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Workshop Summary for a Scoping Report on Environmental Assessment of the NZ Emissions Trading Scheme

1. Introduction

2. Methodology

3. Summary of Stakeholder Input at Workshop

4. Appendix 1: Policy scenario to be assessed

3. Summary of Stakeholder Input at Workshop

The remainder of this document consists of summaries, by sector, of the information and views presented during the breakout sessions.

3.1 Energy Supply – With an emphasis on electricity

Policy Drivers & Assumptions

• Timing and nature of major investment decisions in transmission and power supply (i.e. existence of sunk costs will affect pattern of responses through time)

• Price effects of ETS together with direct obligations on some electricity generators and gas/coal/liquid fuel suppliers

• Thermal moratorium – especially if major gas find and depending on way exemptions are interpreted

• Biofuels obligation

• Afforestation Grants Scheme – if it leads to significant increase in feedstock for biofuels

• Methodology for calculating emission factors for electricity

Behaviour Change (what + when)

• Increased focus in geothermal, wind and hydro for electricity generation, including examination of alternatives to thermal for reserve energy

• Liquid natural gas imports less likely

• Possibly reduced gas exploration and reduced coal development

• Reduced investment in fossil fuel plant

• Increased electricity demand due to expanded use of heat pumps e.g. summer air conditioning

• Coal (lignite) to liquid fuel development less likely

• Increased electricity demand due to fuel switching (incl. electric cars)

• Reconfiguration of national grid

• Increased demand for wood and wood residues

• Some increase in direct local supply of energy – household wood use, solar energy

• Increased use of direct heat (e.g. geothermal)

• Possible relocation of industry to energy sources as renewables tend to be more site specific than fossil fuel generation

• Possible closure of large industries

• More exploration of distributed solutions (generation and storage) for major users

• Increase in marketing focussed on "CO2 free" products

• Investigation of domestic biofuel supply options

• Greater investigation of carbon capture and storage

• Investigation and possible development of marine energy

GHGs & Environmental Consequences (what + where)

• Reduced greenhouse gas emissions from electricity generation, especially in the longer term

• Reduced direct liquid fuel emissions due to biofuel obligation – indirect effects depend on source of biofuel

• Increased pressure on natural landscapes and amenity from wind generation and transmission line developments

• Increased need for location specific (i.e. geothermal and wind sites) demand for land for energy supply purposes

• Pressure for ‘energy concessions’ on conservation estate

• Conflict over water resources, especially between hydro dam proposals and recreation and ecosystem needs

• Irreversible loss of natural capital from hydro development

• Conflict over coastal marine areas e.g. between energy, fisheries, amenity, aquaculture, recreation etc

• Health impacts of shifts to more direct use of wood – air quality

Cross-sectoral Linkages

• Potential conflict between security of supply and environmental pressures

• Tourism: possible renewables can be tourist attraction e.g. Manawatu wind farms, also potential conflicts over e.g. hydro development, transmission capacity and wind in sensitive areas

• Waste: Possible impact on waste for energy development

• Primary Sector: conflicts over water and land (incl. hydro, wind and transmission)

Response Measures

• Good consumer protection against spurious environmental claims

• Provide clear sustainability standards for biofuels

• Regional energy strategies e.g. proactive development of eco-energy parks (wind plus fuel trees plus recreation)

• Expand targetted policy to improve energy efficiency at household (incl. state houses) and small enterprise level, to avoid adverse health effects and manage load growth due to fuel switching

• Proposed NPS on renewable energy needs to consider adverse effects of renewables as well as facilitation of renewable energy

• More community-based multi-stakeholder forward planning about energy sites esp. wind and marine

• Clarify intent and operation of thermal moratorium

• Consider proactively directing investment towards "non-traditional" renewables such as marine and away from further large hydro

• Increase research and planning re effects and location of marine energy sources

• Consider project type mechanisms to generate activity in sectors where price signal weak or complicated by other factors (e.g. households, emissions from wastewater)

Uncertainties, Info Sources, Gaps & Studies

• Operation of thermal moratorium in practice, and meaning of exemptions

• Household decision-making – e.g. heat pumps versus direct wood use

• Path dependence of new investment

• Extent and location of pressure on wild rivers for new hydro

• Rate, location and impacts of marine energy development

3.2 Energy Demand

(includes households, small enterprises and public sector institutions)

