Ministerial Foreword

Climate change is an unprecedented challenge – for the global community, for the world environment, for the world economy, and therefore for New Zealand as well. Without global action to reduce and stabilise greenhouse gas emissions, the world is projected to experience a rise in temperature, increasing sea levels, more frequent extreme weather events and a change in rainfall patterns.

New Zealand will not be immune from these effects. Climatic changes may have a severe impact on our native ecosystems, industries, infrastructure, health, biosecurity and economy. If greenhouse gas emissions are not reduced significantly over the coming decades, the damage to our environment and quality of life could be significant and irreparable.

Just as we are not immune from the effects, we cannot be aloof from the response. While New Zealand contributes only a tiny proportion of the world’s emissions, our per capita emissions are high by international standards. So although reducing our emissions will not, by itself, make a major contribution to the global problem of climate change, all countries need to do their bit. In addition, as a small trading nation we need to recognise the shift in attitudes in our key overseas markets, where climate change issues are having a growing impact on the thinking of governments and consumers.

Addressing climate change and becoming more sustainable are crucial to New Zealand’s economic transformation to a high-value, high-wage, export-led economy. For one thing, this will open up opportunities for New Zealand businesses which already include within their numbers world leaders in technology in important areas such as agriculture, forestry and biotechnology. There will be significant new economic opportunities for these sectors if they can position themselves at the forefront of the development of new carbon-friendly technologies.

Many of the things we do in the name of climate change achieve other commonsense objectives. Warm, energy-efficient homes are healthy homes. Fuel and energy efficiency saves money. Forestry reduces erosion and improves water quality. Becoming a leader in new sustainable technologies and smarter ways of doing things gives us the chance to transform the economy and improve our quality of life, as well as protect the environment.

From December 2006 through March 2007 the government consulted broadly on possible policy directions for climate change and sustainability through the release of five discussion documents. These documents identified a wide range of potential policy options to achieve New Zealand’s overall climate change objectives. The options included emissions trading, a narrowly based carbon tax, incentives, subsidies, direct regulatory measures, and voluntary approaches. The feedback showed broad - although not universal - support for the use of emissions trading as the preferred approach for reducing emissions in the long term.

In response to this consultation, the government has decided in principle that New Zealand will adopt an emissions trading scheme (ETS), rather than an emissions tax, as its core price-based measure for mitigating climate change, alongside other policies and measures to reduce overall domestic emissions. It is a sensible and efficient approach. We are one of a number of countries developing such schemes, and economic modelling shows the impact on growth is expected to be minimal.

The government’s intent is that the various sectors of the New Zealand economy will be brought into the ETS in a staged transition with the aim of having all the major sectors covered by the Kyoto Protocol included in the ETS by the start of 2013. Emissions trading will mean an increase in the costs of products such as petrol and electricity, however, the scheme will be introduced gradually, allowing for smooth adjustments across the economy, and transitional assistance will be provided to households and industry. Although the ETS is primarily a long-term measure, in the shorter term it will provide a major boost to the forestry sector through the devolution of emission units to landowners. We also expect the ETS to immediately influence long-term investment decisions in renewable energy and energy efficiency.

The ETS will be designed so that it can be adapted to future changes to New Zealand’s obligations under the international climate change policy framework post-2012, and can endure if there is a gap between the end of the first commitment period of the Kyoto Protocol and the implementation of a successor agreement.

The government has asked officials from the Emissions Trading Group and government departments to actively engage with stakeholders, Māori and the general public on the details of the emissions trading scheme they have designed, prior to Ministers taking final decisions on the scheme. Legislation to enact the New Zealand Emissions Trading Scheme (NZ ETS) will be introduced and passed during the life of the current Parliament. Consideration of that legislation will include a full select committee hearing process and public submissions.

The engagement process will continue for a number of years as the scheme is further developed, particularly with respect to later entrants into the scheme. We encourage all interested members of the public to engage with the government to help design a scheme to meet the important challenge of climate change.

The Hon Dr Michael Cullen
Minister of Finance

The Hon David Parker
Minister Responsible for Climate Change Issues