Climate Change Response Act 2002

The Climate Change Response Act 2002 contains the legal framework which enables New Zealand to meet its international climate change obligations. The Act was amended in 2008 to encompass the New Zealand Emissions Trading Scheme (NZ ETS) which is New Zealand’s principal response for reducing domestic emissions and its primary mechanism to meet international emissions reduction commitments. The Environmental Protection Authority is responsible for the day-to-day administration of the ETS as well as compliance and enforcement. There is no fixed cap on total emissions (and no stated plans to do so), which implies that there is no restriction on the supply of emission units, and hence no strong enough price to constrain the overall level of emissions.  It is important to recognise emissions pricing has an important role but to be effective it needs to be embedded in a wider package of mitigation policies and actions. 

The New Zealand Emissions Trading Scheme 

Participants

Most New Zealanders do not participate directly in the NZ ETS. The point of obligation is at the top of the supply chain for each sector (i.e. the importer or producer). The exception being Agriculture where the point of obligation lies with the processor rather than the farmer (producer) The costs are intended to be passed down the supply chain to influence thebehaviourof consumers. ³⁶⁷⁷  The following sectors are required to participate in the ETS:

Forestry

Forest land is defined as an area of land of at least 1 hectare with forest species that has, or is likely to have, tree crown cover of more than 30 percent on each hectare. Forest species are trees capable of reaching 5 metres in height at maturity in the place where it is located, excluding tree species grown primarily for the production of fruit and nut crops. ³⁶⁷⁸

These obligations apply only to exotic forests, not indigenous forests. ³⁶⁷⁹

Pre-1990 Forests

The NZ ETS, like the Kyoto Protocol, distinguishes between land that was forested on 31 December 1989 and forest land established since that date.  The intention is that deforestation of pre-1990 forests will reduce and more new forests will be planted under the NZ ETS. ³⁶⁸⁰

NZUs cannot be earned for carbon stored in pre-1990 forests. However, owners of pre-1990 forests are liable for emissions resulting from the deforestation of such land (more than 2 hectares over a 5 year period). ³⁶⁸¹  An exemption applies for owners of forest land under 50 hectares. ³⁶⁸²

Owners of pre-1990 forest land received a one-off allocation of NZUs to help offset any decrease in land value due to decreased land-use flexibility. ³⁶⁸³  Pre-1990 forest land owners can buy NZUs from the Government at a fixed price of $25 per NZU.

The NZ ETS allows for forestry offsetting; an owner of pre-1990 forest land may deforest without deforestation liabilities provided they plant a new carbon equivalent forest by direct planting (not natural regeneration) on another area of land. ³⁶⁸⁴

Later Forests

Owners of applicable forests planted after 31 December 1989 can choose to enter the NZ ETS and earn NZUs for increases in the carbon stock of their forest as a result of growth. ³⁶⁸⁵ However, they will be required to surrender NZUs if carbons stocks decrease, for example when a forest is harvested or burns down. ³⁶⁸⁶ The participant is not required to surrender a greater number of NZUs than they received for carbon removed by the forest. ³⁶⁸⁷

Liquid fossil fuels

Liquid fossil fuels include petrol, diesel, aviation gasoline, jet kerosene, light fuel oil and heavy fuel oil. Fuel used for international aviation and marine transport are exempt from the NZ ETS. ³⁶⁸⁸

Importers or wholesalers of more than 50,000 litres of liquid fossil fuel are required to participate in the NZ ETS. ³⁶⁸⁹  Large purchasers may voluntarily become participants and surrender emission units instead of the importer or refiner. ³⁶⁹⁰  They may be motivated to do so if they can manage the costs of emissions trading better than their suppliers.

Importers and wholesalers of liquid fossil fuels have obligations to report their activities and surrender New Zealand Units (NZUs).

Importers and wholesalers of liquid fossil fuels are only required to surrender one NZU for every two tonnes of emissions. This was intended to be a transitional measure ending in December 2012 but has been extended indefinitely to allow households and businesses to manage the effects of the global financial crisis. ³⁶⁹¹  Participants can also buy NZUs from the Government at a fixed price of $25 per NZU.

