background:...
to review the NZ ETS.
On 14 September 2009, following the reporting back of the committee, the National Government Minister for Climate Change Issues Nick Smith announced that it had reached an agreement with the Māori Party
Maori Party
The Māori Party, a political party in New Zealand, was formed on 7 July 2004. The Party is guided by eight constitutional "kaupapa", or Party objectives. Tariana Turia formed the Māori Party after resigning from the Labour Party where she had been a Cabinet Minister in the Fifth Labour-led...
about revisions to the NZ ETS and that an amending bill would be drafted in order to “make the ETS workable and affordable”.
On 24 September 2009, the Climate Change Response (Moderated Emissions Trading) Amendment Bill had its first reading in Parliament and was sent to the Finance and Expenditure Select Committee for public submissions.
Submissions to the Finance and Expenditure Committee
Between 15 October 2009 and the date of its final report, 16 November 2009, the Finance and Expenditure Committee received 399 submissions on National's draft bill.Lack of a cap on emissions
Nick Smith's press release of September 2009 announced that the method to allocation NZ units to trade exposed and emissions intensive firms would now be based on average industry production, where the levels of units allocated would vary in proportion to a firm production.Allocating New Zealand units to eligible emitters in proportion to their production means that there is no cap on the total amount of emissions units that can be allocated, and therefore no cap on total emissions within New Zealand.
There is also no cap on total emissions during the transition period as the Government will supply the market with unlimited New Zealand units at the fixed price of NZ$25 per NZU.
For the free allocation of units to agriculture, there are no eligibility tests. Allocations to agricultural activities will also be made on an intensity basis. The baseline will be the sector average emissions per unit of output.
Allocation of NZ Units to Trade-Exposed Activities
Under the NZ ETS, all NZ Units will be distributed into the market by free allocation (gifting). There is no intention in the short term to auction any NZ Units. 'Emissions-intensive' and 'trade-exposed' (EITE) activities are designated a benchmark level of emissions per unit of production. For example, x amount of carbon dioxide equivalent emissions per tonne of steel. Firms then receive an allocations based on their expected production of the emissions intensive good.This method of allocation is often referred to as 'intensity based allocations'. Intensity based allocations are allocations that are based on the volume of production of a firm. Allocations are given at the beginning of the period and then balanced at the conclusion to reflect actual output.
Fiscal impact
From the 2008 election, National's policy was that the NZ ETS should be fiscally neutral, in the sense of a Government policy where any new taxes or revenues equal any new spending The policy of a fiscally-neutral NZ ETS was confirmed by John KeyJohn Key
John Phillip Key is the 38th Prime Minister of New Zealand, in office since 2008. He has led the New Zealand National Party since 2006....
Bill English
Bill English
Simon William "Bill" English is the Deputy Prime Minister, Minister of Finance and Minister of Infrastructure of New Zealand.English entered parliament in 1990 as a National party MP representing the Wallace electorate...
, and
Nick Smith
Nick Smith (New Zealand)
Nicolas Rex "Nick" Smith is a New Zealand politician and a member of the New Zealand Parliament as a National Party MP...
in his speech on the third reading of the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009.
The cost of free allocation of units to emitters is a highly contentious subject. The Sustainability Council argued that the allocation of units to industry is highly costly to taxpayers.
Dr Christina Hood, a climate change and energy policy consultant, submitted to the Finance and Expenditure Select Committee that the use of uncapped intensity based allocation of units will result in a taxpayer subsidy to emitters of about $NZ105 billion up to 2050.
Economist Geoff Bertram estimated that at a carbon price of $NZ50 a tonne, the cost to taxpayers of the free allocation of NZ units to emitters will be $NZ99 billion between 2010 and 2091.
Nick Smith's Cabinet Paper noted that the New Zealand Treasury
New Zealand Treasury
The New Zealand Treasury is a public sector organisation and the Government’s lead advisor on economic and financial policy. Its role is to help the Government improve economic performance and manage scarce resources...
had estimated that the long-term costs of intensity-based allocation of units to industry and agriculture would be 'very significant', in the order of $NZ900 million per annum by 2030.
