Minister for Climate Change Issues and Minister for the Environment
Minister of Finance and Minister for Infrastructure
Minister of Energy and Resources
Minister of Agriculture and Minister of Forestry
Minister of Foreign Affairs
Minister of Conservation
Minister of Research, Science and Technology..
Secretary for the Environment
On behalf of the Climate Change Governance Group
- To provide an overview of the climate change work programme, including issues and decisions Ministers must consider in the near future. Detailed information on individual areas of the climate change programme will be provided through individual departmental briefings.
- Human-caused emissions of greenhouse gases are causing the atmosphere to warm at an unprecedented rate. The consequent climate change will have significant impacts on the environment and our way of life.
- New Zealand must both adapt to climate change and contribute to international efforts to reduce greenhouse gas emissions.
- Climate change policy is inherently complex, difficult and contentious. It requires long term and significant changes to behaviour across the economy, with some sectors being affected more than others.
- The current global financial crisis will have implications for international and domestic climate change policy. This issue will be examined at coming international negotiations, and through the current review of New Zealand’s domestic work programme.
- New Zealand produces only a small proportion of global greenhouse emissions (0.2 per cent), although our per-capita emissions are high by international standards. New Zealand’s emissions profile is different from other developed countries, with almost half of our emissions coming from agriculture.
- The Kyoto Protocol commits New Zealand to reducing its greenhouse gas emissions to 1990 levels, on average, over the period 2008 to 2012, or to take responsibility for any emissions above this level if it cannot meet the target. Emissions are currently about 25 per cent above 1990 levels.
- Climate change policy is developed through a cross-government process, led by the Ministry for the Environment. The cornerstone policy is the New Zealand Emissions Trading Scheme (NZ ETS), which has recently passed into law.
- This legislation provides a sound framework for the NZ ETS that can be adapted and changed as needed. Ensuring all major-emitting sectors pay at least some proportion of the cost of their emissions creates a strong incentive to reduce emissions.
- Key implementation challenges are to make the NZ ETS fully operational, keep it as simple as possible, and to be responsive if and when problems arise. Other key work areas in the climate change programme include:
- international negotiations and reporting
- adapting to the effects of climate change
- delivering the Sustainable Land Management and Climate Change Plan of Action
- transitioning to a more renewable and efficient low carbon energy sector (including transport)
- research to assist the identification and understanding of climate change impacts on New Zealand
- technology development to assist our response and to capitalise on opportunities.
- The future shape of climate change policy will be influenced by:
- the outcome of international negotiations on post- 2012 global emissions reduction targets
- increased understanding of the science and socio-economics of climate change
- the policy settings for the implementation of the NZ ETS
- the best mix of the NZ ETS with other complementary measures to reduce emissions
- decisions on the future objectives and scope of the climate change work programme.
- The Ministry for the Environment is coordinating a cross-government review of the climate change programme to ensure it is well co-ordinated, appropriately resourced, able to deliver the expected benefits to New Zealand, and minimises adverse impacts. The review will consider priorities for the climate change programme and the best mix of initiatives within it. The review will also take into account the effects of the NZ ETS.
- The next milestone is a report to Cabinet in February 2009 with the proposed cross government climate change objectives and the review plan, so Ministers can consider the scope and timing for the rest of the review process.
- Human-caused emissions of greenhouse gases are causing the atmosphere to warm at an unprecedented rate. New Zealand average surface air temperature has already increased by 0.9°C since early last century. It is projected to increase, compared to 1990 levels, about a further 1°C by around 2040 and about 2°C by around 2090.
Why do we need to take action?
- If global greenhouse gas emissions are not reduced significantly, the impacts of climate change are likely to get worse, and the costs more severe. The costs of taking action now are less than the costs of responding later.
- Deciding on what level of greenhouse gas emissions, and the consequent temperature effects, represents "dangerous climate change" is a political and societal judgment.
- International scientific advice has produced a range of emission reduction scenarios with different global warming outcomes. United Nations negotiations have recognised that deep cuts in global emissions will be required, and have gravitated towards the lowest of the current scenarios for developed countries1; but this has not yet been agreed.
