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Emissions trading made easy
“Climate change is no longer solely an environmental issue – if we and the world do not reduce emissions major economic, social and even security ramifications are expected to follow,” said Climate Change Minister, David Parker, at the launch of the emissions trading scheme.
Timeline for the entry of sectors into the Emissions Trading scheme.
Why we need emissions trading
The emissions trading scheme, announced on 20 September, is in line with initiatives being developed in other countries to reduce greenhouse gas emissions. Becoming more sustainable and dealing with climate change is an important part of the Government’s strategy for economic transformation. Failure to manage greenhouse gas emissions could have serious trade risks for New Zealand and damage our credibility internationally.
The main cause of climate change is greenhouse gases produced by human activity, such as driving vehicles, farming animals and manufacturing products. The most damaging greenhouse gases are carbon dioxide, methane and nitrous oxide.
The Government considered options, other than emissions trading, for reducing emissions, such as a carbon tax and new laws. However, emissions trading offers the most flexible and lowest-cost option.
If we do nothing, New Zealand’s greenhouse gas emissions are expected to rise significantly. Minister Parker, recently said, “I am confident we can nearly halve our projected greenhouse gas deficit of 45.5 million tonnes to 25 million tonnes or less by implementing an emissions trading scheme and associated initiatives.”
The effect on the economy of introducing the emissions trading scheme is expected to be negligible. Economic modelling predicts it will knock only 0.1 to 0.3 per cent off New Zealand’s growth in gross domestic product between 2007 and 2012.
“The emissions trading scheme maintains economic flexibility, equity between sectors, and between industry, consumers and taxpayers. It does all this while achieving environmental integrity at least cost in the long term,” said Minister Parker.
Emissions trading will mean some increases in the cost of products that cause greenhouse gas emissions, such as petrol and electricity, but the Government will help households, businesses and industry adapt to these increases.
It will also bring opportunities for New Zealand businesses. We are already a world leader in technology in important areas like agriculture, forestry and biotechnology. New doors will open for these sectors if they are at the forefront of developing new, carbon-friendly technology.
How emissions trading works
The scheme encompasses
all greenhouse gases
and all sectors.
The New Zealand emissions trading scheme will cover emissions of carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, perfluorocarbons and sulphur hexafluoride. These are the greenhouse gases covered by the Kyoto Protocol.
Since 1990, New Zealand’s total greenhouse gas emissions from transport have increased by 62 per cent, and will keep rising if we do nothing. We also produce a lot of carbon dioxide by burning coal, oil and gas for electricity.
Almost half of our greenhouse gas emissions come from farm animals, which produce methane and nitrous oxide. Using nitrogen fertiliser also produces nitrous oxide.
Each tonne of greenhouse gas emitted will be equal to one “emission unit”. Industries and foresters carrying out activities that cause emissions can buy and sell emissions units. At the end of a given time period, those people will have to give the Government a sufficient number of emission units to cover the emissions their activities have produced during that time. Once an emission unit has been given up, it cannot be used again.
Emissions trading schemes often operate under a cap-and-trade system. For New Zealand’s emissions trading scheme, the overall limit on the quantity of greenhouse gas emissions that can be emitted is the global cap set by the Kyoto Protocol and any subsequent international climate change agreements. This means the New Zealand emissions trading scheme will not have an absolute limit on the amount of greenhouse gas emissions produced within New Zealand. Participants in the scheme will be able to buy emissions reductions from overseas using Kyoto Protocol mechanisms.
Approximately 170 large businesses as well as around 2,300 forest owners will participate in the scheme, and the rest from other industries. Not all participants in the scheme will necessarily be those directly responsible for producing greenhouse gas emissions. For example, a coal producer may have to give up emission units for the coal it sells, even though the emissions occur when coal is burned. However, the coal producer will pass on the cost of buying emission units to their customers thus providing an incentive for consumers to find ways of using less coal, to use it more efficiently or to find a cheaper, more sustainable source of fuel. Any of these results will mean less greenhouse gas emissions, and this is how the emissions trading scheme will be effective.
