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The Climate Change Response (Emissions Trading) Amendment Act 2008
On 20 September 2007, after consulting on policy options for climate change and energy, the Labour-led Government announced that it intended to establish an emissions trading scheme to respond to climate change.[1] Prime Minister Helen Clark stated: "The Government believes that an emissions trading scheme which puts a price on emissions creates the right incentives across the economy to use fuel and energy more efficiently".[2]
On 4 December 2007, the Labour Government introduced the Climate Change (Emissions Trading and Renewable Preference) Bill into Parliament. The bill amended the Climate Change Response Act 2002 by inserting an emissions trading scheme including all sectors of the economy and all greenhouse gases. The bill also restricted the commissioning of any new fossil-fuelled thermal power stations for 10 years.[3]
On 9 September 2008, the sections of the Climate Change (Emissions Trading and Renewable Preference) Bill establishing the NZ ETS were separated into the Climate Change Response (Emissions Trading) Amendment bill.[4]
On 10 September 2008, the Climate Change Response (Emissions Trading) Amendment Act 2008 had its third reading in Parliament and was adopted 63 votes to 57 with support from the Green Party and New Zealand First.[5][6] The Climate Change Response (Emissions Trading) Amendment Act 2008 received the royal assent on 25 September 2008.[4]
Summary of Labour NZ ETS
The proposed scheme was to cover all six greenhouse gases specified in the Kyoto Protocol, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6). It would be economy-wide, covering all sectors including agriculture. 'Participants' who must account for their emissions will be few and high in the production chain of each sector and will have to surrender one New Zealand unit (NZU) or one internationally tradable Kyoto-compliant unit for each tonne of emissions.
New Zealand emission units would have been capped in number and distributed to participants either by grand-parenting (gifting) or auctioning. Sectors would enter the NZ ETS at staggered dates, from January 2008 (forestry) through until January 2013 (agriculture), and have differing allocations of free New Zealand units. In general, participants who can pass on costs of the ETS, such as fuel companies to motorists, would not be allocated free units. While participants whose produce is priced internationally, such as dairy exporters, would be allocated a level of free units.[7][8]
Lack of a cap
In 2007, the Ministry for the Environment acknowledged that the NZ ETS would not have a binding, absolute limit on the total level of emissions allowed in New Zealand. While the quantity of NZ Units gifted to eligible emitters would be fixed, the quantity of international 'Kyoto-compliant' units that could be brought in to match emissions would not be limited.[9] Unlike most other emissions trading schemes the NZ ETS has no limit on the volume of international emissions units (CERs and ERUs) that may be imported. Consequently, there is no cap or limit on the volume of emissions permitted in New Zealand provided that emissions units are imported into the country and surrendered.[10]
Ministry for the Environment Fact Sheet 16 stated: "There is no cap on the emissions that occur within New Zealand". However, the Ministry for the Environment still regarded the NZ ETS as operating within the cap on emissions established by the Kyoto Protocol for the first commitment period of 2008–2012.[11] Moyes (2008) describes this as a "flexible cap" where New Zealand sourced emissions regulated by the NZETS are constrained only by the international market price for GHG emissions.[10]
Greenpeace noted that the proposed NZ ETS placed no limit on the number of permits that could be imported into New Zealand and it did not include a domestic emission reduction target. Greenpeace considered that in operation the NZ ETS would be a carbon tax with the rate set by the world market price.[12] Bertram and Terry (2008, p35) concluded that the NZ ETS is not a cap-and-trade scheme as described in the economics literature because it does not place a cap on New Zealand's emissions of greenhouse gases.[13]
Units of trade and international linkage
The 2008 NZ ETS created a new emission unit, the New Zealand Unit (NZU), which the Ministry for the Environment described as being the 'primary domestic unit of trade'. The NZU is equivalent to one tonne of greenhouse gases in a one-year compliance period. The NZU is 'backed' by an assigned amount unit. It is the NZUs that will be allocated by 'grandfathering" to forestry, industry, energy, fishing and agriculture under an allocation plan.[11]
As noted in the previous paragraph, participants in the NZ ETS could also use most of the 'Kyoto Units' to meet their surrender obligations. The permitted units were: Assigned amount units (AAUs), Emission Reduction Units (ERUs), Removal Units (RMUs), and Certified Emission Reductions (CERs). However, temporary CERs and iCERS cannot be used, and neither can CERs and ERUs generated from nuclear projects.[14] Consequently, compared to other emissions trading schemes, the NZ ETS is highly linked to the international markets and will be a price-taker.[10]
The Sustainability Council called for the existing international emission units established under the Kyoto protocol to be used instead of the New Zealand Units.[15]
Allocation of emission units
Under the Labour Government's initial proposal, allocation of NZUs would have been by a mix of auctioning and "grandfathering" (free allocation to existing emitters based on historic emissions). Forestry, transport, energy and industry would have had to obtain units by auction. Industries defined as 'trade-exposed' would have received a free allocation of 90% of their 2005 emissions. Agriculture would have received an allocation of units equivalent to 90% of 2005 emissions.[7]
In the final version as set out in the Climate Change Response (Emissions Trading) Amendment Act 2008, forest owners with pre-1990 forests were to receive a fixed one-off free allocation of units. Transport (Liquid fossil fuels), stationary energy and industrial processes would not receive any free allocation of units.
