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Scoping Report for an Environmental Assessment of the New Zealand Emissions Trading Scheme and Closely Related Measures

Executive Summary

1 Introduction

2 Methodology and Policy Scenarios

3 Changes and Environmental Effects by Sector

4 Effects by Environmental Resource

5 Possible Response Mechanisms

6 Further Investigation of Environmental Effects

7 Summary of Proposed Response Measures

8 References

Appendix 1: Excerpt from Project Brief: Scoping Report for an Environmental Assessment of the NZ ETS

Appendix 2: Policy Scenarios

Appendix 3: Acknowledgements

Appendix 4: Significance of Environmental Effects by Environmental Resource

6 Further Investigation of Environmental Effects

This chapter summarises key information gaps and identifies where investigations would be useful to further inform government and stakeholders about environmental effects of the ETS-plus, and possible policy mechanisms to address them.

Further investigation of potential effects of the ETS-plus should be prioritised to target issues where a better understanding will be relevant for policy makers.

Further work falls into three categories:

• investigations

• monitoring

• data and information.

The studies suggested below should be seen not just in the context of climate change policy, but rather in the context of environmental and sustainability policy more generally. This is particularly true of pastoral agriculture and the transport sector, both of which are major users of natural and physical resources and therefore have significant impacts on the environment. Gaining a better understanding of the likely environmental impacts of the ETS-plus in these sectors is thus part and parcel of better management of these sectors more generally.

6.1 Investigations

6.1.1 Energy

Biofuel production and consumption

There is a considerable amount of uncertainty regarding the potential domestic environmental consequences of increased use of biofuels in the New Zealand transport sector, principally in relation to the sources of biofuels. While the reduction in domestic GHG emissions from transport can be estimated based on the biofuels sales obligation, there are questions regarding the emissions from biofuel production, whether it be in New Zealand or overseas, as well as other environmental consequences of biofuel production and consumption. If, for instance, New Zealand imports biofuels produced via energy-intensive processes, increased use of biofuels could actually increase global GHG emissions. In such a case, the Government could consider whether to add conditions or complementary measures to the regulatory obligation to increase its effectiveness, in addition to the proposed statutory requirement for environmental sustainability.

A more detailed assessment of the likely environmental effects of biofuel production and consumption is therefore recommended. Box 1 provides an outline of what such a study should encompass.

Renewable electricity supply

This report has identified pressure on rivers for hydroelectric development as a significant effect of the ETS-plus. The extra pressures as a result of ETS-plus are clear and we have proposed general measures to address these in the preceding chapter. However, there may also be value in further investigation in order to provide information to support more detailed response measures and facilitate a more proactive approach.

A strategic environmental investigation of this sort should have a well-defined timeframe and expected outputs, and ought to consider the:

• likely extent of these pressures;

• influences on the pressures; and

• appropriate measures for reducing the pressures.

A key aspect of the study would be to identify the best way to integrate development and issuance of guidance under the RMA and the Sustainable Water Programme of Action with climate change and energy policy. The key outcome should be a set of recommended response measures to deal with pressure on rivers arising from the transition to a carbon-constrained energy system.¹⁰²

A comprehensive investigation could facilitate a more proactive approach to this issue. Absent such measures, pressure will grow over time, unless and until a significant and sustainable alternative emerges. There may be value in extending this investigation to other renewables, but hydro-electric development is a priority due to the potential scale, significance and irreversibility of effects.

6.1.2 Transport

The transport sector is characterised by billions of dollars worth of long-lived infrastructural investment, which has a significant effect on people’s lifestyle decisions as well as on business investment, and the overall shape of our cities and towns. As a result, demand for transport fuels tends to be insensitive to price changes in the short term but does respond over time, and targeted government policies can assist that response.

Given this, there would be benefits in further developing modelling capacity in two related areas:

1. Improve the capacity to analyse scenarios involving significant changes in urban design, fuel costs, patterns of transport and land-use. Some stakeholders have indicated that current modelling capacity at a regional level is more suited to assessing small changes in existing patterns, and that this approach may understate the benefits and overstate the costs of more sustainable patterns of urban transport and settlement.
2. Continue the development of the vehicle fleet fuel and emissions model to enable better assessment of local impacts of changes in transport patterns. In particular, develop capacity for assessing changes in emissions of greenhouse gases and local pollutants with greater accuracy.

Further investigation of the factors influencing transport demand will also improve the design of such policies, to advance the objective of reducing New Zealand’s net GHG emissions over time.

Box 2 outlines the scope of further investigation for the transport sector.

One area seen as having considerable potential is the development of electric vehicles. Considerable work is required to develop this potential, and to consider the range of effects this could have on New Zealand’s energy system. Box 3 shows suggested elements of this work.

6.1.3 Land use (intensive and extensive agriculture)

Pastoral agriculture dominates the rural landscapes of New Zealand, and how it is managed has major implications for environmental quality across those landscapes. There remains significant uncertainty regarding how the sector will respond to the ETS-plus policy package, and therefore what the corresponding environmental effects will be. In order to target most effectively any policy response measures, the following investigations are suggested:

• review knowledge of the effects of nitrification inhibitors on the nitrogen cycle, water quality of rivers, lakes and wetlands by locality and develop best practice guidance

• ensure the research on soil integrity and the effect of land use change on soils is adequately resourced to enable the ETS-plus to deliver positive environmental benefits

• improve understanding of how different land ownership structures (corporate, individual, multiple Maori) affect land use change so the environmental effects of ETS-plus can be better anticipated.

