- New Zealand Emissions Trading Scheme
The New Zealand Emissions Trading Scheme (NZ ETS) is a national all-sectors all-greenhouse gases 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. 
Pricing the externality
An emissions trading scheme for greenhouse gas emissions (GHGs) works by establishing property rights 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.
Efficiency and equity
For the purposes of analysis, it is possible to separate efficiency (achieving a given objective at lowest cost) and equity (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 costs 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).
A domestic ETS can only regulate the emissions of the country having the trading scheme. In this case, GHG emissions can "leak" (carbon leakage) 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.
One way of addressing carbon leakage is to give sectors vulnerable to international competition free emission permits (Carbon Trust, 2009). This acts as a subsidy 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.
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 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 taxes. 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 Fonterra 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.”
The amendments of 2009
In 2002, the Fifth Labour Government of New Zealand 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.
Submissions to the Finance and Expenditure Committee
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.
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 Key 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.
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.
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 Protocol. 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.
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 Smith (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:
“ If the aim of climate change mitigation policies is to change producers’ behaviour, it is vital to be able to measure emissions in a cost effective manner. If the transaction costs of measuring emissions outweigh the benefits of emissions reduction, the policy may not be net welfare enhancing. Therefore the transaction costs of implementing an all-sectors all-gases ETS need to be evaluated. It may be advisable to exempt sectors such as agriculture where measurement costs are high relative to the benefit that would be gained from that sector’s inclusion. Our modelling suggests that, in the short term, such exemptions do not reduce economy wide welfare. ”
— Regulatory Impact Assessment
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.
The Climate Change Response (Moderated Emissions Trading) Amendment Act 2009
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.
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.
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 Kyoto 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 Units (ERUs), Certified Emission Reductions (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.
Reaction to the Climate Change Response (Moderated Emissions Trading) Act
Business and farming
According to Brian Fallow, the New Zealand Herald Economics editor, business lobby groups such as Business New Zealand 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”.
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.
Rod Oram 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”.
The Labour Party 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”.
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.
Greenpeace Aotearoa New Zealand 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.
Parliamentary Commissioner for the Environment
In October 2009, New Zealand's independent environmental watchdog, Dr Jan Wright, the Parliamentary Commissioner for the Environment, 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.
In November 2009, Reuters 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”.
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
- Climate Change Response (Emissions Trading) Amendment Act 2008
- Emissions Trading Scheme Review Committee December 2008 - August 2009
- Emissions trading
- Energy in New Zealand
- List of climate change initiatives
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- ^ a b MfE (14 January 2010). "How will the changes impact on forestry?". Questions and answers about amendments to the New Zealand Emissions Trading Scheme (ETS). Ministry for the Environment, NZ Government (www.climatechange.govt.nz). http://www.climatechange.govt.nz/emissions-trading-scheme/questions-and-answers-amendment-act.html#forestry. Retrieved 16 May 2010.
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- ^ a b "New Zealand Units (NZUs)". Climate change information New Zealand. Ministry for the Environment, NZ Government (www.climatechange.govt.nz). 18 June 2010. http://www.climatechange.govt.nz/emissions-trading-scheme/about/emission-units.html. Retrieved 13 August 2010. "In the short term, the Government is unlikely to sell emission units because the Kyoto units allocated to New Zealand will be needed to support New Zealand’s international obligations, as well as allocation to eligible sectors under the emissions trading scheme."
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- ^ MfE (September 2009). "Agriculture". Summary of the proposed changes to the NZ ETS - Emissions Trading Bulletin 11. Ministry for the Environment, NZ Government. http://www.mfe.govt.nz/publications/climate/emissions-trading-bulletin-11/index.html#agriculture. Retrieved 16 May 2010.
- ^ a b MfE (September 2009). "Industrial allocation update". Emissions trading bulletin No 12, INFO 441. Ministry for the Environment, NZ Government. http://www.mfe.govt.nz/publications/climate/emissions-trading-bulletin-12/index.html. Retrieved 8 August 2010. "The Bill changes the allocation provisions of the existing CCRA from allocating a fixed pool of emissions to an uncapped approach to allocation. There is no longer an explicit limit on the number of New Zealand units (NZUs) that can be allocated to the industrial sector."
- ^ MfE (14 January 2010). "How will free allocation of emission units to the industrial sector work now?". Questions and answers about amendments to the New Zealand Emissions Trading Scheme (ETS). Ministry for the Environment, NZ Government. http://www.climatechange.govt.nz/emissions-trading-scheme/building/policy-and-legislation/faq-amendment-act.html. Retrieved 16 May 2010.
- ^ Bertram, Geoff; Terry, Simon (2010). The Carbon Challenge: New Zealand’s Emissions Trading Scheme. Bridget Williams Books, Wellington. ISBN 978-1-877242-46-5. "The New Zealand ETS does not fit this model because there is no cap and therefore no certainty as to the volume of emissions with which the national economy must operate"
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