Policy Drivers & Assumptions

• ETS leads to increased energy prices for coal, gas and electricity, with coal and gas rising faster than electricity

• NZEECS measures are taken up to their full extent, in response to marketing and price/cost changes

• Effect of ETS price signal mediated through complex and changing public attitudes and awareness (e.g. attitude to climate change, extent to which ETS is seen as solving problem versus increasing motivation to for personal action, fashionable nature of being seen to respond)

• Nature of supporting regulation (e.g. MEPs) and detail of legislation (e.g. emission factors for electricity) will influence choices available to people

• Availability of capital a major driver of how and how quickly behaviour changes amongst different groups

• Nature and direction of Research and Development funding a major driver of direction of longer term change

Behaviour Change (what + when)

Short-medium term:

• Little change in liquid fuel use, small reduction in car travel and increase in demand for public transport in cities

• Reduced stationary energy use

• Increased demand for low-energy/low-carbon technologies and goods and services leading to higher turnover of some appliances for example fridges

• Fuel switching:

• away from coal towards wood and electricity (and possibly gas), for those with access to capital

• away from electricity towards locally gathered wood for lower income households

• Increased demand for household, institution and business energy efficiency retrofits

• Increased demand for "carbon-free" electricity

• Possible increase in demand for gas by households, depending on price effects

Longer term:

As above plus:

• Rising demand for new fuels/technology for process heat as equipment needs replacing

• Increasing community level action (e.g. building on CRAGs) in part driven by frustration with rising energy costs

• Increasing demand for more fuel efficient/carbon-free transport systems

• Increased demand for local solutions and pressure for local government to act (e.g. local eco-energy parks, transport alternatives, community energy action)

• More use of decentralised generation and storage by a range of users, leading to changes in the pattern of electricity demand

• Increased desire for the problem to be "solved" rather than simply presenting a series of price increases

• Reduced sensitivity of demand for energy services to energy prices due to greater energy efficiency

• Increasing demand for renewable electricity and fuel wood, reducing demand for coal and possibly gas

GHGs & Environmental Consequences (what + where)

• Increased pressure on landscape, amenity and natural capital (incl. Conservation land) from demand for renewable energy, especially over medium to longer term

• Health impacts from reduced energy use (and possible increased use of wood) by those without access to income and capital to adjust

• Air quality will generally improve but may be areas of localised deterioration due to increased direct use of wood, esp in provincial and wooded urban areas

• Small reduction in greenhouse gas emissions (largely CO2) relative to BAU, due to relatively limited price response initially

• Pressure on marine environment from competing uses e.g. marine energy versus aquaculture and recreation

• Possible pressure on amenity and natural character of coast from wood scavenging

• Waste pressure through increased disposal of energy inefficient appliances (e.g. fridges) and need for disposal facilities for new efficient equipment (e.g. CFLs, batteries etc from electric cars)

Cross-sectoral Linkages

• Interaction with other sectors over demand for biomass from wood chip to bioethanol

• Changes in patterns of electricity demand

• Increased demand for energy efficient goods and services

Response Measures

• Increased emphasis on long-term measures to enable reduced emissions, especially in transport, with an emphasis on good urban design

• Proactive local planning and central leadership to help deal with resource conflicts – possibility of multi-stakeholder consultation to assist this

• Significantly strengthen education and adjustment assistance for this sector

• Transition programmes and policies based on good life-cycle analysis of products

Uncertainties, Info Sources, Gaps & Studies

• Extent to which previous experience is a good guide to future reaction

• Existence of non-linear tipping points/cultural factors e.g. An Inconvenient Truth

• Extent, rate and nature of technological change

• Rate and nature of changes in values and beliefs in relation to climate and energy

3.3 Transport

Policy Drivers & Assumptions

• Fuel and energy price increases as a result of carbon price

• Changes to vehicle prices (various NZEECS measures)