Trade-exposed industry & energy would receive a free allocation of 90% of 2005 emissions annually to 2018. From 2019 to 2029 the free allocation would phase out at the rate of a 1/12 (8.3%) reduction each year. Agriculture would receive a free allocation of 90% of 2005 emissions each year to 2018. From 2019 to 2029 the free allocation would phase out at the rate of a 1/12 (8.3%) reduction each year. Fishing would receive a free allocation of 50% of 2005 emissions each year from July 2010 to January 2013.[11]
Effectiveness of price incentive for emission reduction
Professor Jonathan Boston, Director of the Institute of Policy Studies (New Zealand) at Victoria University of Wellington, commented that the 2008 NZ ETS will be less effective in reducing emissions because of political compromises such as the delayed sector entry dates and the extended period of free allocation of emissions units.[6]
Dr Suzi Kerr, an economist and Senior Fellow at Motu Economic and Public Policy Research, commented that the NZ ETS would be costly to tax payers as it provided for very high levels of free allocation of emission units to emitters.[6]
In August 2007, Infometrics economist Adolf Stroombergen wrote an opinion article about permit auctions and free allocation for the Dominion Post. Stroombergen noted that giving permits to emitters instead of selling them in an auction had very different wealth distribution effects, with major emitters the biggest beneficiaries. So he asked why allocate and not auction? One reason is to compensate firms for 'stranded' assets that have less value due to emissions trading. In that case the compensation should only be the loss in asset value. Stroombergen considered New Zealand was only likely to have a few 'stranded' assets. The second reason is to compensate firms who may be at competitive disadvantage with overseas firms whose emissions are without a carbon price. Stroombergen considered that only basic commodities competing entirely on price would face this competitive risk, and that he would expect to see most permits auctioned, not given away as there is no economic basis for ongoing free allocation of permits.[16]
In May 2008, Chris Schilling, an economist at the New Zealand Institute of Economic Research (NZIER), argued that free allocation of emissions units to 'at-risk' firms competing in export markets was necessary to maintain their competitiveness. Schilling also argued that the assumption that allocation is a transfer of wealth from households to industry may also be incorrect. This is based on NZIER modelling which suggests that because allocation protects the competitiveness of New Zealand firms, it reduces the economic impact of the ETS. So the cost of allocation needs to be measured against the cost of not giving allocation. Finally Schilling states that allocation is needed to maintain the environmental integrity of the scheme. Allocation to efficient New Zealand firms reduces the risk that emissions will 'leak' offshore. Reducing the output of New Zealand firms, it is argued, will result in increased production in another nation, and perhaps a net increase in global emissions.[17]
Economist Geoff Bertram compared the price incentives of the 2008 NZ ETS with a carbon or greenhouse gas tax for Kyoto commitment period 1, 2008 to 2012. A tax of $NZ30 per tonne, on the 386 million tonnes of emitted greenhouse gases likely to be emitted from 2008 to 2012, would give a price signal (or government revenue) of $NZ11.6 billion. The exemptions and subsidies in Labour's ETS would have reduced that to about $NZ1 billion. In terms of the obligation to surrender emissions permits, Labour's ETS would have reduced the gross hypothetical surrender obligation of 386 million credits (one for each tonne) for the five years down to 35 million credits.[18]
Sector entry dates
In the Climate Change Response (Emissions Trading) Amendment Act 2008, the sector entry dates were;[11]
1 January 2008: Forestry
1 January 2010: Stationary energy, Industrial processes, Trade-exposed Industry & Energy, Fishing
1 January 2011: Transport (Liquid fossil fuels):
1 January 2013: Agriculture:
Reactions
In September 2008, National Party climate change spokesman Nick Smith described the NZ ETS as 'rushed', 'flawed' and 'riddled with errors'.[19]