Importers and refiners of liquid fossil fuels do not receive an allocation of NZUs because they are not trade exposed and are able to pass the costs of their NZ ETS obligations onto their customers. ³⁶⁹²

The fisheries sector was given a one-off allocation of free NZUs ³⁶⁹³ to compensate for any fall in the value of fishing quota licenses resulting from an increase in the cost of fuel under the NZ ETS. ³⁶⁹⁴

Stationary energy

Stationary energy sector participants include importers and miners of fossil fuels used in electricity generation and the direct production of industrial heat, as well as users of geothermal energy. ³⁶⁹⁵  It does not include transport energy, emissions from industrial processes, or heating of commercial or residential facilities. ³⁶⁹⁶

Large purchasers may voluntarily become participants and surrender units instead of the importer or miner. ³⁶⁹⁷  They may be motivated to do so if they can manage the costs of emissions trading better than their suppliers.

Stationary energy sector participants have obligations to report their activities and surrender NZUs.

Stationary energy participants are only required to surrender one NZU for every two tonnes of emissions This was intended to be transitional measure ending in December 2012 but has been extended indefinitely to allow households and businesses to manage the effects of the global financial crisis. ³⁶⁹⁸  Participants can also buy NZUs from the Government at a fixed price of $25 per NZU.

Stationary energy sector participants do not receive an allocation of NZUs, as most of their products are not trade-exposed (although coal could be considered trade-exposed; however mining is not considered very emission intensive).

Industrial processes

Industrial process participants include producers of iron, steel, aluminium, clinker, burnt lime, glass and gold.

Industrial process participants have obligations to report their emissions and surrender NZUs under the NZ ETS. ³⁶⁹⁹

Industry participants are currently required to surrender only one NZU for every two tonnes of emissionsThis was intended to be transitional measure ending in December 2012 but has been extended indefinitely to allow households and businesses to manage the effects of the global financial crisis. ³⁷⁰⁰ Participants can also buy NZUs from the Government at a fixed price of $25 per NZU. ³⁷⁰¹

Synthetic gases

Three classes of synthetic greenhouse gases are included in the NZ ETS: hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) which are used as refrigerants, and sulphur hexafluoride (SF₆) used in electricity transmission.

Bulk importers of HFC and PFC and users of SF₆ in operating electrical equipment (above a prescribed threshold) are required to be registered with the NZ ETS and have obligations under the NZ ETS.

Synthetic gas participants do not receive an allocation of NZUs.

Importers of goods which contain HFCs or PFCs are subject to the Synthetic Greenhouse Gas levy. ³⁷⁰²  This includes fridges, freezers, heat pumps, air conditioner, refrigerated trailers and motor vehicles (with air conditioning units). The levy is adjusted annually to keep the cost comparable to the NZ ETS. 

Waste

Landfills operators have an obligation to report emissions and surrender NZUs, arising from the methane emitted from the biodegradation of organic waste. However, small and remote landfills (in operation since before 1 January 2012) are exempt from NZ ETS. ³⁷⁰³

Landfill operators  are currently required to surrender only one NZU for every two tonnes of emissions This was intended to be transitional measure ending in December 2012 but has been extended indefinitely to allow households and businesses to manage the effects of the global financial crisis. Participants can also buy NZUs from the Government at a fixed price of $25 per NZU. ³⁷⁰⁴

Landfill operators do not receive an allocation of NZUs.

Agriculture

Agriculture is New Zealand’s largest source of greenhouse gas emissions, with almost 50% of New Zealand’s emissions coming from on-farm methane and nitrous oxide (where there are limited abatement opportunities currently available). ³⁷⁰⁵ There is currently no specified date when agriculture will enter the NZ ETS ³⁷⁰⁶ although there are some existing reporting obligations for meat processors, dairy processors, fertiliser manufacturers and importers, and live animal exporters. ³⁷²⁰

Industrial Allocations

In order to prevent NZ businesses being unfairly disadvantaged when their competitors overseas don’t face a carbon cost, entities engaged in the production of emission intensive and trade exposed goods may receive an allocation of NZUs. Industry sectors carrying out ‘Eligible Industrial Activities’ (activities considered emission intensive and trade exposed) can apply for an allocation of NZUs. These include certain horticulture activities such as the production of fresh tomatoes, fresh cucumbers, fresh capsicums, and cut roses. Products that are not internationally traded, including electricity, are not considered to be trade-exposed; therefore it is possible to pass-on ETS costs because there is no international competition.

