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The Framework for a New Zealand Emissions Trading Scheme: Executive Summary

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

Executive Summary

Climate change is a major problem for New Zealand and the world

The Earth’s climate is changing at an increasingly rapid rate, largely due to ongoing high rates of greenhouse gas emissions caused by human activity.  Even with concerted global effort to reduce greenhouse gas emissions there are likely to be changes in temperature and rainfall patterns, increases in the number of significant wind and storm events, and an increased risk of flooding and coastal erosion.  These impacts have flow-on effects for air and water quality, the retention of nutrients in soils, and preserving biodiversity.

Like most countries, New Zealand could suffer severe adverse effects to our economy, our infrastructure and our way of life.

Climate change, sustainability and economic transformation

Reducing greenhouse gas emissions is therefore imperative, for both environmental and economic reasons.  The New Zealand government is committed to creating an economy and a way of life that are environmentally sustainable.  Indeed, economic transformation and environmental sustainability can be seen as two sides of the same coin.  For example:

  • improved efficiency in the use of energy and natural resources is central to improving productivity and increasing the value of our exports, and will help to conserve valuable non-renewable resources for use by future generations
  • developing renewable domestic energy sources will improve New Zealand’s energy security
  • there is a growing market for products and services which involve low greenhouse gas emissions, as has already been recognised by sectors such as tourism, agriculture and viticulture
  • the move towards a “knowledge economy” involves shifting the production balance towards value-added activities that draw upon information technology, the creation of intellectual property, and the development of new technologies in areas such as biotechnology, all of which tend to be less emissions intensive
  • conversely, failure to control greenhouse gas emissions could have trade risks, both at a political level (because countries that do not take the issue seriously may find it hard to improve access to markets and may face trade barriers) and at a global consumer level (since New Zealand’s clean, green image is part of the international brand that underpins the premium prices we seek for our products and services)
  • the impetus towards sustainability creates new incentives to develop efficient technologies and improve management practices across all sectors of the economy.

In fact, many of the things we do in the name of climate change achieve other commonsense objectives.  Warm, energy-efficient homes are healthy homes, and are known to reduce the incidence of chronic conditions such as asthma.  Energy efficiency frees up resources for households and improves business profitability.  Planting or maintaining forests reduces erosion and improves water quality.

Countries that are proactive in responding to the challenge of reducing emissions will position themselves to achieve a smoother transition to emission constraints and are more likely to benefit from the new market opportunities that will emerge.

The background to the government’s climate change and sustainability agenda is presented in more detail in the document New Zealand’s Climate Change Solutions, available at www.climatechange.govt.nz.

New Zealand’s challenge

There are four main climate change challenges for New Zealand.  We need to:

  • control our own greenhouse gas emissions and reduce them relative to the current growth trend
  • support international initiatives for multilateral action on greenhouse gas emissions, principally through maintaining momentum on the implementation of the Kyoto Protocol and ensuring this momentum is carried through into whatever agreements emerge for the period after 2012
  • prepare for, and adapt to, the impacts of changes in our physical environment, by responding to the risks and taking advantage of the opportunities they present
  • realise the above objectives at the lowest achievable long-term cost.

Why we need a broad, price-based measure

New Zealand’s total greenhouse gas emissions are small from a global perspective - around 0.2 to 0.3 per cent of global emissions, in line with our small population.  Nevertheless, we have the 12th highest per-capita emissions in the developed world.  This is because, despite our small population, we rely heavily on private transport, and because the main drivers of our economic growth, our primary export industries, are emissions intensive.

Moreover, New Zealand’s emissions level is forecast to grow as our population and economy grow.  Unless prompt action is taken it will become increasingly difficult (and increasingly disruptive in economic terms) to bring our emissions growth under control.  We need to act within the next few years to get robust measures in place and fully operative in order to influence the long-term investment decisions that will drive our emissions performance in the coming decades.

New Zealand has an unusual greenhouse gas emissions profile.  Nearly 49 per cent of New Zealand’s greenhouse gas emissions result from agriculture [In this document, the term agriculture means pastoral and arable farming as well as horticulture.] (excluding agricultural energy use), contrasting with an average of 12 per cent in other developed countries.  New Zealand also has significant emissions from the deforestation of forests planted before 1990, while emissions from the future harvesting of land afforested since that date are forecast to rise sharply during the decade from 2020 to 2030.  On the other hand, New Zealand’s energy sector contributes 43 per cent of total emissions, which is low relative to other developed countries.  This is because approximately 69 per cent of our electricity is generated from renewable sources, such as hydro, geothermal, wind, solar, biogas and wood.  However, energy emissions from transport, which currently account for 19 per cent of total emissions and 45 per cent of energy emissions, are forecast to increase steadily.