- The chart below shows the projected change in emissions by sector from 1990 to the first commitment period of the Kyoto Protocol (2008-2012). The change is the total change for the five years of the first commitment period relative to emissions during 1990. The chart also shows removals by Article 3.3 Kyoto Protocol forests and projected emissions from deforestation during the first commitment period.
Projected change in emissions and removals from 1990 to the first commitment period of the Kyoto Protocol (2008-2012)
- New Zealand is unusual amongst developed nations in the share of greenhouse gas emissions that comes from agriculture. Nearly half of New Zealand's total emissions are produced by agriculture, predominantly methane from farm animals and nitrous oxide from soils and fertilisers.
- However, the principal growth in New Zealand's emissions comes from increased carbon dioxide, primarily from the energy sector which has grown by almost 45 per cent relative to 1990 emissions. Most of this increase has come from transport (65% increase in emissions) and electricity generation (138% increase in emissions).
- Even with current and future actions to reduce emissions, we also need to adapt to the effects of emissions that have already occurred.
- The projected environmental impacts of climate change in New Zealand include:
- sea level rise – leading to increased coastal erosion and inundation, additional flooding from storm surge, salination of groundwater and drainage problems
- more extreme weather events, including droughts, heavy rainfall, severe winds and storms, and floods
- changed rainfall patterns – more rain in the west and south of New Zealand and less in the east and north
- significant impacts on components of New Zealand’s natural heritage and biodiversity, such as valley glaciers and snowfields, and extinction or reduction in the numbers and range of indigenous plants and animals
- increased risk from tropical pests and diseases that thrive in warmer temperatures and further spread of existing exotic pest species.
Economic and social impacts
- While there is significant uncertainty about the precise costs of inaction, climate change will have significant implications for the New Zealand and global economies.
- Climate change will affect our society and way of life. For example, changing weather conditions may make some areas more or less attractive to live, or change patterns of economic production. Changing rainfall patterns and droughts may affect the water supplies of some communities, or make water-intensive land use marginal in some areas. The cost of energy (electricity and fossil fuels) may increase, and transport services and some consumer products may rise in price.
- New Zealand’s economy is strongly dependent on natural systems. For example, our agricultural, forestry and horticultural sectors are supported by ample water supplies, a temperate climate, fertile soils, and a protective cover of vegetation on steep slopes. Climate change may mean growing seasons increase, or vary from the current norms, and extreme weather events will have direct effects on the primary production sector.
- New Zealand’s biodiversity and landscapes underpin our international brands of “100% Pure” and “clean and green”, and our natural environment is a primary attraction for international visitors. Many elements of New Zealand’s natural heritage, such as alpine areas and the coast, are particularly vulnerable to the effects of climate change.
- Climate change will affect “ecosystem services” provided by the natural world. For example, changed rainfall patterns may alter the capacity of New Zealand rivers to supply freshwater and disperse pollution. Extreme climatic events such as floods, droughts and storms, which are expected to increase in intensity and frequency, also have a direct economic cost on the primary sector and infrastructure.
- Climate change will also affect New Zealand industries and occupations, through changing conditions for sectors such as agriculture, fisheries and forestry, or the effects of mitigation policies and technological changes. The cost of energy (electricity and fossil fuels) may increase, and transport services and some consumer products may rise in price. This may affect New Zealand’s international competitiveness in either a positive or negative way, depending on the impacts and policies in other countries.
- New Zealand is also unlikely to escape the consequences of climate change in other parts of the globe. This includes the likely inundation of Asian mega-deltas, severe water scarcity in parts of Asia, or, closer to home, the possibility of environmental refugees from low-lying Pacific islands.
Impacts on Māori
- The natural environment is central to Māori values, beliefs and identity. For centuries Māori have had a strong connection to the natural world through their resource management practices. Climate change is now affecting these practices and the relationship of Māori with the environment and their use of natural resources.
- Māori are seeking to achieve environmental and sustainability aspirations through the development and management of natural resources. The Māori asset base is concentrated in primary production and processing and is dependent on the natural resources of land, water and fisheries. For Māori, the development and management of these resources requires a balance between their economic and cultural sustainability aspirations.
- A changing climate creates opportunities as well as risks. These include opportunities resulting directly from a changing climate, for example, the ability to grow new kinds of commercial crops. Opportunities also will arise from the policy framework to address climate change, for example there is a rapidly growing market for technology that is energy efficient or produces less greenhouse gas emissions, or products that are produced with a low “carbon footprint”.
