3. Introduction
3.1 Background to New Zealand’s climate change policy
New Zealand’s natural resources and equable climate, combined with its entrepreneurial and creative people, are the basis of its competitive advantage as a small trading nation. Looking out over the next 30-40 years, the effects of climate change and the global response to it present major challenges to New Zealand’s future capacity to protect and enhance its economy, its communities, its environment and its way of life. New Zealand will need to do its fair share in addressing climate change if it is to influence collective international action and protect its own economic and environmental interests.
After a climate change policy review in 2005, the government concluded some elements of the 2002 climate change policy package should be modified to enable New Zealand to better respond to the longer-term challenges of climate change. One outcome was the announcement in December 2005 that the previously-announced carbon tax would not proceed. A suite of future work programmes was developed to inform government decisions in light of the review and to contribute to developing further measures.
The government’s guiding principles for its climate change policies are that they:
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be long term and strategic
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balance durable efforts to reduce emissions with preparations for the impacts of a more variable climate
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engage with the wider public, industry and business to inspire their willing, effective and long-term involvement
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focus on international engagement that advances New Zealand’s national interests.
To ensure policy signals are credible and sound long-term investment decisions can be made, the government believes it is essential that the fundamentals of domestic climate change policy endure over a prolonged number of years.
The government’s current policy development process is underpinned by some key assumptions that are consistent with the approach it has taken to climate change over the past few years. These include:
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Faced with sufficient consensus on climate change science, responsible government must act to address the risks for New Zealand’s vulnerable environment, economy and way of life. While action to reduce greenhouse gas emissions over the long term will have a moderate cost, the predicted costs and risks of inaction are expected to be unacceptably high.
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Effective international action is needed to reduce global greenhouse gas emissions. To support and encourage international action, New Zealand needs to play its part in reducing emissions, as well as encouraging other countries, especially the major emitters, to act.
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New Zealand’s response should maximise the economic advantages of using energy and resources more efficiently. New, and newly economic, technologies will play a crucial role. Policy should facilitate New Zealand involvement in the development or adaptation of low emissions technologies relevant to our needs.
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Our policy response should start with the most achievable options and seek least-cost solutions. A combination of sectoral and economy-wide measures, including voluntary, price-based and regulatory measures, is likely to be needed. Short-term measures must not be inconsistent with likely long-term solutions and should at the very least curb increases in emissions.
- All sectors of the economy should play a fair and equitable part in the national response to climate change, reflecting the fact that some sectors will be able to achieve emissions reductions more easily than others. An important policy consideration is the competitiveness of sectors in which there are no low emissions technologies available at moderate cost.
3.2 Overview of the New Zealand Energy Strategy and replacement of the National Energy Efficiency and Conservation Strategy
The development of New Zealand’s climate change policy for the energy sector fits within the context of the development of the New Zealand Energy Strategy (NZES) and the replacement National Energy Efficiency and Conservation Strategy (NEECS).
The NZES will provide long-term direction and leadership to put New Zealand firmly on the path to an energy system that supports economic development, while being environmentally responsible. Through the NZES, the government remains committed to promoting energy efficiency and renewable sources of energy. Under the NZES, short-term policies and measures will be developed to assist the long-term reduction of New Zealand’s greenhouse gas emissions from the energy sector. For information on the NZES, refer to the website of the Ministry of Economic Development (www.med.govt.nz).
The NEECS, in place since September 2001, is due to be replaced. The Energy Efficiency and Conservation Act sets out a statutory process for developing a replacement NEECS. Officials are coordinating the replacement NEECS with the NZES. For information on the replacement NEECS, refer to the website of the Energy Efficiency and Conservation Authority (www.eeca.govt.nz).
3.3 Work programme on alternatives to the carbon tax
The work programme on alternatives to the carbon tax is investigating:
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longer-term policy measures, including price-based measures, for reducing greenhouse gas emissions across the New Zealand economy post-2012
- implications for the design of transitional measures.
This work programme assesses two specific price-based measures – emissions trading (including cap and trade, baseline and credit trading and offset trading models) and greenhouse gas charges. It also examines the contrasting approaches of directive regulation, such as under the Resource Management Act 1991, and emission reduction agreements. It seeks to develop a clear and widely-shared understanding of these measures, their potential effectiveness in supporting New Zealand’s longer-term climate change goals, and a sense of stakeholder preferences for different design options.
Public consultation on these measures was undertaken when the government’s 2002 climate change policy package was being developed. However, national and international circumstances around climate change policy have changed substantially since then: the science of climate change has advanced considerably; the Kyoto Protocol has entered into force, although without the participation of the United States and Australia; an international carbon market now exists; and world energy prices have increased beyond expectations. This work programme challenges officials and stakeholders to re-evaluate a range of implementation measures within the evolving domestic and international context.
The government is considering a broad range of climate change implementation measures across various sectoral work programmes. However, the range of mitigation policies and measures is not limited to those discussed in this work programme. The government expects a mix of sectoral and economy-wide measures, including price-based, voluntary and regulatory measures, will be needed to achieve the integration of New Zealand’s sustainable development objectives. Specific aims for climate change measures may include:
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developing incentives to encourage fuel switching to renewable and low emissions energy sources for new electricity generation in a way that is compatible with energy security and efficient pricing
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accelerating capital stock turnover and deployment of best available technologies
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promoting development and commercialisation of new technologies
- reducing the growth in energy demand and direct emissions across all sectors of the New Zealand economy.
As discussed earlier, the energy-sector elements of this work programme fall within a broader policy framework for the management of New Zealand’s energy sector,[Note that the transport sector has its own climate change work programme outside the development of the NZES and the replacement NEECS and will be reporting to Cabinet separately on measures to address transport-sector greenhouse gas emissions.] including the development of the NZES and the replacement NEECS. Final decisions by Cabinet on the use of specific measures for the energy sector will be undertaken within the context of the NZES.
This work programme also has important links to the other sectoral climate change work programmes of agriculture, land-use change and forestry, and transport. In the longer term, a broad price-based measure such as emissions trading could potentially be applied across all major emitting and sequestering sectors of the New Zealand economy. This would create a price linkage for mitigation efforts across diverse sectors such as electricity generation, industrial production, transport, agriculture, forestry and waste. However, the detailed assessment of shorter-term policy measures in sectors such as land-use change and forestry, agriculture and transport, and the potential for such measures to support a transition toward a broad price-based or other measure, will be addressed within each sectoral work programme.