New Zealand has already introduced a range of measures to reduce emissions.  These include:

  • financial incentives (such as the Permanent Forest Sink Initiative and incentives to promote solar hot water heating and better home insulation)
  • improved standards and codes (such as energy efficiency standards for new homes and household products)
  • direct regulation of major emission sources (such as the biofuels sales obligation)
  • public education (such as Energy Star efficiency labelling and Fuelsaver information on vehicle fuel efficiency)
  • joint investment in research for mitigation of agricultural greenhouse gases.

Although significant, these measures are not sufficient to achieve the long-term emission reductions that will be integral to New Zealand’s sustainable development pathway, particularly given that by 2020 our gross emissions (excluding the land use, land-use change and forestry sector) are estimated to be roughly 48 per cent above our 1990 levels [Ministry for the Environment 2006, New Zealand’s Fourth National Communication under the United Nations Framework Convention on Climate Change, Ministry for the Environment: Wellington.  www.mfe.govt.nz.  This assumes policy settings in place as of December 2005.]  In the shorter term, New Zealand has assumed an obligation under the Kyoto Protocol to take responsibility for emissions over 1990 levels from 2008 to 2012, which is the first commitment period.  Under a “most likely” emission scenario, which reflects policies in place as of April 2007, New Zealand’s net position is projected to be a deficit of 45.5 [This assumes a scenario with deforestation emissions of 21 million tonnes of carbon dioxide equivalent emissions (Mt CO2-e) from 2008 to 2012.  If an upper deforestation scenario of 41.0 Mt CO2-e is used in determining the deficit on the Crown’s accounts, the deficit will be 65.5 million units.] million units[Under the Kyoto Protocol one emission unit equals one metric tonne of carbon dioxide equivalent (CO2-e) emissions.] over the first commitment period of the Kyoto Protocol.[Ministry for the Environment 2007, Projected Balance of Emissions Units During the First Commitment Period of the Kyoto Protocol, Ministry for the Environment: Wellington.  www.mfe.govt.nz.]

New Zealand’s emissions are the product of a broad range of economic activities, and we need a correspondingly broad-based economic measure, based on prices, to bring about the behavioural changes needed to implement our greenhouse gas reduction strategy.

A price-based measure has a number of significant advantages in this respect.

It can provide a strong incentive (depending on the price it uses) for those making decisions about emissions to reduce them to a level that reflects the total cost to society, including the environmental cost.

  • It harnesses the market dynamic by providing automatic incentives for firms to invest in reducing emissions and to shift to lower-emissions products and services.
  • It provides flexibility for firms and fosters innovation and the seeking out of least-cost emission reduction strategies.
  • It can be linked into international efforts to reduce emissions.

To best achieve the objectives outlined above, it is important that a price-based measure for New Zealand covers all greenhouse gases and all sectors of the economy.  For practical reasons, this objective may be best achieved over a number of years via a staged implementation.

Price-based options: emissions tax or emissions trading?

The two options for a price-based measure are:

  • an emissions tax levied on all economic activity that involves emissions
  • the trading of a limited number of emission units, whose price would be determined by supply and demand.

The government has decided against proceeding with an emissions tax because it is a blunt instrument that would require regular alteration to ensure its effectiveness and to keep it in line with international emissions prices.  An emissions trading regime would be preferable because:

  • provides the government with relative certainty about the volume of emissions, and hence the environmental objectives, whereas a tax simply imposes a price on each unit of emissions and does not limit emissions per se
  • is easily linked into the international emissions price and global emission reduction efforts, which minimises the risk to the New Zealand taxpayer of overshooting or undershooting our Kyoto Protocol and future international commitments
  • provides New Zealand firms with maximum flexibility through enabling them to reduce or offset their emissions (including managing credits and liabilities over time) by accessing emission reduction opportunities at the lowest cost
  • has wide support, being preferred as the primary means of managing New Zealand’s emissions in the long term by many submitters on the five discussion documents released in December 2006
  • allows New Zealand to devolve forest credits and liabilities to landowners as part of a broader economic instrument
  • is emerging as the favoured measure among developed countries, and early adoption by New Zealand would bring significant benefits.