The Clerk of the House invited Economist Dr Suzi Kerr to give independent specialist advice on the Climate Change Response (Moderated Emissions Trading) Amendment Bill. Kerr's advice was that the free allocation of emission units significantly raised the overall cost of the NZ ETS to the economy and transferred it to taxpayers.
Decrease in allocation of units
There is no specific sunset clause to remove the allocation of units to firms that undertake emissions-intensive and trade-exposed activities. The legislation stipulates that allocations must be reviewed no less than once every 5 years by a review panel. Climate Change Minister Nick Smith has stated that estimates of fiscal impacts beyond 2020 at the present time are meaningless as there are simply too many unknowns.The level of allocations per unit of output for EITE activities will decrease at 1.3% per year from 2013, however, as production may increase, allocations may also increase over time.
Transitional Assistance
The NZ ETS contains special transitional provisions from 1 July 2010 (when fossil emissions enter the scheme) until 31 December 2012 (transition period). This end date coincides with the end date of the Kyoto ProtocolKyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...
. Although transitional measures are legislated to end after 2012, the Government has suggested that they will be extended in the event that major trading partners such as the USA and Australia do not implement emissions trading schemes of their own before then.
During the transition period participants in energy, fossil fuels and industry will only need to surrender one NZU for two tonnes of carbon dioxide equivalent
Carbon dioxide equivalent
Carbon dioxide equivalent and Equivalent carbon dioxide are two related but distinct measures for describing how much global warming a given type and amount of greenhouse gas may cause, using the functionally equivalent amount or concentration of carbon dioxide as the reference.- Global warming...
emissions. Free allocation of units to energy-intensive and trade-exposed activities will also be halved. Secondly, participants may pay a fixed price of NZ$25 instead of buying and surrendering units. This measure means that firms will face a cost of no higher than NZ$12.50 per tonne of emissions. There is a restriction on the sale of units oversea during this transition period, except for forest removal credits.
Delayed entry for agricultural emissions
Agricultural emissions, methane from enteric fermentation and manure management as well as nitrous oxide from animal effluent and fertiliser, are not legislated to enter the scheme until 1 January 2015. Information released by the Honourable Nick SmithNick Smith (New Zealand)
Nicolas Rex "Nick" Smith is a New Zealand politician and a member of the New Zealand Parliament as a National Party MP...
(Minister for Climate Change Issues) states that the reason for this was due to the difficulties in measuring and monitoring agricultural emissions and the lack of possible mitigation opportunities meaning limited reductions would likely result.
The regulatory impact assessment conducted by NZIER and Infometrics also reached this conclusion. The report stated:
The Parliamentary Commissioner for the Environment considered that there was insufficient evidence to justify leaving agriculture out of the NZ ETS until 2015. A submission from 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...
and The New Zealand Climate Change Research Institute considered that the delayed entry of agriculture into the NZ ETS will reduce long term competitiveness of the New Zealand economy by supporting industry that can not compete in an emissions constrained world.
Adoption
On 25 November 2009, the bill had its second and third readings and it was adopted by 63 votes to 58, with the support of the National Party (58 votes), the Maori Party (4 votes) and United Future (1 vote). The Labour Party (43 votes), the Greens (9 votes), ACT (5 votes) and the Progressive Party (1 vote) voted against the third reading.On 7 December 2009, the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009 received the royal assent.
Technical Details
The Climate Change Response (Moderated Emissions Trading) Amendment Act 2009 established an emissions trading scheme with obligations on emissions from all sectors and all gases. From 2015, the technical details can be summarised as:- All emissions from all sources will have obligations. This includes emissions from biological sources such as methane from enteric fermentation and nitrous oxide from animal effluent.
- Allocations will be made to firms who undertake activities that are deemed to be both 'trade-exposed' and 'emissions-intensive'. Moderately emissions intensive activities will receive allocations equal to 60% of the industry average for the financial years ending 2007, 2008 and 2009. Highly emissions intensive industries will receive allocations equal to 90% of the industry average for this period. Allocation per unit of output will decrease by 1.3% per year from 2013 (on an exponential basis rather than a summation basis).