Obligations

Participants are required to monitor and report on their own activities. They must collect prescribed data, calculate emissions and removals in accordance with prescribed methodologies, and retain records of data and calculations. Data and calculations may be required to be verified. ³⁷⁰⁸

Participants must submit an annual emissions return recording the participant’s activities, emissions and removals, and an assessment of the participant’s emission unit liability or entitlement. ³⁷⁰⁹

Non-forestry participants are required to surrender one emission unit for every two tonnes of greenhouse gas emissions that the participant is responsible for.

Participants may purchase NZUs or applicable Kyoto units ³⁷¹⁰ from domestic suppliers or from the international market. When Kyoto units are purchased on the international market the Registrar is required to notify the international transaction log under the Kyoto Protocol and may only register the transaction once notified that there are no discrepancies in the transaction. ³⁷¹¹

Allocations

The Government provides assistance to some sectors by providing them with NZUs free of charge to compensate for the loss of asset value resulting from the ETS or mitigate ETS-related costs increases for eligible business. There are three groups eligible for allocation:

• Firms whose activities are emissions intensive and who are exposed to international trade;
• Fishing; and
• Forestry.

Businesses that can pass on the costs of the ETS to their customers, including fuel and electricity companies, do not receive any allocation of NZUs. 

New Zealand Emission Unit Registry

The Climate Change Response Act 2002 established a registry to ensure the accurate accounting of emission units under the Kyoto Protocol. Participants are required to open holding accounts in the registry ³⁷¹² and when they surrender emission units these are moved from their holding account to a surrender account. ³⁷¹³

Enforcement, Offences and Penalties

Enforcement officers may: ³⁷¹⁴

-  Require a person to provide any information reasonably necessary for ascertaining whether a person is complying with the ETS
-  Enter premises to investigate whether a person is complying with the ETS
-  Inspect documents, take samples, carry out surveys
-  Apply for a warrant to search premises and seize relevant documents

The EPA may require an inquiry to be held before an enforcement officer, the chief executive of the department responsible for the ETS or a District Court Judge. ³⁷¹⁵

The following offences (without reasonable excuse) may result in a fine of up to $24,000: ³⁷¹⁶

-  Failure to register as a participant
-  Non-compliance with monitoring, reporting and record-keeping requirements
-  Failure to submission an emissions return

More serious offences involving knowingly failing to comply with certain provisions can result in a fine of up to $50,000. ³⁷¹⁷

Most serious offences involving intent to deceive can result in imprisonment for up to 5 years and a fine of up to $50,000. ³⁷¹⁸

A person who fails to surrender emission units by the due date is liable to surrender or cancel emission units as required and pay an excess emissions penalty of $30 per emission unit. ³⁷¹⁹

In principle decisions on Emissions Trading Scheme

On 27 July 2017, the Government announced a package of changes to the NZ ETS set out in a Cabinet Paper (Cabinet Paper) which built on a report released by the Ministry for the Environment (MFE) in February 2016 (Report). The Report sets out the outcomes from stage two of the review of the NZ ETS which assessed the operation and effectiveness of the NZ ETS in light of the Paris Agreement and New Zealand's 2030 emission reduction target. That review has informed four in-principle decisions which are set out in the Cabinet Paper:

• introducing the auctioning of NZ ETS units (NZUs);
• limiting the use of international units when the NZ ETS reopens to international carbon markets;
• developing a different price ceiling to replace the current $25 fixed price option; and
• coordinating decisions on the supply settings in the NZ ETS over a rolling five-year period.

In-principle decision regarding auctioning

The Government has agreed to introduce auctioning into the NZ ETS with the aim of establishing an auctioning mechanism by 2020. Auctions are a way for the Government to sell NZUs at the market price through a competitive bidding process and are a common feature of many emissions trading schemes internationally. Section 30G(1)(p) of the Climate Change Response Act 2002 (CCRA) already provides a regulation making power to implement an auctioning mechanism. To  datethat power has not been used. Before auctioning commences, the Government would need to set a limit as to how many NZUs can be auctioned each year. 

International units

In the past, international units were needed to meet New Zealand's targets. New Zealand imported a sufficient number of international units to meet and surpass its targets, instead of meeting targets with action in New Zealand. Since New Zealand declined to adhere to an extension of Kyoto Protocol at Doha in 2012, international units are no longer available to New Zealand. The future availability and price of international units will depend on upcoming negotiations at COP23.

