The Climate Change Response (Moderate Emissions Trading) Amendment Bill
On 25 November 2009 the Moderated Emissions Trading Scheme was passed by Parliament. The Moderated Scheme departs from the Scheme originally enacted last year by amending the date of entry for several sectors and providing a transitional phase in which the price of units is fixed.
Background
Under the Kyoto Protocol, New Zealand has obligations to reduce its emissions to 1990 levels. If New Zealand fails to reduce emissions then we must pay for those emissions internationally. In order to offset this cost the New Zealand Emissions Trading Scheme has been established.
The Emissions Trading Scheme will deal in the trading off New Zealand Units (NZ Units) which are carbon credits. Each NZ Unit represents 1 metric tonne of greenhouse gas. NZ Units are traded between those that absorb green house gas thereby receiving free allocation of NZ Units (e.g. post 1989 exotic forest owners) and those that generate emissions and required to surrender NZ Units (eg Genesis Energy Huntley Power Station).
Emitters are required to surrender NZ Units to the Government. Emitters must first purchase the NZ Units to be surrendered through the Emissions Trading Scheme.
Post 1989 exotic forest owners (and others) absorb greenhouse gases and therefore are given credit for this by being given NZ Units through an allocation plan with the Government. The NZ Units they receive can either be banked to meet their own obligations later or sold to emitters through the Scheme.
The Emission Trading Scheme works at the national level by allowing those that emit greenhouse gases to purchase NZ Units from those that absorb greenhouse gases. One of the goals of the Emission Trading Scheme is to encourage businesses to improve their processes to achieve a reduction in emissions in order to avoid being required to surrender NZ Units.
The cost of emitters either reducing their emissions or buying NZ Units is likely to be passed onto consumers. If our national emissions are not reduced then the New Zealand Government (ie the taxpayer) will have to pay to meet our international obligations. The Moderated Scheme seeks to achieve a balance between these costs and protect businesses during the recession.
Liquid Fossil Fuels, Stationary Energy and Industrial Processes
Under the Moderated Scheme the commencement date for liquid fossil fuels, stationary energy and industrial processes sectors obligations to surrender units is now 1 July 2010. A transitional phase applies for these sectors from 1 July 2010 until 31 December 2012 during which time:
• Participants are only required to surrender 1 eligible unit for every 2 tonnes of CO2 emitted with an option to pay $25 in lieu of surrendering a unit
• The export of NZ Units from the ETS is prohibited for these sectors.
The price of NZ Units is set during the transitional phase to allow businesses time to prepare. After the transitional phase the price of NZ Units will be determined by the market.
Forestry
The Forestry sector has been in the Scheme since 1 January 2008. However a transitional phase now applies from 1 January 2008 to 31 December 2012. During the transitional phase forestry participants are required to surrender 1 unit for every 1 tonne of CO2 emitted with an option to pay $25 in lieu of surrendering a unit.
Agriculture
Agriculture is to enter the scheme on 1 January 2015 and obligations will initially be imposed at the processor level rather than at farm level. However there is an ability to change the point of obligation to farm-level through regulation. There are also incentives for afforestation under the original scheme.
Intensity Based Allocation
There is also a focus under the new legislation on providing free allocation of units to participants that are emission intensive and trade exposed. The purpose of this initiative is to encourage businesses not to relocate to a country where there are no emission obligations. Interestingly it is intended that the Environmental Protection Agency established in October this year under the Resource Management (Streamlining and Simplifying) Amendment Act will process applications for allocations and have other administrative functions.
Conclusion
The intention of the Moderated Scheme is to soften the impact of imposing emission obligations in the first few years however it is likely to mean that from 2013 the costs of electricity, petrol and other goods and services will increase as the fixed prices for NZ Units are removed and NZ Units will be purchased at market rates.
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