The government’s decision on an emissions trading scheme

The government has decided in principle that New Zealand will use an emissions trading scheme as its core price-based measure for reducing greenhouse gas emissions and enhancing forest carbon sinks.  The New Zealand Emissions Trading Scheme (NZ ETS) will operate alongside other policies and measures to reduce domestic emissions and achieve New Zealand’s broader sustainability objectives.

Objective and core design features

The government has made a further series of in-principle decisions regarding the objective and the core design of the scheme.  In this context, “in principle” means the government would need compelling reasons to adopt a different policy approach.  These decisions will be confirmed subject to engagement with stakeholders and Māori, and prior to the introduction of legislation.  Regarding other aspects of the NZ& ETS design, the government has identified one or more preferred options, but is actively seeking to engage with stakeholders and Māori, and to consider any options they may put forward.

The government has decided in principle that the objective of the NZ ETS will be:

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.

In-principle decisions have been made regarding the following core design features of the ETS:

  • The NZ ETS will involve an obligation on participants to hold emission units that match the emissions levels for which they are responsible.  A limited number of New Zealand emission units will be issued each year, and the scheme will operate within the global cap on emissions set by the Kyoto Protocol.
  • The NZ ETS will, over time, include all major sectors (ie, forestry, transport, stationary energy, industrial processes (non-energy), agriculture and waste) and the six greenhouse gases specified in the Kyoto Protocol.[The Kyoto Protocol includes the following greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6).]
  • The NZ ETS will involve the devolution to landowners of both the credits for forestry activities that lead to a removal of carbon dioxide from the atmosphere, and the liabilities for the subsequent release of carbon dioxide into the atmosphere (by harvesting or deforestation).
  • The NZ ETS will be introduced across the economy through a staged process that will allow gradual adjustment such that, by the start of 2013 all major sectors of the New Zealand economy will be exposed at the margin to the international price of emissions at the margin for all operations.[This objective will be modified if progressive unit obligations are applied in some sectors.  This means a participant is required to surrender units for some percentage of the full obligation during a transitional period.  For example, under a 50 per cent obligation, a participant would surrender one emission unit for every two tonnes of emissions.  As a result, progressive unit obligations would reduce the marginal price signal during a transitional period.]
  • The NZ ETS will include three types of participants: those with obligations to surrender emission units to cover their direct emissions or the emissions associated with their products; those that receive freely allocated emission units, or receive emission units for eligible afforestation, or hold other emission units that can be traded to other parties; and those that engage in trading activities to take advantage of market opportunities.
  • The core obligation will be for participants with unit obligations to surrender to the government one emission unit to cover each metric tonne of eligible emissions in a compliance period (usually a calendar year)[As a starting point, obligations on participants would be based on Kyoto Protocol (and subsequent relevant international agreement) definitions. This is an absolute, rather than an intensity-based, obligation.]
  • A New Zealand Unit (NZU) will be the primary domestic unit of trade.  For the first commitment period, NZUs will be fully comparable to, and backed by, Kyoto units by the end of the period for determining compliance (known as the true-up period).
  • The NZ ETS will allow both sales to, and purchases from, international trading markets.  This is essential for a small market like New Zealand, since it will aid liquidity in the market and act as a safety valve on price.
  • Participants will face binding consequences for non-compliance with their obligations, including penalties and make-good provisions.
  • The NZ ETS could potentially be augmented by an offsets mechanism, which would allow people without ETS obligations to earn emission credits for activities resulting in a reduction of total greenhouse gases being released into the atmosphere.
  • The NZ ETS will be adaptable to future changes to New Zealand’s obligations under the international climate change policy framework post-2012, and will continue to function even if there is a hiatus between the end of the first commitment period of the Kyoto Protocol and the implementation of a successor international agreement.

Importantly, the government will implement the NZ ETS through a transitional pathway that provides for a gradual adjustment to emissions pricing across the economy.  The transitional provisions will vary by sector and will include the staged entry of different sectors, free allocation of emission units and/or the use of progressively increasing obligations to surrender emission units.

Parallel to the NZ ETS, the government will introduce measures that:

  • assist people to respond effectively to an emissions price signal through improved skills and access to technology
  • address non-price barriers (eg, the lack of easily accessible information comparing the options for managing energy use) that inhibit the uptake of low- or zero-emissions technologies and practices
  • ensure that adjustment support is provided to households through energy efficiency measures
  • additional measures to reduce the financial impacts of higher electricity prices so that low- and modest-income households are not disadvantaged, while still ensuring that incentives for efficient energy use remain.