- As allocations are based on production levels, allocations are not 'capped' at any specific level.
- Moderately emissions intensive activities are those that produce more than 800 tonnes of carbon dioxide equivalent emissions per million dollars of revenue. Highly emissions intensive activities are those that produce more than 1600 tonnes per million dollars of revenue.
- Electricity generators will not receive allocations, however a firm may receive allocation for electricity use if it conducts an 'emissions intensive' and 'trade exposed' activity (EITE).
- Liquid fossil fuel is excluded from allocation in all instances.
- Owners of forests planted after 31 December 1989 are able to 'opt-in' to the scheme and receive units for forest sequestration. If these forests are removed from the land the owner must repay these units.
- Owners of land that was in forest on 1 January 1990 and remained in forest on 1 January 2008 must surrender emissions units if they wish to deforest land AND change the land use to a use other than forestry.
- Agricultural activities will automatically receive a 90% allocation per unit of production, phased out at a rate of 1.3% per year from 2016.
Sector entry dates obligations and allocations
The proposed sector entry dates, obligations and unit allocation terms of National's proposed NZ ETS are set out in the table below.-
- {|class="wikitable"
| Sector || Entry date || Transitional obligation until December 2012 (CP1) || Unit allocation terms
|-
| pre-1990 forest || 1 January 2008 || Fixed surrender price $NZ25/tonne || Allocation of 60 free units per hectare to pre-1990 forests (which may be sold internationally), otherwise units to be purchased for deforestation
|-
| post-1989 forest || 1 January 2008 || Fixed surrender price $NZ25/tonne || Afforestation (carbon removal) earns units, otherwise units to be purchased for deforestation
|-
| Transport (Liquid fossil fuels) || 1 July 2010 || One emission unit for two tonnes emissions (50%) and fixed surrender price $NZ25/tonne || Units to be purchased
|-
| Stationary energy || 1 July 2010 || One unit for two tonnes (50%) and fixed surrender price $NZ25/tonne || Units to be purchased
|-
| Emission-intensive industrial processes that are not trade-exposed || 1 July 2010 || One unit for two tonnes (50%) and fixed surrender price $NZ25/tonne || Units to be purchased
|-
| Trade-exposed emission-intensive industrial processes || 1 July 2010 || One unit for two tonnes (50%) and fixed surrender price $NZ25/tonne || Free allocation on intensity/production basis phasing out from 2013 at 1.3% each year.
|-
| Agricultural Gases (methane and nitrous oxide from biological processes) || 1 January 2015 || No obligation in CP1 except reporting from 1 January 2012. || Free allocation on intensity/production basis phasing out from 2016 at 1.3% each year.
|-
| Fishing || 1 July 2010 || Not participants. No requirement to report emissions or surrender NZUs || 700,000 NZUs (90% of 2005 emissions) allocated free to fishing quota holders until 1 January 2012.
|}
Units able to be traded
The NZ ETS created a specific emission unit for use in New Zealand, the New Zealand Unit (NZU). The NZUs are not a KyotoKyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...
unit in terms of compliance with the Kyoto Protocol, and can only be surrendered or traded within New Zealand. Participants in the NZ ETS are also able to purchase and surrender international Kyoto
Kyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...
units such as 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), 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) and 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 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) issued in other countries. During the transition phase (July 2010 to December 2012), only the forestry sector will be able to convert the NZUs allocated to them to 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....
that can be sold to overseas buyers. However, temporary CERs and iCERS cannot be used in the NZ ETS, and neither can CERs and ERUs generated from nuclear projects.
Business and farming
According to Brian Fallow, the New Zealand Herald Economics editor, business lobby groups such as Business New ZealandBusiness New Zealand
Business NZ is New Zealand’s largest business advocacy body, headquartered in Wellington, New Zealand. The president of the Business NZ council is Trevor Goodwin and Phil O'Reilly is the chief executive.- History :...
and the Greenhouse Policy Coalition (representing the energy intensive sector) welcomed the introduction of a temporary price cap and the principle of basing free allocations of units on the basis of intensity of production.