Global financial crisis
- The current global financial crisis will have implications for international and domestic climate change policy. This issue will be examined at the December 2008 informal Finance Ministers' meeting on climate change, to be held in Warsaw (New Zealand has been invited), and at December 2008 UN climate change negotiations in Poznan. The likely implications of the crisis will also be considered through the current review of New Zealand’s climate change work programme.
- New Zealand has a broad range of commitments under the United Nations Framework Convention on Climate Change (UNFCCC). In 2002 New Zealand also ratified the Kyoto Protocol to the UNFCCC, which sets legally binding emission reduction commitments for developed countries.
- New Zealand has committed under the Kyoto Protocol to reducing greenhouse gas emissions back to 1990 levels, on average, over the period 2008 to 2012, or to take responsibility for any emissions above this level. New Zealand can take responsibility for excess emissions in a number of ways, such as purchasing emission units on the international market.
- New Zealand is in the process of negotiating future responsibilities under the UNFCCC and the Kyoto Protocol. The growing global expectation for action on climate change, and consumer demand for sustainably derived products, means there are multiple and increasing demands for New Zealand to take on greater responsibility for greenhouse gas emissions.
New Zealand’s response to climate change
- Climate change policy is inherently complex, difficult and contentious. It requires long term and significant changes to behaviour across the economy, with some sectors being affected more than others.
- In 2002 the government launched a Climate Change Policy package, including development of a carbon tax on energy, industrial, and transport emissions. The government cancelled the introduction of a carbon tax in 2005, and considered other options through a review of climate change policy.
- The review focused on climate change as a long term strategic issue for New Zealand within the broader context of economic transformation, sustainability, national identity, and issues such as energy, water quality and flood control. The review concluded climate change policy needs to consider a far longer period than the five years of Kyoto Protocol commitments, and must:
- be long term and strategic
- balance durable efforts to reduce emissions with preparations for the impacts of a more variable climate
- engage with and inspire the wider public and business to energise willing, effective and long term involvement
- involve international engagement that advances our national interests.
Current climate change programme
- In 2006 the government approved a new whole-of-government climate change programme, involving multiple policy areas and initiatives managed by a wide range of government agencies. The programme applied a broad mix of instruments to tackle climate change relevant to our national circumstances (e.g. our relatively high proportion of agricultural emissions).
- The programme’s cornerstone policy is now the NZ ETS, which over a period of time will introduce a price on greenhouse gas emissions and provide incentives to reduce emissions and enhance forest sinks. The Climate Change (Emissions Trading) Amendment Act achieved Royal Assent on 25 September 2008. This Act creates the legislative framework for an emissions trading system. Annex I summarises the main features of the NZ ETS.
- The Electricity (Renewable Preference) Amendment Act also received Royal Assent on 25 September 2008. This Act creates a preference for renewable electricity generation through a 10 year restriction on new baseload fossil fuelled thermal electricity generation capacity, except where an exemption is appropriate (for example, to ensure security of supply). Considerations for Ministers in relation to this matter will be signalled in the Ministry of Economic Development’s Vote Energy departmental briefing.
Governance arrangements for climate change programme
- The diagram at Annex II summarises governance arrangements for climate change policy. Annex III lists all current projects in the work programme.
- Under the previous government, the Minister of Finance and the Minister Responsible for Climate Change Issues took joint responsibility for the development of the NZ ETS, while the Minister Responsible for Climate Change Issues coordinated climate change policy in general. The Minister of Agriculture and Forestry is responsible for climate change policy affecting the land based primary sectors.
- The Minister responsible for Climate Change Issues has a wide range of statutory powers under the Climate Change Response Act 2002, which are listed in the departmental briefing to the incoming Ministers for the Environment and Climate Change Issues. The Ministers of Finance and Energy also have statutory powers under the Climate Change Response Act.
- Climate change policy is coordinated through an all-of-government structure, led by a Climate Change Governance Group of chief executives across the core agencies with climate change responsibilities. This group provides strong governance, oversight and high level strategic direction to the work programmes.
- A Strategic Advisory Group of deputy secretaries and senior managers supports the Governance group and provides strategic and operational guidance to the various working groups.