Many details of the scheme’s design remain to be decided, especially in relation to how individual sectors will be brought into the scheme.  The government has identified a series of preferred options as a starting point for discussion, and is seeking to engage with stakeholders and Māori prior to finalising these, and introducing legislation enacting the NZ ETS and any measures that will accompany it.

Proposed implementation pathway

Figure ES1 sets out the government’s proposed pathway for introducing various sectors into the ETS.

Figure ES1: Timeline for the entry of sectors into the NZ ETS

Upon entry into the scheme, sectors will assume the core obligation to surrender emission units to match emissions, and further obligations with regard to monitoring and reporting.  However, the government has decided that in the case of the forestry sector, which is the first sector to enter the ETS, the first compliance period will extend for two years from January 2008 until December 2009.  Table ES1 identifies the commencement dates and initial compliance periods for each sector.

Table ES1: Staged entry of sectors into the NZ ETS

Sector

Commencement of obligations

End of initial compliance period

Forestry (includes deforestation of pre-1990 forest land and afforestation post-1989)

1 January 2008

31 December 2009 (first compliance period is two years)

Liquid fossil fuels (mainly transport)

1 January 2009

31 December 2009

Stationary energy (includes coal, natural gas and geothermal)

1 January 2010

31 December 2010

Industrial process (non-energy) emissions[Note that emissions of SF6 will enter the ETS on 1 January 2013 because of an existing memorandum of understanding between the Crown and users.]

1 January 2010

31 December 2010

Agriculture (includes pastoral and arable farming and horticulture)

1 January 2013

31 December 2013

Waste

1 January 2013

31 December 2013

Allocation of emission units

Allocation refers to the distribution of emission units into an ETS market by either sale or gifting.  Deciding on how to allocate units is important for ensuring that the cost burden of an ETS is shared fairly across the different parties involved.  At a conceptual level, allocation decisions ensure that an equitable burden is shared between taxpayers, consumers, firms and sectors.

As part of the long-term core design of the NZ ETS, the government has decided in principle that it will allocate NZUs into the market through a combination of sale (eg, auction) and free allocation (gifting).  The government has also agreed in principle that the level and duration of free allocation will be considered against the following underlying principles, which also apply more broadly to other forms of transitional assistance.

i. The government will attempt to maintain broad equity of treatment between and within sectors.

ii. The government will seek to avoid long-term regrets in designing and implementing short-run policies.

iii. The government will make the transition more manageable by being relatively generous in the first commitment period (CP1), from 2008 to 2012.

iv. The government will not provide assistance to firms whose profits will be largely unaffected by the introduction of an ETS.

v. The government will favour assistance via gifting units (“free allocation”) as opposed to a progressive obligation, but will leave open the possibility of using a progressive obligation in some sectors.

vi. The government will move to zero assistance over time for overall economic efficiency, equity and administrative reasons.

The government has also made a number of in-principle decisions regarding the total level of free allocation of emission units as a form of assistance to business.

  • In the forestry sector, free allocation will be provided such that the Crown assumes a total liability (taking the cost of the provision of the de minimus thresholds into account) for deforestation emissions as follows:
    • from 2008 to 2012, 21 Mt CO2-e for plantation forest, plus a relatively small allocation set aside for forest weed control (eg, wilding pine)
    • from 2013, an additional 34 Mt CO2-e for plantation forest.
  • The agricultural sector will be provided with a free allocation pool equal to 90 per cent of 2005 emissions when it is brought into the ETS.
  • The pool of units for eligible industrial producers will be based on 90 per cent of 2005 emissions from those eligible industrial producers.
  • Indirect emissions associated with the consumption of electricity, as well as direct emissions from stationary energy and direct emissions from non-energy industrial processes will be included in the concept of emissions from industrial producers[The basis for allocation for electricity consumption will be one that compensates firms for the cost impact.  It therefore needs to be based on the emissions from marginal generation rather than average generation.]
  • Starting from 2013, when agriculture is brought into the ETS, the free allocation pools for industrial producers and agriculture will decrease on a linear basis so as to phase out assistance completely in 2025 [For industry, this would mean receiving the same level of assistance in the years 2010, 2011, 2012 and 2013.  Following this, the level of assistance provided would decline every year.  The planned review of the ETS provides an opportunity to adjust this decision somewhat once the “shape” of future international agreements becomes clear.].
  • New sources that begin emitting during the period of the free allocation will not have any access to the pool of free allocations.
  • Firms that cease trading will not retain any free allocation.
  • No free allocation will be provided to the upstream points of obligation in the liquid fossil fuel and stationary energy sectors (including electricity generators) and landfill operators.