Business New Zealand Chief Executive Phil O’Reilly described the legislation as "deficient","a risk to our economy" and an "example of poor law-making".[20]
The Sustainability Council stated that farmers and big industries were being heavily exempted through gifted allocations of New Zealand Units which were effectively off-balance sheet subsidies.[15]
Jeanette Fitzsimons, the Co-Leader of the Green Party said that she thought the NZ ETS was a 'first step' and that New Zealanders should avoid thinking that the NZ ETS 'fixed' climate change.[21] The Greens co-leader Russel Norman questioned the fact that agriculture would not enter the NZ ETS until 2013 and that the delay represented a $1.2 billion subsidy for the dairy industry. Norman said that existing technology allowed farmers to reduce emissions, and the agriculture sector should join the NZ ETS on the same timetable as fuel companies – in 2009, rather than 2013.[22]
Greenpeace Aotearoa described the 2008 NZ ETS as "weakened and watered down" and too generous to agriculture and other big polluters. Greenpeace considered that the NZ ETS would not drive the deep emission cuts needed to prevent global warming.[23] Spokesperson Simon Boxer said: "This is very much a case of something being better than nothing."[24]
To express opposition to the NZ ETS, the ACT Party put on a piece of street theatre where a "witch" whipped a "farmer" who was dragging an oversized cheque made out to Russia for $NZ 5 billion from the New Zealand taxpayer.[25]
During the development of the scheme, John Stephenson of NZIER commented that the Government should "Take a breath and have a cup of tea" before proceeding. In Stephenson's opinion the negative effect of ETS on economic growth was too great. NZIER economic modeling was reported to have shown the Labour ETS would take $3000 off individual household spending annually and cost 20,000 jobs. The modelling also showed that the Labour ETS would reduce the value of dairy land by 40 per cent and reduce dairy exports by 13 per cent.[26]
In April 2009, the Sustainable Energy Forum described the NZ ETS as an "almost completely ineffective means of reducing New Zealand's gross greenhouse gas emissions".[27]
The Kyoto Protocol (Japanese: 京都議定書, Hepburn: Kyōto Giteisho) was an international treaty which extended the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits state parties to reduce greenhouse gas emissions, based on the scientific consensus that global warming is occurring and that human-made CO2 emissions are driving it. The Kyoto Protocol was adopted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005. There were 192 parties (Canada withdrew from the protocol, effective December 2012) to the Protocol in 2020.
Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). One prominent example is carbon emission trading for CO2 and other greenhouse gases which is a tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.
Environmental finance is a field within finance that employs market-based environmental policy instruments to improve the ecological impact of investment strategies. The primary objective of environmental finance is to regress the negative impacts of climate change through pricing and trading schemes. The field of environmental finance was established in response to the poor management of economic crises by government bodies globally. Environmental finance aims to reallocate a businesses resources to improve the sustainability of investments whilst also retaining profit margins.
The Clean Development Mechanism (CDM) is a United Nations-run carbon offset scheme allowing countries to fund greenhouse gas emissions-reducing projects in other countries and claim the saved emissions as part of their own efforts to meet international emissions targets. It is one of the three Flexible Mechanisms defined in the Kyoto Protocol. The CDM, defined in Article 12 of the Protocol, was intended to meet two objectives: (1) to assist non-Annex I countries achieve sustainable development and reduce their carbon footprints; and (2) to assist Annex I countries in achieving compliance with their emissions reduction commitments.