- Policy work on climate change is led by the Ministry for the Environment and coordinated through cross-agency working groups, with the exception of policy relating to the land based sectors which is led by the Ministry of Agriculture and Forestry. The emissions trading legislation was developed by an Emissions Trading Group on secondment from different agencies, based at the Treasury. This group is now permanently located at the Ministry for the Environment, and is focused on implementation of the NZ ETS. The Ministry of Economic Development provides the administration functions for the ETS, including the unit register.
Consultation on policy development
- Climate change policy has involved considerable dialogue with sectors, the public, Māori and interested groups. Consultation since 2007 has focused on development of the NZ ETS.
- The Climate Change Leadership Forum was established in September 2007 to facilitate communication between the government and the broader community. Technical Advisory Groups (TAGs), including representatives from relevant sectors and government agencies, have been established to contribute to technical design elements and regulations. TAGs were established for the following sectors:
- The Ministry of Agriculture and Forestry has established a Peak Group of leaders in the land based sectors to provide strategic direction for implementing the Sustainable Land Management and Climate Change Plan of Action. The group is supported by three technical working groups on research and technology transfer, adaptation and business opportunities. An Agriculture Technical Advisory Group has also been convened to provide advice on the point of obligation for agriculture and allocation issues.
- Stakeholder sessions are held by the Ministry of Foreign Affairs and Trade and the Ministry for the Environment ahead of the major international negotiating meetings. The Ministry for the Environment is currently designing a consultation plan for pending international negotiations.
- Māori have been involved in the development of climate change policy, through an Iwi Leaders Group (2 members sit on the Climate Change Leadership Forum), the Māori Reference Group Executive (MRGE) and the Māori Reference Group (13 members nominated by Māori across the country).
- Officials work with the MRGE who provide feedback from both the Iwi Leaders Group and Māori Reference Group. Maori issues are also represented on the Ministry for Agriculture and Forestry’s Peak Group and on some of the technical working groups under the Ministry’s climate change work programme. A MRGE representative also attended the international negotiations in June 2008 and will attend the upcoming December meetings in Poland.
Key issues and decisions for climate change policy in the coming months
Implementation of the Emissions Trading Scheme
- The Climate Change (Emissions Trading) Amendment Act establishes the legal architecture for an emissions trading scheme. Further regulations will be developed to support implementation. For example, regulations will provide more detailed information on sectoral methodologies for calculating and reporting emissions.
- To allow a smooth transition across the economy, the NZ ETS will be phased in across sectors between 2008 and 2013. Key decision points and priorities (given the current design of the ETS) for implementation over the next few months are:
- January 2008 - forestry application processes and forest land recording systems “go live”
- February 2009 - a draft of the regulations for the purchase and surrender of Assigned Amount Units will be issued for consultation
- March 2009 - the Final Forestry Allocation Plan will be prepared after consideration of submissions received on the Draft Plan
- March 2009 - promulgation of stationary energy and industrial process regulations
- March 2009 - promulgation of forestry regulations for indigenous post-1989 forests.
- Complementary measures are those which can deliver cost-effective emission reductions over and above the NZ ETS. The current programme of complementary measures is under review in light of the introduction of the NZ ETS. Key work areas that we expect the government to make decisions on in the coming months include:
- decisions on the best mix of policies over and above the NZ ETS
- research to assess the sectoral impacts of the NZ ETS on competitiveness and productivity
- assessing the nature and quantity of cost effective emissions abatement that may be left untapped by the NZ ETS. This includes gaps in the coverage of the NZ ETS or the inability of emerging emission reducing technologies to attract suitable investment
- initiatives within the New Zealand Energy Strategy and New Zealand Efficiency and Conservation Strategy to encourage renewable energy and energy efficiency
- energy and transport policies and initiatives that interact with climate change and the NZ ETS objectives. Considerations for Ministers in these sectors will be signalled in the relevant departmental BIMs.
- The international climate change negotiations under the UNFCCC and its Kyoto Protocol will pose major diplomatic and policy challenges to New Zealand over the coming year. This already very complex negotiation has been made more difficult by the international financial crisis. As well as the UNFCCC negotiations, New Zealand pursues its interests through bilateral climate change partnerships with key countries, and participation in high level climate change discussions.