On September 2009, the Greenhouse Policy Coalition described the proposed changes to the NZ ETS as “a welcome move in the right direction”. The Coalition stated that it approved of the half-cost unit surrender obligation in the first commitment period, the $12.50 price cap on carbon, and the slower phase-out of assistance to industry.
Business New Zealand
Business New Zealand
Business NZ is New Zealand’s largest business advocacy body, headquartered in Wellington, New Zealand. The president of the Business NZ council is Trevor Goodwin and Phil O'Reilly is the chief executive.- History :...
welcomed National's revisions to the NZ ETS of 14 September 2009 as better balancing environmental and economic needs and it stated that it was pleased that the Government had accepted the intensity basis for allocation of units.
The Business Council for Sustainable Development stated that New Zealand was risking 'being left behind' in proposing an all-sectors, all-gases ETS that in 2015 would have almost no impact on heavy emitting industries facing international competition.
Federated Farmers
Federated Farmers
Federated Farmers of New Zealand Incorporated is an organisation in New Zealand which lobbies on behalf of its member farmers.It has a network of 24 provinces and seven industry groups. Federated Farmers provides a locally based, democratic organisation that lobbies on farming issues both...
commented that “there is no place for agricultural emissions in the ETS”, “the Government must seek to remove agriculture at Copenhagen in December” and that the NZ ETS is “the road to economic hell being paved with good intentions”.
Editorial opinion
The New Zealand HeraldThe New Zealand Herald
- External links :* * *...
described the Climate Change Response (Moderated Emissions Trading) Bill as “backward legislation” and a “miserable offering to the international effort”.
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 :...
commented that the NZ ETS is a failure because “those responsible for the emissions don't have to foot the bill”.
The New Zealand Listener
New Zealand Listener
The New Zealand Listener is a New Zealand magazine. First published in 1939 and edited by Oliver Duff and the Monte Holcroft it originally had a monopoly on the publication of of upcoming television and radio programmes. In the 1980s it lost its monopoly on the publication of upcoming television...
stated “Our poorly thought-out emissions trading scheme does nothing to enhance our reputation” and predicted that the lack of bi-partisan support for the NZ ETS would lead to further uncertainty in New Zealand's climate-change policy.
Commentators
Rod OramRod Oram
Rod Oram is a New Zealand journalist writing on corporate, economic and political issues. He is a columnist for The Sunday Star-Times and Good Magazine, a regular broadcaster on radio and television and a frequent public speaker...
commented in a Sunday Star Times column that the National Government's changes to the NZ ETS were “a giant step backwards” which would “drive up emissions, perpetuate old technology, necessitate ever-greater subsidies and reduce New Zealand's international competitiveness and reputation.” Oram considered that the amendments to the NZ ETS destroyed its effectiveness. His examples were: removing limits on emissions by adopting intensity-based allocation of free carbon credits, slavishly following climate-laggard Australia, minimising the price incentive by extending the free allocation of credits for 75 years, muting the price signal with a $NZ25 per tonne of carbon cap, forcing forestry holders of credits to sell them overseas because of the $NZ25 per tonne cap, cancelling complementary measures such as fuel efficiency standards, giving in to special pleading via subsidies, and creating uncertainty for business.
Colin James
Colin James (journalist)
Colin James is a New Zealand political journalist and commentator. He is a life member of the New Zealand Parliament's press gallery.James writes a monthly column in Management Magazine, previously wrote a weekly column in The New Zealand Herald, and often speaks on television and radio...
described the National ETS as “...the ETS you have when you are not having an ETS - no cap on emissions (so no "cap" in the "cap-and- trade"), a cap on price (so no "trade", just tickle the taxpayer) and languorous phase-downs of gross emissions which push out hard decisions (if needed) into a misty future”
The New Zealand Herald
The New Zealand Herald
- External links :* * *...