Allocation of units within the NZ ETS will be an important area for stakeholder engagement.  These discussions will need to find a balance between the competing objectives of efficiency, equity and administrative ease.  It is a complex area of design and all approaches pose challenges.

The proposed allocation package is relatively simple at the high level.  It has a strong focus on inter-sector equity and is generous at first (for firms that cannot pass through costs) at first, both for equity reasons and to reduce the chance of long-term regrets.  While generous at first, it ensures that some contribution is made by all sectors, reflecting the importance of equity between producers and consumers.

A key element of the allocation package is to put in place robust price signals to reduce emissions.  For that reason, over time, the government will ensure a (well-signalled) phase-out of free allocation in the interests of economic efficiency and administrative ease.

Impacts of the NZ ETS

The desired impact of the NZ ETS will be to change investment and consumption behaviours by integrating a price for emissions into decision-making by producers and consumers.  The result will be a progressive shift in our economy and lifestyle towards consuming, using and investing in goods and services with lower greenhouse gas emissions.

Introducing an emissions price will increase the cost of transport fuels and other non-renewable energy (such as coal and natural gas), and will cause relative price increases in other sectors that involve emissions, such as industrial processing and agriculture.  Conversely, it will reduce the relative price of low-emission goods and services and increase the relative returns on investment in low-emissions technologies (eg, making it more cost-effective for electricity generators to invest in renewable energy such as wind and solar power).  It will also increase the profitability and cash flow for afforestation activities through the devolution of credits (with associated liabilities) for forest sinks to landowners.

These impacts will not be dramatic in the near term, and most New Zealanders will not be aware of the specific impact of the ETS on their consumption and investment decisions.  However, the ETS will create significant shifts over time, as businesses renew their assets and households make major spending decisions about personal transport, housing and home appliances.  A multitude of small decisions will make an important cumulative contribution towards reducing New Zealand’s emissions and assisting the move towards sustainability across our economy.  This will, in turn, help New Zealand’s compliance with its Kyoto Protocol obligations, and position New Zealand to advocate for effective international action to reduce emissions.

The ETS will take effect through carefully staged implementation to permit a gradual adjustment to emissions pricing across the economy.  Transitional assistance will be provided in a number of forms, including some free allocation of units in the early years, systems to reduce the impact on low-income households, and government initiatives to assist households to be more energy efficient.

The macroeconomic impact of the ETS on New Zealand will largely be driven by the nature and stringency of international agreements.  For the first commitment period of the Kyoto Protocol (2008–2012), the macroeconomic impacts will be negligible.  Modelling indicates that meeting New Zealand’s commitments under the Kyoto Protocol with a linkage to international trading markets will have a negligible overall impact on New Zealand’s macroeconomy.  This impact is forecast to be less than 0.1 per cent of gross domestic product (GDP) in 2010[Ministry for the Environment 2005, Review of Climate Change Policies.  Ministry for the Environment: Wellington.  www.mfe.govt.nz.] compared with underlying growth forecasts in the order of 2 percentage points per year.  In other words, ongoing GDP growth in 2010 will far outpace the impacts of an ETS.  In the longer term, however, a greater reduction in emissions against the current growth trend will be essential, both to reduce the cost of New Zealand’s obligations under international emissions control agreements (the Kyoto Protocol and whatever agreements follow it) and to support New Zealand’s broader sustainable development and economic transformation agenda.

Because of its staged implementation, the ETS will not fully distribute the cost of New Zealand’s Kyoto Protocol obligations to emitters during the first commitment period (2008-2012), and some ongoing taxpayer support may continue beyond that date.  It is the government’s intention that, over time, the responsibility for managing New Zealand’s greenhouse gas emissions will be shifted as much as possible to those that make the investment and consumption decisions that cause those emissions, provided they have the opportunity and the tools to manage them.

Emissions trading: issues for Māori

Māori are inextricably linked to – and involved with – the use and management of natural resources.  For many centuries, practices based on an understanding of the environment have supported Māori efforts to maintain and sustain their families and communities.  Climate change is a global issue that will affect the relationship Māori have with the environment and Māori use of natural resources, especially in coastal communities.