- The Ministry of Foreign Affairs and Trade leads New Zealand’s international climate change negotiations. Close alignment of international positions with domestic policy is ensured through interdepartmental officials’ processes. Ministerial involvement in international negotiations is essential to ensure New Zealand maintains the ability to influence negotiations where we have key interests to advance, such as the treatment of agriculture and forestry, and in respect of developing countries, especially the major emitting economies [withheld under s9(2)(j) Official Information Act]
- The first commitment period of the Kyoto Protocol expires in 2012. International negotiations under the Kyoto Protocol and the UNFCCC are under way to determine further emission reduction commitments for developed countries beyond 2012, mitigation action by developing countries, steps to address adaptation, and the financing and technology needs to deliver these.
- Negotiations are scheduled to conclude at a meeting in Copenhagen in December 2009. There is a large amount of technical work required, and it is unclear at this stage whether all details of a comprehensive international agreement could be delivered at Copenhagen, or whether more time would be needed to achieve this.
- New Zealand’s key goal in climate change negotiations is to seek a comprehensive, environmentally effective international agreement. This requires climate change action by major emitters, including the United States and major developing countries (which do not have emissions reduction targets in the current commitment period), and fair effort-sharing of emission reduction commitments.
- The international negotiation process will intensify in 2009. The UN climate change conference in December 2008 in Poznan, Poland will evaluate progress toward Copenhagen. Between these major meetings there will be several negotiating sessions for officials, and likely opportunities for Ministers to engage in formal and informal meetings to progress key issues.
- Key issues for Ministers in the near future are:
- approval (or reconfirmation) of a negotiating position for the December 2008 Poznan United Nations Climate Change Conference meeting
- consideration of attendance by the Minister for Climate Change Issues at the Poznan conference, and attendance by the Minister of Finance at a concurrent, informal meeting of finance ministers
- work on New Zealand's further commitments under the UN framework, including a further emissions reduction target, the tools that may be used to meet our commitments (including forest sinks), and financial/technology contributions to assist developing countries with emission reductions and adaptation.
- March 2009 – New Zealand is required to report its 5th National Communication under the UNFCCC, which will document progress in meeting our international climate change commitments
- New Zealand’s national inventory submission is due on April 15, 2009, this is the first annual inventory to include tables on our Kyoto Units holdings and transfers.
- The Ministry for the Environment is coordinating central government work on adaptation to climate change, with the exception of the Ministry of Agriculture and Forestry’s work with land based sectors. Current adaptation work includes:
- water/coastal issues – e.g. guidance to help local government address increased flooding and coastal hazards
- infrastructure – e.g. guidance on adapting urban stormwater and wastewater systems to deal with extreme weather events
- work with the land based sectors – e.g. developing adaptation solutions, raising awareness, providing good practice tools and delivering the Community Irrigation Fund.
- Key issues for the adaptation programme in the coming months include:
- Ministry for the Environment scoping of future work on managing flood risks, and a possible Resource Management Act National Environmental Standard on sea level rise
- Ministry of Agriculture and Forestry development of a Five Year Adaptation Programme to address the effects of a changing climate in the land based sectors. The Programme has been considered by the Peak Group and will be presented to Ministers in early 2009.
Land based sectors
- Climate change and climate change policies will have significant effects on the land based primary sector. New Zealand has an unusual emissions profile, with over half of emissions attributable to land based sectors. This presents both challenges and opportunities for climate change policy.
- The Ministry of Agriculture and Forestry, together with land based sectors, Maori and local government, is implementing a programme to ensure sectors can respond to the challenges. Key projects include:
- reducing emissions, including work on the agriculture and forestry components of the NZ ETS
- creating carbon sinks, including the Permanent Forest Sink Initiative and the Afforestation Grant Scheme
- greenhouse gas foot printing and life cycle analysis work to ensure access to higher value international markets
- a five year adaptation programme
- ongoing research to reduce emissions and adapt to climate change
- programmes to increase land managers’ awareness of climate change issues.
- Upcoming issues for the land based work programme include:
- developing regulations and an allocation plan for the forestry component of the NZ ETS
- seeking Ministerial agreement on the point of obligation for agriculture into the NZ ETS
- seeking Ministerial approval in early 2009 of the Adaptation and Business Opportunities Programmes.