The European Union Emissions Trading System is a carbon emission trading scheme which began in 2005 and is intended to lower greenhouse gas emissions by the European Union countries. Cap and trade schemes limit emissions of specified pollutants over an area and allow companies to trade emissions rights within that area. The EU ETS covers around 45% of the EUs greenhouse gas emissions.
Flexible mechanisms, also sometimes known as Flexibility Mechanisms or Kyoto Mechanisms, refers to emissions trading, the Clean Development Mechanism and Joint Implementation. These are mechanisms defined under the Kyoto Protocol intended to lower the overall costs of achieving its emissions targets. These mechanisms enable Parties to achieve emission reductions or to remove carbon from the atmosphere cost-effectively in other countries. While the cost of limiting emissions varies considerably from region to region, the benefit for the atmosphere is in principle the same, wherever the action is taken.
Carbon pricing is a method for nations to address climate change. The cost is applied to greenhouse gas emissions in order to encourage polluters to reduce the combustion of coal, oil and gas – the main driver of climate change. The method is widely agreed and considered to be efficient. Carbon pricing seeks to address the economic problem that emissions of CO2 and other greenhouse gases (GHG) are a negative externality – a detrimental product that is not charged for by any market.
The Carbon Pollution Reduction Scheme was a cap-and-trade emissions trading scheme for anthropogenic greenhouse gases proposed by the Rudd government, as part of its climate change policy, which had been due to commence in Australia in 2010. It marked a major change in the energy policy of Australia. The policy began to be formulated in April 2007, when the federal Labor Party was in Opposition and the six Labor-controlled states commissioned an independent review on energy policy, the Garnaut Climate Change Review, which published a number of reports. After Labor won the 2007 federal election and formed government, it published a Green Paper on climate change for discussion and comment. The Federal Treasury then modelled some of the financial and economic impacts of the proposed CPRS scheme.
EU Allowances (EUA) are climate credits (or carbon credits) used in the European Union Emissions Trading Scheme (EU ETS). EU Allowances are issued by the EU Member States into Member State Registry accounts. By April 30 of each year, operators of installations covered by the EU ETS must surrender an EU Allowance for each tonne (1,000 kg) of CO2 emitted in the previous year. The emission allowance is defined in Article 3(a) of the EU ETS Directive as being "an allowance to emit one tonne of carbon dioxide equivalent during a specified period, which shall be valid only for the purposes of meeting the requirements of this Directive and shall be transferable in accordance with the provisions of this Directive".
Carbon emission trading (also called carbon market, emission trading scheme (ETS) or cap and trade) is a type of emission trading scheme designed for carbon dioxide (CO2) and other greenhouse gases (GHG). It is a form of carbon pricing. Its purpose is to limit climate change by creating a market with limited allowances for emissions. This can lower competitiveness of fossil fuels and accelerate investments into low carbon sources of energy such as wind power and photovoltaics. Fossil fuels are the main driver for climate change. They account for 89% of all CO2 emissions and 68% of all GHG emissions.
Climate change in New Zealand involves historical, current and future changes in the climate of New Zealand; and New Zealand's contribution and response to global climate change. Summers are becoming longer and hotter, and some glaciers have melted completely and others have shrunk. In 2021, the Ministry for the Environment estimated that New Zealand's gross emissions were 0.17% of the world's total gross greenhouse gas emissions. However, on a per capita basis, New Zealand is a significant emitter, the sixth highest within the Annex I countries, whereas on absolute gross emissions New Zealand is ranked as the 24th highest emitter.
The Chinese national carbon trading scheme is an intensity-based trading system for carbon dioxide emissions by China, which started operating in 2021. This emission trading scheme (ETS) creates a carbon market where emitters can buy and sell emission credits. The scheme will allow carbon emitters to reduce emissions or purchase emission allowances from other emitters. Through this scheme, China will limit emissions while allowing economic freedom for emitters. China is the largest emitter of greenhouse gases (GHG) and many major Chinese cities have severe air pollution. The scheme is run by the Ministry of Ecology and Environment, which eventually plans to limit emissions from six of China's top carbon dioxide emitting industries. In 2021 it started with its power plants, and covers 40% of China's emissions, which is 15% of world emissions. China was able to gain experience in drafting and implementation of an ETS plan from the United Nations Framework Convention on Climate Change (UNFCCC), where China was part of the Clean Development Mechanism (CDM). China's national ETS is the largest of its kind, and will help China achieve its Nationally Determined Contribution (NDC) to the Paris Agreement. In July 2021, permits were being handed out for free rather than auctioned, and the market price per tonne of CO2e was around RMB 50, far less than the EU ETS and the UK ETS.