's economics editor Brian Fallow said “Clearly emissions will peak higher and later than they would have done under the existing scheme. But the higher and later the peak in emissions, the steeper and more economically costly the subsequent decline will have to be”.
Political parties
The Labour PartyNew Zealand Labour Party
The New Zealand Labour Party is a New Zealand political party. It describes itself as centre-left and socially progressive and has been one of the two primary parties of New Zealand politics since 1935....
noted that the allocation of credits to emitters on a 'intensity' basis, with no cap on emissions, meant that emitters would have an incentive to continue to emit greenhouse gases. Taxpayers would have to fund the long period of assistance by allocation of free units to industry at a cost of up to $NZ2 billion by 2030.
Labour Party climate change spokesman Charles Chauvel
Charles Chauvel (politician)
Charles Pierre Chauvel is a New Zealand lawyer and politician. Since 2006 he has been a Member of Parliament in the New Zealand House of Representatives. He is the first New Zealand MP of Tahitian ancestry...
said that the National NZ ETS “is fundamentally flawed on multiple levels. It is economically irrational, socially inequitable, environmentally counter-productive and fiscally unsustainable”.
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:...
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...
commented that the ETS would not reduce emissions and would be “the biggest wealth transfer in New Zealand history from the taxpayer to the big polluters”.
John Boscawen
John Boscawen
John Boscawen is an ACT New Zealand member of the New Zealand House of Representatives and as of May 2011, ACT's Parliamentary Leader and former Minister of Consumer Affairs of New Zealand. He came to parliament in the 2008 general election as a list MP, having been ranked fourth...
of the Act Party commented that the NZ ETS was a grand experiment, without precedent in any other nation in the world. Boscawen was critical of the effect that the ETS will have on households and farmers, stating that the average power bill will rise 10%, fuel bills will rise by 7 cents per litre and dairy farms will face an increase in costs before agriculture enters the scheme of NZ$7,500 per year as a result of associated increases in fuel, electricity and the cost of processing milk products. Boscawen called for the NZ ETS to be scrapped or delayed indefinitely.
Environmental organisations
Greenpeace Aotearoa New ZealandGreenpeace 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:...
noted that the intensity-based allocation of NZ Units to industry and the slow phase-out of free units would allow emissions to grow and described the NZ ETS as “pathetic”. Greenpeace's Simon Boxer described the NZETS to TV3
TV3 (New Zealand)
TV3 is a New Zealand commercial television network, owned by MediaWorks New Zealand. Launched on 26 November 1989, the first private television network in New Zealand...
as “the worst emissions trading scheme in the world”.
Gary Taylor, of the Environmental Defence Society
Environmental Defence Society
Environmental Defence Society is a not for profit environmental organisation based in Auckland, New Zealand.It focuses on issues surrounding the Resource Management Act and is made up of resource management professionals who are committed to improving environmental outcomes within New...
, said that “An emissions-trading scheme welcomed by polluters and coal producers is not going to work” and “New Zealand is now a climate change laggard”.
ECO (the Environment and Conservation Organisations of Aotearoa New Zealand
Environment and Conservation Organisations of Aotearoa New Zealand
The Environment and Conservation Organisations of Aotearoa New Zealand was formed in 1971 under the name of CoEnCo and changed its name to ECO in 1976....
) described the NZ ETS as a “major disappointment” and said that “The changes allow 65 large companies long periods of subsidisation by taxpayers, particularly households, right out to 2050, with farmers and the fishing industry getting especially large subsidies.”
World Wide Fund for Nature
World Wide Fund for Nature
The World Wide Fund for Nature is an international non-governmental organization working on issues regarding the conservation, research and restoration of the environment, formerly named the World Wildlife Fund, which remains its official name in Canada and the United States...
(WWF) New Zealand described the New Zealand Emissions Trading Scheme as “a complete shambles” because it sets no limit on total pollution, it allows emissions to grow and it transfers the cost of emissions from polluters to taxpayers.