The NZETS is one mechanism the government can use to address the concerns of Māori as Treaty partners, and the wider New Zealand public, about the challenge of climate change.  It has the potential to influence every business and every consumer in New Zealand, including Māori interests.  Of particular importance to Māori will be the potential impacts of the NZ ETS on Māori involvement in the primary sectors of forestry, agriculture and fishing, because these sectors dominate Māori economic development.

The government is conducting an analysis of the costs and benefits to Māori of the options for emissions trading.  Part of this analysis will include the impact and potential benefits of any policy proposals on Māori land under different tenure arrangements, such as under Te Ture Whenua Māori Act 1993.  The government is resourcing a Māori/iwi working group to assist in the development of this economic and socioeconomic analysis.

Hui with Māori are scheduled for October this year to discuss the government’s proposal for a NZ ETS and the potential opportunities and issues relating to the scheme for Māori. 

Next steps: process for engagement and final decisions

The government is seeking to engage with the public, stakeholders and Māori on the proposal for a NZ ETS.  A leadership forum is also being set up to provide government with feedback on scheme design. The first stage of this engagement will lead up to the introduction of legislation into Parliament, but engagement will continue throughout the process of refining and implementing the system, as set out in the table below.

Table ES2: Stages of public engagement and government decisions on the NZ ETS

Stage

Explanation

Timing

Stage 1: In-principle decisions

  • Government makes in-principle decisions on the core design, as outlined in this document

2007

Stage 2: Engagement and final decisions on the core design, and on detailed design features and implementation for forestry and liquid fossil fuels (primarily transport) sectors

  • Release of The Framework for a New Zealand Emissions Trading Scheme
  • Engagement with stakeholders and Māori on the core design of the scheme
  • Targeted engagement with forestry and liquid fossil fuels sectors and Māori
  • Feedback received from the leadership forum
  • Government makes final decisions and introduces a bill into Parliament

2007/2008

Stage 3: Select committee process and passage of core legislation by Parliament

  • Select committee calls for public submissions on a bill for the NZ ETS
  • Select committee considers submissions and holds hearings on the emissions trading scheme bill
  • Select committee deliberates on the emissions trading scheme bill
  • Select committee reports back to Parliament
  • Parliament passes legislation for the emissions trading scheme

2008

Stage 4: Engagement and final decisions on detailed design features and implementation for the later sectors to enter the scheme

  • Targeted engagement on detailed design features for stationary energy, industrial process emissions, agriculture and waste
  • Government makes final decisions on detailed design features for stationary energy, industrial process emissions, agriculture and waste
  • Corresponding changes are made to legislation and regulations
  • Ongoing engagement with key stakeholders and Māori on subsequent design decisions (including consideration of whether to include indigenous forestry in the ETS or not), regulation and implementation

2008–2012

How to participate in the discussion on the NZ ETS

For more information on public engagement activities and opportunities for you to participate, please see the following website: www.climatechange.govt.nz.

Following feedback from stakeholders and Māori on the core design elements of an ETS and engagement with stakeholders and Māori in the forestry and liquid fossil fuels (primarily transport) sectors, the government will make final decisions about the core design features and the detail for these two sectors proposed for entry to the NZ ETS (in 2008 and 2009 respectively).  These decisions will be the basis of a bill (legislation) introduced to Parliament that will lay down the framework for emissions trading, and will include provisions relating to forestry and liquid fossil fuels.  It may also contain provisions to guide the entrance of subsequent sectors to the scheme.

Following its first reading in Parliament, the bill will be referred to a select committee that will call for public submissions and hold hearings on the bill.  This is an important opportunity for the public to register support for, or express concerns regarding, the ETS.  The following website has a series of fact sheets that provide more information on the legislative and/or select committee process: http://www.parliament.nz/en-NZ/PubRes/About/FactSheets/.

For information on current select committees, including calls for submissions, visit the following website: http://www.parliament.nz/en-NZ/SC/.

If the bill is passed into law, the government will continue to work with stakeholders and Māori to resolve any remaining issues around design and implementation, particularly for sectors that are later entrants to the scheme.  Final decisions on the detailed design features for later entrants (stationary energy, industrial process emissions, agriculture and waste) will be made after in-depth discussions with those sectors.  The government will also continue to work with key stakeholders and Māori in relation to the future evolution of the NZ ETS in response to changes in the international climate change policy framework after 2012.