6.1.4 Forestry

Forestry presents opportunities for significant environmental co-benefits from the ETS-plus, as well as risks of unintended adverse consequences, which were discussed in the previous chapter. Further investigation would enable improved policy design to enhance the co-benefits. In particular, we recommend a study to:

• complete the base map of “land use at 1990” being prepared by MfE as soon as possible, so owners can see whether or not their land is “Kyoto forest” (post-1989)

• improve the resolution of the above mapping so that landowners can identify which areas of post-1990 regenerating scrub forest are Kyoto forest or non-forest (or for Crown agencies to prove compliance if such vegetation was bought into the deforestation provisions of the ETS)

• undertake comprehensive mapping of biodiversity and landscape values across the whole country, but especially of areas of indigenous vegetation that are threatened ecosystems and habitats

• assess how small forest owners can coordinate their plantings to enhance environmental co-benefits and achieve more long-term carbon sequestration compared with the current ETS-plus design

• the suggested investigations in agriculture will be necessary for the ETS-plus to avoid adverse environmental effects from the expected increased forest establishment.

6.1.5 Manufacturing

The forest products industry is conducting a study on when its members’ major plants are due for re-investment. This would provide a good indication of when output and associated domestic GHG emissions from that particular industry might decline more significantly depending on how competitiveness issues are addressed in ETS design. Similar studies could be conducted in other industries, and could also examine the availability and feasibility of lower-emission technology. Together with information on the carbon pricing policies of other countries, this would enable an analysis of the reduction of GHG emissions through new technologies and efficiency improvements vs leakage.

Beyond this, further investigations will not shed much light on these questions except inasmuch as they could generate scenarios based on varying price, policy and technology scenarios. Such studies would have relevance in terms of social and economic policy, but would not be a priority in terms of evaluating the environmental impacts of the ETS-plus package.

6.1.6 Tourism

For tourism and other service sectors, the main area of uncertainty related to the ETS-plus concerns the amount of GHG reduction that is likely to be achieved. There is also significant uncertainty about other domestic environmental effects that will flow from behavioural changes in the tourism sector (changed transport and accommodation patterns etc), but these largely fall in the category of issues that can be addressed within existing policy frameworks.

To obtain a more accurate picture of likely GHG reductions in the tourism sector, further investigation could focus on the following:

• investigate the impacts of higher domestic travel costs on tourism demand and travel and accommodation patterns (part of this work could be done using the tourism flows model)¹⁰³

• investigate effects of future inclusion of aviation fuel in the international climate change framework.

6.1.7 Fishing

The rising price of fuel will drive changes in fishing practices, with the potential for both positive and negative environmental effects. Fisheries management frameworks should be reviewed to:

• assess potential changes in fishing methods driven by fuel-saving initiatives and whether current fisheries management strategies will prevent localised depletion of fish stocks.

6.2 Monitoring, data and information

As noted in Chapter 5, on-going monitoring of the environment is a critical part of managing the environmental effects of the ETS-plus, which by its very design is meant to reach into virtually every aspect of economic activity and whose flow-on effects cannot be fully anticipated. It should be expected that other unintended consequences, both positive and negative, will arise over time, and that further policy responses will be required.

6.2.1 Terrestrial biodiversity

Specific monitoring and data for managing the possible effects of the ETS-plus on biodiversity are as follows:

• Monitor progress towards reversing biodiversity decline in New Zealand; this will require maintenance and updating of national databases, and measures of ecological processes that sustain indigenous species assemblages and ecosystem functions.

• Improve quality of national data on significant vegetation cover, ecosystems and landscapes and their extent to enable rapid assessment of land use changes and pressures.

6.2.2 Land use modelling and monitoring

In order to better anticipate likely effects of the ETS-plus on land use and land use change, and therefore implement appropriate policy responses, New Zealand should enhance its land use modelling capability. Possible further work could include:

• improve the ability to predict land use change and its effects on the environment, eg, by filling data gaps concerning existing land use and how land use practice varies across locations

• monitor the effect of land use change on soil integrity

• monitor land use change as part of a specific monitoring programme associated with the ETS. Deforestation of a small area does not trigger a liability under the ETS and therefore need not be reported, but could in total amount to significant areas of land use change. This could result in an inaccurate measure of the effects of the ETS-plus unless such changes are monitored in other ways.

6.2.3 Energy

There are also some information needs in the energy sector, to enable more effective targeting of measures:

• further detailed studies of determinants of household energy use (including transport choices) and the factors influencing variation in energy use between households (cf Perkins and Hamnett, 2005)

• work with regional councils to ensure sufficient information is available to assess the air quality effects of fuel switching, especially in areas where pressure on air quality is already significant.

6.2.4 Transport

Stakeholders suggest that there are some gaps in data in relation to transport, in particular in relation to sub-national information. The following is recommended to assist decision-making and planning in respect of transport:

• significantly improve the quality of data on regional and local travel patterns, freight movements, fuel demand and emissions

• develop up-to-date measures of fuel efficiency for various transport functions, locations and modes.

6.2.5 Waste

The Government should monitor the solid waste sector to determine:

• whether conversion of waste to energy is causing localised air quality problems

• whether the increased cost of electricity and transport fuels is making reprocessing of recycled materials non-competitive and forcing more recyclables to landfill

• whether the increased cost of solid waste disposal is causing an increase in illegal tipping of wastes.

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