A different price ceiling

The current $25 fixed price option allows NZ ETS participants to meet their obligations by paying the Crown $25 instead of surrendering an NZU. It is anticipated that in the 2020s the price of an NZU will go above $25 therefore the Government intended to review various different options to replace this system. The Cabinet Paper sets out the various elements that will be considered, including the price level, whether it should be volume-limited and whether processes need to be put in place to manage the price ceiling over time. The Cabinet Paper recommends that the $25 fixed price option be kept in place at least until auctioning or links with international markets are established.

Coordination of decision-making

Following clear feedback from NZ ETS participants that more regulatory predictability is needed for the NZ ETS to work effectively, the Government intends to use a rolling five-year period to provide a forward-looking view of NZ ETS settings. This means that key settings and unit volumes will be set five years into the future, and updated every year. Decisions relating to the above in-principle decisions would also be made according to this schedule. 

Forestry

Many international ETS programmes exclude forestry as it is seen as a temporary carbon sink rather than delivering permanent emission reductions. This is because forests act as a carbon sink only while they are growing and once harvested, the carbon can be released back into the atmosphere. The New Zealand Government has signalled that they are keen to continue working with the forestry sector and enable forestry to remain in the NZ ETS which may have an impact on any potential international linking opportunities with other ETS programmes.

The Government is continuing to address issues in the forestry sector including reviewing the forestry accounting approach which determines how many NZUs can be received as forests grow and how many need to be returned to the Crown if the forests are harvested or deforested. The Government has recognised that the liabilities at harvest can act as a barrier to landowners and foresters participating in the NZ ETS and encourage new planting. 

The NZ ETS review is also focused on identifying a range of improvements to forestry operational settings and how the NZ ETS aligns with other carbon forestry schemes, including bringing the administration of the Permanent Forest Sink Initiative under the CCRA. These improvements would reduce complexity for both forestry participants and the Crown.

Officials from MFE and the Ministry for Primary Industries (MPI) are expected to report back to Cabinet on an integrated package of forestry decisions, including advice on potential NZ ETS changes, by 30 June 2018.

Agriculture

When the review of the NZ ETS was initiated in 2008, consideration of agricultural emissions was specifically excluded. It was intended that agricultural emissions would be considered separately by a specialised group. In August 2016, the Government formed the Biological Emissions Reference Group (BERG) to seek consensus on what can be done to; reduce emissions and meet New Zealand's 2030 emissions target; create a wide base of scientific evidence to support emissions targets; and minimise costs.

The terms of reference included discussion of the policy options to:

• address New Zealand’s absolute greenhouse gas emissions, including biological emissions;
• examine where the liability for the primary industries’ greenhouse gas emissions sit over the longer term; and
• develop an economy-wide emissions reduction pathway over the longer term, which includes examining measures to address biological greenhouse gas emissions.

BERG has met 11 times since its inception and the Government expects to receive its final report in late 2017.

TransportOn 5 May 2016, the Government announced its Electric Vehicles Programme. This includes measures to increase the number of electric vehicles in New Zealand and has a goal of reaching approximately 64,000 electric vehicles on our roads by the end of 2021. More detail about the development of the Electric Vehicles Programme can be found here.

The Government’s aim is to help develop the electric vehicle market in New Zealand by reducing some of the barriers and investigating ways to further support the uptake of electric vehicles.

On 15 August 2017, the Transport and Industrial Relations Select Committee delivered a report which detailed its inquiry into the future of New Zealand's mobility. The report was commissioned in December 2015 to investigate how changing transport technology, and social and economic trends could enhance productivity in the economy, reduce transport costs, and optimise transport infrastructure.

The report suggests that the Government:

• investigates and develops a targeted procurement programme of electric vehicles in the state sector, and ensure that there are adequate recharging stations to support such a programme;
• develop a trial programme in conjunction with a local authority, commercial entity and the Ministry of Transport to develop a body of evidence on the viability of electric vehicle usage in a dense CBD environment;
• develop a star standard system noting electric vehicles' all-of-life costs in comparison to an equivalent-sized internal combustion vehicle; and
  
• continue to scale up the successful Urban Cycleway Fund and adopt best-practice cycle facility design standards from countries that have a high cycling uptake.

Last updated at 2:38PM on April 18, 2018