Carbon Trade Watch
Carbon Trade Watch
Carbon Trade Watch is an independent research collective working on climate change and climate policy from a justice-based perspective. It was formerly part of the Amsterdam-based Transnational Institute....
have described it “as a taxpayer subsidy for plantations and energy companies”.
Parliamentary Commissioner for the Environment
In October 2009, New Zealand's independent environmental watchdog, Dr Jan Wright, the Parliamentary Commissioner for the EnvironmentParliamentary Commissioner for the Environment
The Parliamentary Commissioner for the Environment is an independent Officer of the New Zealand Parliament appointed by the Governor-General on the recommendation of the House of Representatives for a five-year term under the Environment Act 1986...
, made a submission to the Select Committee considering National's amendments to the NZ ETS. The submission stated that the allocation of free units to industry was too generous and the length of the phase-out of free allocation was too slow. Without a carbon price signal to invest in low carbon technologies, emissions would continue to rise.
In November 2009, Wright was sufficiently concerned that the Climate Change Response (Moderated Emissions Trading) Amendment bill would result in increased emissions that she publicly urged politicians three times not to adopt the National Government's legislation. She opposed the removal of a firm cap on emissions, the reduction of price incentives to reduce emissions, and the heavy subsidies from taxpayers granted to emissions-intensive industry and agriculture by the intensity-based allocation of free units.
When the Climate Change Response (Moderated Emissions Trading) Act was adopted, Wright said in a radio interview “It's virtually certain our emissions will grow and the burden on the taxpayer will be uncurbed”.
As the energy and liquid fossil fuels were about to enter the NZ ETS in July 2010, Dr Wright expressed her concern that although the NZ ETS was the right framework, the subsidies to big emitters would limit the incentives to reduce emissions and impose significant costs on the taxpayer.
International media
In November 2009, ReutersReuters
Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
reported that the amended NZ ETS allowed unlimited imports of offsets and that business groups largely backed the changes, while environmental groups largely felt that the NZ ETS would not do enough to reduce emissions. In March 2010, Reuters reported that the NZ ETS had “no emissions cap nor any limit on the number of free carbon permits for energy-intensive companies that export their products”. Reuters noted that the absence of a cap and the two-tonnes-for-one-unit surrender arrangement had led to “accusations of some big polluters getting a free ride and that the scheme will fail to cut emissions of planet-warming gases”.
In March 2010, The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
commented on the delayed entry of agriculture into the scheme and noted the environmental concerns over the “generous allocations of free carbon credits to business”.
Review of the New Zealand ETS
The Climate Change Response Act 2002 requires a review of the NZ ETS by an independent review panel every five years, with the first review to be completed in 2011. An Issues Statement and Call for Written Submissions document was released in March 2011, and the final report was released in September 2011. The review focused on the high-level design of the NZ ETS, particularly in the context of international efforts to tackle climate change post-2012.The report's major recommendations include:
- phasing out the two-for-one arrangement over three years, so that only in 2015 will businesses have to surrender one emissions unit for each tonne of emissions
- a $5 per year increase in the price cap from 2013 (instead of no price cap)
- that the agricultural sector should still enter in 2015, but should initially be granted a two-for-one allowance
- changes to the domestic ETS forestry accounting rules
See also
- Climate Change Response (Emissions Trading) Amendment Act 2008Climate Change Response (Emissions Trading) Amendment Act 2008The Climate Change Response 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 gases uncapped emissions trading...
- Emissions Trading Scheme Review CommitteeEmissions Trading Scheme Review CommitteeThe Emissions Trading Scheme Review Committee was a special committee of the Parliament of New Zealand which conducted a review of the Fifth Labour Government's Emissions Trading Scheme between December 2008 and late August 2009.-Background:...
December 2008 - August 2009 - Emissions tradingEmissions tradingEmissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....
- 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 570-word summary.. A 224-page book-length analysis.. A 52-page report on the policy background to and detail of the 2008 NZ ETS.
. A two-page leaflet.
External links
- New Zealand Emissions Trading Scheme New Zealand Government website