- The Department of Conservation is also investigating mechanisms to maintain and enhance carbon reservoirs and sinks on public conservation land.
Decisions on the future of climate change policy
- The future shape of climate change policy will be influenced by decisions on the following issues.
The international response to climate change
- New Zealand is a small contributor of greenhouse gas emissions globally. We need other countries to take effective action to reduce global emissions if we are to avoid dangerous climate change here. New Zealand can best contribute by taking on our fair share of emissions reductions as part of an international agreement.
- New Zealand’s international commitments drive the need for the NZ ETS and other mitigation policies, which are an economic response to the commitments rather than environmental policies per se. This means that the future direction of international commitments will significantly affect our domestic policy response.
- We can expect the international community over time, and in response to climate science, to progressively broaden and deepen emission reduction efforts. What remains unknown is the pace, shape or framework for this change. There could be comprehensive or only partial coverage of global emissions in the next international agreement, a time gap in the international framework, and/or some form of regional or sectoral commitments. The pace and shape of New Zealand's mitigation response, and the priority given to adaptation policies, will need to consider this.
Future decisions on implementation of the Emissions Trading Scheme
- International obligations place a domestic cost on the NZ economy, and the implementation of an equitable and effective NZ ETS is the most efficient and fair way to distribute those costs. The objective of the NZ ETS is to minimise the long-term costs to the New Zealand economy of meeting international obligations, while maintaining economic flexibility, equity and environmental integrity.
- A sound and valuable framework for the NZ ETS is now in place that can be adapted and changed as required. Ensuring all major-emitting sectors pay at least some proportion of the cost of their emissions creates a strong incentive to reduce emissions.
- A major challenge is to make the NZ ETS fully operational and responsive to issues that arise in implementation. Because the NZ ETS will contain much operational detail in instruments such as regulations and allocation plans, there is considerable scope to adjust and finetune the implementation.
- Key future policy settings for the NZ ETS include the methodologies and plans for allocation of emissions units, and the regulations on obligations. Decisions on these instruments will determine the overall effects of the NZ ETS on the economy, and also the equity of effects across different economic sectors.
- There will be pressure to complicate the ongoing design of the NZ ETS to provide for the special circumstances of individual firms or sectors. It is important, however, that the system be kept as simple as possible to keep the policy clear and workable.
Policy mix of the broader climate change programme
- Decisions on the best mix of policies over and above the NZ ETS (complementary measures) are yet to be taken. The pre-NZ ETS absence of a strong price signal for greenhouse gas emissions resulted in a diverse climate change programme which delivered a range of outcomes and benefits to both climate change and a range of other portfolios e.g. health, energy and social wellbeing.
- Complementary policies may be justified where the NZ ETS alone is ineffective in dealing with a particular sector – for example due to a lack of information. A risk with complementary measures, however, is that they may distort the economic signals of the NZ ETS, and inhibit the long-term minimisation of costs to the economy, for no environmental gain.
- We need to consider the most efficient and effective policy mix to both reduce emissions and achieve other non-climate change goals. This will be informed by the current climate change review (see below).
Review of the climate change programme
- In July 2008, as part of the all-of-government climate change annual report, Cabinet agreed that the Ministry for the Environment would lead a review of the climate change programme.
- The purpose of the Review is to ensure that the all-of-government climate change programme is well co-ordinated and appropriately resourced, is able to deliver the expected benefits to New Zealand, and minimises adverse impacts. The review will consider the priorities for the climate change programme and the best mix of initiatives within it. The Review will also take into account the effects of the NZ ETS.
- In August 2008, the Climate Change Governance Group agreed terms of reference for the review:
- identifying any gaps or overlaps in the current programme
- ensuring that the current work programme complements and adds value to the NZ ETS
- assessing the priorities for the work programme
- identifying any work areas that are no longer needed or need to be significantly re-shaped
- identifying any new work areas that are needed, including resource implications, institutional arrangements and delivery mechanisms
- developing a comprehensive monitoring and evaluation framework for the programme (which includes identification of, and responses to, structural adjustments).
- The review is at an early stage with departments recently agreeing to proposed high level objectives. These will be presented to Ministers in due course. The next stage is to conduct a stock-take of the cross government work programme, develop assessment criteria for individual departments to assess their work programmes and to develop an assessment methodology, all by January 2009.