Greenhouse gas emissions by Australia totalled 533 million tonnes CO2-equivalent based on greenhouse gas national inventory report data for 2019; representing per capita CO2e emissions of 21 tons, three times the global average. Coal was responsible for 30% of emissions. The national Greenhouse Gas Inventory estimates for the year to March 2021 were 494.2 million tonnes, which is 27.8 million tonnes, or 5.3%, lower than the previous year. It is 20.8% lower than in 2005. According to the government, the result reflects the decrease in transport emissions due to COVID-19 pandemic restrictions, reduced fugitive emissions, and reductions in emissions from electricity; however, there were increased greenhouse gas emissions from the land and agriculture sectors.
The New Zealand Emissions Trading Scheme is an all-gases partial-coverage uncapped domestic emissions trading scheme that features price floors, forestry offsetting, free allocation and auctioning of emissions units.
Although it is a worldwide treaty, the Kyoto Protocol has received criticism.
The Climate Change Response Act 2002 is an Act of Parliament passed by the New Zealand Government.
The Kyoto Protocol was an international treaty which extended the 1992 United Nations Framework Convention on Climate Change. A number of governments across the world took a variety of actions.
The Clean Energy Act 2011 was an Act of the Australian Parliament, the main Act in a package of legislation that established an Australian emissions trading scheme (ETS), to be preceded by a three-year period of fixed carbon pricing in Australia designed to reduce carbon dioxide emissions as part of efforts to combat global warming.
A carbon pricing scheme in Australia was introduced by the Gillard Labor minority government in 2011 as the Clean Energy Act 2011 which came into effect on 1 July 2012. Emissions from companies subject to the scheme dropped 7% upon its introduction. As a result of being in place for such a short time, and because the then Opposition leader Tony Abbott indicated he intended to repeal "the carbon tax", regulated organizations responded rather weakly, with very few investments in emissions reductions being made. The scheme was repealed on 17 July 2014, backdated to 1 July 2014. In its place the Abbott government set up the Emission Reduction Fund in December 2014. Emissions thereafter resumed their growth evident before the tax.
South Korea’s Emissions Trading Scheme (KETS) is the second largest in scale after the European Union Emission Trading Scheme and was launched on January 1, 2015. South Korea is the second country in Asia to initiate a nationwide carbon market after Kazakhstan. Complying to the country’s pledge made at the Copenhagen Accord of 2009, the South Korean government aims to reduce its greenhouse gas (GHG) emissions by 30% below its business as usual scenario by 2020. They have officially employed the cap-and-trade system and the operation applies to over 525 companies which are accountable for approximately 68% of the nation’s GHG output. The operation is divided up into three periods. The first and second phases consist of 3 years each, 2015 to 2017 and 2018 to 2020. The final phase will spread out over the next 5 years from 2021 to 2025.
↑ Bertram, Geoff; Terry, Simon (April 2008). The Carbon Challenge: Response, Responsibility, and the Emissions Trading Scheme(PDF). Sustainability Council of New Zealand. Archived from the original(PDF) on 14 October 2008. Retrieved 14 July 2010. The New Zealand ETS is not a cap-and-trade scheme because there is no cap. The NZUs to be traded under the ETS are not shares in a fixed total volume of allowed emissions. (p 35.)
↑ "ETS deficient law" (Press release). Business New Zealand. 11 September 2008. Archived from the original on 24 November 2012. Retrieved 20 June 2012.
Bullock, David (March 2009), The New Zealand Emissions Trading Scheme: A step in the right direction?(PDF), Institute of Policy Studies Work Paper 09/04, The Institute of Policy Studies Victoria University of Wellington. A 52-page report on the policy background to and detail of the 2008 NZ ETS.
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