Trading emissions units
Market traders can buy and sell emission units, rather like stocks and shares. Some “voluntary” units have already been sold to private buyers on TradeMe, and the New Zealand Stock Exchange proposes to launch a trading platform for emission units called TZ1. Participants in the emissions trading scheme will also be able to trade directly with anyone who holds emission units here or overseas. They may also be given free emission units by the Government, buy them from the Government, or buy them overseas.
The movements of emission units between scheme participants, the Government and traders will be recorded in an electronic register. It will also record who holds emission units and how many, how much greenhouse gas the holders are responsible for, and which emission units have been given up permanently.
Participants will also need to monitor, record and report their activities that lead to emissions.
Who participates in the emissions trading scheme and when
To be fair to everyone, the emissions trading scheme will include all industry sectors that emit greenhouse gases. This includes electricity generation and industrial heat and power, transport, forestry, farming, waste, and industrial processes such as aluminium smelting. Including all sectors maximises the opportunities for innovation to find cheap ways to reduce greenhouse gas emissions.
The participating sectors will be introduced to the emissions trading scheme over five years, starting in 2008. Forestry will be first to join the scheme on 1 January 2008. Liquid fuels for transport, such as petrol, diesel and oil, will join a year later, followed by other energy sources such as coal, gas and geothermal power in January 2010. Emissions from industrial processes other than those producing energy will also join at the beginning of 2010. Stock and crop farming and horticulture will be the last to join the scheme in January 2013, along with the waste sector. Although some sectors join the scheme later, they will need to start preparing now.
Forestry – the first to join the scheme
As trees grow the absorb and store carbon dioxide, and when they
die that carbon is released back into the atmosphere. The Forestry
sector is joining the scheme in January next year
“We’re proud that forestry is the first sector to join the emissions trading scheme,” said Peter Berg, President of the New Zealand Forest Owners Association, “We’ve been recognised as a sector that is making a contribution to reducing greenhouse gas emissions and will continue to do so. We’re ready to join the scheme, and it reflects well on our industry.”
The forestry sector is split into two different categories – forests planted before 1990 and those planted after 1989 – and each is treated differently under the emissions trading scheme.
Owners of forests planted after 1989 can choose whether or not to enter the trading scheme. If they do enter the scheme, they will receive free emission units from the Government while their forests are growing. This is to account for the carbon dioxide being stored by the trees. However, when they harvest a forest or if it burns down, they will have to give up some of their emissions units.
Owners of forests planted before 1990 will not face any emissions obligations if they harvest trees, as long as the land is replanted or left to regenerate into forest. But they will have to give up emission units to the Government if they permanently deforest their land after the forestry sector joins the scheme.
Forestry is unusual among participants in the emissions trading scheme because forest owners are responsible for emission units. In other sectors the people responsible for emission units are further up the supply chain.
“I’m sure the emissions trading scheme will work”, said Berg. “Foresters have been advocating for something like this for some time. The liability for greenhouse gas emissions will be where it belongs, and we’ll all see the benefit.”
New Zealand’s response to climate change
The emissions trading scheme is one major project to tackle greenhouse gas emissions. However, over the last few months, the New Zealand Government has announced a range of policies to move New Zealand towards living and working sustainably. These policies will help reduce greenhouse gas emissions globally and in New Zealand, and start to combat climate change.
For example, in September, Agriculture Minister Hon Jim Anderton, announced $170 million over the next five years to develop a comprehensive Plan of Action on Sustainable Land Management and Climate Change.
In October, the Government released its Energy Strategy and Energy Efficiency and Conservation Strategy which will encourage New Zealanders to reduce energy use, and conserve energy, produce it using renewable technology and use it more efficiently.
“Climate change and how we deal with it is probably the most crucial environmental issue facing the world today”, said Minister Parker in October 2007. “The scientific evidence shows overwhelmingly that it is real and happening now.”
You can download factsheets and other documents about the emissions trading scheme from the website www.climatechange.govt.nz or order them in hardcopy by emailing orders@mfe.govt.nz.