- The Ministry for the Environment will as soon as practical brief the Minister with responsibility for the climate change work programme on progress and seek input to the review process. A Cabinet paper will then be submitted in February 2009 with the climate change objectives and the review plan, so Ministers can consider the scope and timing for the rest of the review process. It is proposed the review start in earnest in early March 2009.
- The proposed outcome of the review is recommendations to Cabinet by July 2009 on the shape and direction of New Zealand's climate change response.
- We recommend you:
- Note the information in this briefing about the current cross-government climate change work programme
- Note that further detail on individual parts of the climate change programme are available either in departmental portfolio and overview briefings, or through briefings at your request
- Advise Chief Executives of any further information you require.
Annex I: Summary of the Emissions Trading Scheme
- The objective of the New Zealand Emissions Trading Scheme (NZ ETS) is:
That a New Zealand Emissions trading Scheme support and encourage global efforts to reduce greenhouse gas emissions by:
- reducing New Zealand’s net emissions below business as usual levels and
- complying with our international obligations, including our Kyoto Protocol obligations
while maintaining economic flexibility, equity, and environmental integrity at least cost in the long term.
What is emissions trading?
- Emissions trading is a market-based approach for achieving environmental objectives, where “emission units” are traded between participants. Those emitting greenhouse gases have to pay for increases in emissions and are rewarded for decreases.
- Emissions trading enables a flexible approach to reducing emissions, as participants are able to either reduce emissions, purchase units, or use some combination of the two.
Coverage and obligations
- The NZ ETS has an all-sectors, all-gases approach that takes advantage of all available emission-reducing activities, and results in the fairest approach to the sharing of costs.
- The emissions trading scheme covers the following sectors of the economy: forestry, liquid fossil fuels (largely transport), stationary energy, industrial processes, synthetic gases, agriculture and waste.
- Participants are required to:
- monitor, record and report activities that lead to greenhouse gas emissions in New Zealand, some of which will be the indirect result of their activities. For example, a coal producer would be required to surrender units for the coal it sells domestically, even though the actual emissions will occur when the coal is burned
- surrender emission units equal to the amount of emissions associated with their activities in each compliance period.
- Participants may acquire emission units by receiving a free allocation from the government. In addition, participants and secondary market traders can acquire emission units by:
- buying them from approved overseas sources
- buying them from another participant or secondary market trader, either by entering into a direct bilateral contract with the other party, or trading through a broker or trading exchange
- buying them from the government (although the government has no surplus units to auction at present).
- Participants may receive emission units for eligible removal activities including, but not limited to, owning eligible post-1989 forests, producing specified products with embedded emissions, or exporting synthetic gases contained in goods
Implementation of the NZ ETS
- The emissions trading scheme will be phased in across sectors between 2008 and 2013. There will be transitional assistance in the form of free allocation of units to the forestry, industrial, fishing and agriculture sectors and through funding for household energy efficiency to support their adjustment to emissions pricing.
- The emissions trading scheme will be linked to the international market in units accepted under the Kyoto Protocol, and will be able to support bilateral linkages to other domestic trading schemes in the future. The scheme is designed to be flexible to accommodate New Zealand’s future international climate change obligations.
- Further regulations will be developed to support implementation of the emissions trading scheme. For example, regulations will provide more detailed information on sectoral methodologies for calculating and reporting emissions and management of transactions under the New Zealand Emissions Unit Register.
- Implementation will involve some significant challenges and the operation will not be perfect from the outset. There are no international examples for an all-sectors, all-gases ETS. Wide consultation and working closely with stakeholders in each industry sector will be critical for successful implementation.
Key features of the ETS model
Open access to international markets
- Allowing open access to international carbon markets – both on the buy and sell side – means that the price in the NZ ETS will be driven by the international price. This will result in an efficient level of abatement occurring in New Zealand vis-à-vis international abatement, and treats carbon and emission reductions in the same way as other products are treated in the New Zealand economy.
- This feature of the NZ ETS is a key part of ensuring that we can meet New Zealand’s international climate change obligations at least cost in the long term. Placing a cap on the amount of abatement that can occur internationally (as others are doing) would increase the cost of meeting the obligations set up by Kyoto – and its successors – for very little environmental gain.
Reflecting international policy settings in domestic policies
- Underpinning the key design elements is a philosophy of reflecting (as much as possible) international climate change settings in domestic policy. Even if those international policy settings are not entirely suitable for New Zealand conditions, there is significant downside in moving significantly away from them.
- This is most obvious in the area of the treatment of pre-1990 forests (deforestation). Even though the international policy settings are not entirely appropriate from a New Zealand perspective, reflecting different policy settings in the domestic economy would come at significant cost for the taxpayer in particular, and for the New Zealand economy as a whole.
Allocation of emissions units reflects the context in which the New Zealand ETS is developed
- The provision of free allocation is the most complex area of NZ ETS design, and it is also the most controversial. Rules on free allocation have significant effects on both the equity (who pays and how much) and also the efficiency (the strength of incentives to reduce emissions) of the NZ ETS.
- There are strong reasons for keeping the current approach in the legislation to free allocation. Providing free allocation comes at a significant opportunity cost. Increasing the level of free allocation is the equivalent of raising taxes, other things being equal, to provide assistance to particular parts of the economy.
- Further, the existing legislation sets out a balance between sectors (inter-sectoral equity) as industry and agriculture are treated in the same manner. Adjusting that balance of generosity between sectors in any major way runs a risk of unravelling the balance that is currently built into the legislation.
- The overall approach in the legislation reflects the context of New Zealand’s emissions profile. Slightly over 70% of New Zealand’s emissions are related to trade-exposed activities and New Zealand is likely to face increasing stringency in terms of international commitments into the future. It is not in our long term interest to shelter particular sectors of the economy from the economic pressures that New Zealand faces, regardless of whether that sector’s competitors face the same price of carbon or not.
- The system is designed to reduce the risk of economic regrets (the loss of economic capacity that we may regret if there is a fuller international climate change agreement in the medium term) while retaining an incentive to reduce emissions.
- The allocation of emissions units is critical in terms of the incentives that are created, and in ensuring that New Zealand does not suffer economic regrets as a result of the NZ ETS. The allocation plans are the relevant vehicle for doing this – especially the allocation plans around industry and agriculture. It will be very important not to try to over-engineer these allocation plans; free allocation is not designed to be a full or a perfect compensation and nor should it be. The goal is to change behaviour.
Keeping it simple
- There are a number of areas in the NZ ETS implementation process where there will be pressure to complicate the ongoing design of the NZ ETS. This is understandable; firms will want design to reflect their particular circumstance as much as possible.
- The NZ ETS design should, however, be kept as simple as possible. This is critical to build in as much clarity and workability to the processes going forward. Areas where simplicity will be particularly important are in the allocation methodologies and plans, in the settings of the regulations on obligations.
Annex 2: Governance and operation of the climate change programme
Climate Change Governance Group
Strategic Advisory Group (senior officials)
Emissions Trading Scheme (NZ ETS)
Initiatives that complement the NZ ETS
Research, Science and Technology
International Reporting and Projections
MfE, DPMC, Treasury, MAF, Transport, EECA, MED, MFAT, DoC, TPK, MORST
| || || |
|Domestic consultation||Māori engagement||International negotiations|
Climate change leadership forum
Technical advisory groups
MAF consultation groups
Iwi Leaders Group
Māori Reference Group Executive
Māori Reference Group
(MfE leads policy development, MFAT
Annex III: Projects in the cross-government climate change programme:
Theme-based work programmes
|International reporting and negotiations||NZ ETS|| |
Initiatives that complement the NZ ETS
Impacts and Adaptation
Research Science and Technology
Kyoto Balance Reporting
| || |
Please also refer to sector specific information below.
Sector based work programmes
| || |
Sustainable land management and climate change plan of action:
New Zealand Waste Strategy:
MED, EECA, MfE
MfE, MED, EECA
MfE, DBH, EECA
MfE and core public service agencies
1. This scenario has emissions reductions by developed countries in aggregate of between 25 and 40 percent below 1990 levels by 2020, and the growth in aggregate developing country emissions held to 15-30 percent below baseline at 2020. Followed by subsequent deeper emission reductions, this would set a course over the longer term for atmospheric concentrations to stabilise at 450 ppmv, with a corresponding 'best estimate' global temperature change of 2.0 to 2.4 degrees.