• Better information availability, e.g. car fuel efficiencies

• Assume small change in transport fuel prices, at least in short term

• Major assumption is in how much behaviour can be expected to change. Work and daily life-related transport is assumed to be very inelastic but major and/or prolonged fuel price increases are known to have influenced travel demand

Behaviour Change (what + when)

• Change in transportation patterns from increased price and/or awareness, e.g. greater efficiency of transport use, more cycling and walking, public transport, fewer single occupant car trips, change in freight delivery modes, more fuel-efficient cars, reduction in car mileage or numbers, less discretionary travel for holidays and business

• Changes in transportation patterns in response to land use changes, e.g. increased use of transport corridors, improved access to and demand for public transport, reduction in peri-urban commuting, move from road to rail and shipping for long-haul freight distribution

• Short-term effects thought to be limited because the initial price signal low and incentives to change deeply-ingrained behaviour limited to relatively few people

• Efficiency gains for freighting will be limited by internationally low truck mass and dimension regulations and bridge design loads

• Fuel-switching e.g. petrol to diesel. Not possible in all forms of transport

• Decrease in viability of some forms of transport less able to pass on costs e.g. coastal shipping

• Technical innovation for vehicle technology e.g. electric car manufacturing

• Development of novel arrangements for travel offsets

• Incentives to work more from home

GHGs & Environmental Consequences (what + where)

• Reduction in transport emissions: depends on size of price increase but likely to be initially small (limited to reduction in emissions growth)

• Positive effects of greater transport efficiencies: potentially better urban form if less or changed transport required: fewer car parks, fewer arterial roads, more bus and cycle ways

• Changes in land use in response to transport price increases, e.g. less pressure for peri-urban subdivision, increase in biofuel production and local food production, greater pressures on transport corridors, change retail patterns, requirement for new infrastructure for alternative fuels or transport methods/routes, increase in local warehousing

• Changes in pattern of pollution loads and congestion on roads: more pollution/congestion on transport corridors, less elsewhere

• Greater particulate emissions from higher diesel use

• Increased viability of biofuels leads to land use changes and reductions in income from some other types of farming

• Road safety problems, especially more accidents involving cyclists, greater danger from heavier/bigger trucks

• Working at home effects:

• demand for greater or more flexible telecoms etc

• changed/greater home energy and local transportation demand

• Lower profitability of some types of businesses

• May become uneconomic to export heavy commodities

Cross-sectoral Linkages

• Strong linkages to energy sector

• Fiscal consequences of shift from private to public transport: funding problems

• Reduced international tourist arrivals could have multiple consequences

• Reduced fuel taxes in Consolidated Fund could lead to fewer resources for conservation etc.

• Higher transport costs likely to have disproportionate effects on lower SE groups (less able to switch work travel patterns)

• Less economic activity in some regional/local areas from more centralized freight routes and tourism

• Better health outcomes if switch to more active travel modes, less air pollution

• Major implications for urban planning

Response Measures

• District and regional planning needs: enabling land use change, urban design strategies, more park and ride facilities, addressing pressures on transport corridors, increased range of services and amenities available in one area, enable increased urban density where required

• Combined response for move from private to public transport: push and pull measures

• Enhance rail corridors

• Better and more public transport, channeling revenue from fuel price into public measures

• Legislated measures to change behaviour, e.g. minimum fuel efficiency standards, bylaws to reduce single occupancy trips, requirement for most efficient transport to be used

• Fee differentials for high and low efficiency vehicles

• Lower hurdles for required infrastructure development e.g. greater ability to become “requiring authorities”

• Address barriers to demand elasticity

• More work-from-home programmes

• Awareness and education programmes on how people’s behaviour impacts on the environment, better fuel management. Need to be simple to reach all people

• Invest in safer roads

• Facilitate electric and energy-efficient vehicle entry in NZ

Uncertainties, InfoSources, Gaps & Studies

• Degree and timing of fuel price rise, and elasticity of response, critical to all responses and effects

• Awareness and behavioural effects, e.g. relative role of awareness and monetary incentives to change transport behaviour, influences on behavioural change in the sector (preference for large cars may overwhelm price signals), inter-relationships of differing responses of individuals/organizations/businesses

• Relationship between rise in prices and increase in vehicle efficiency may even out and result in no net change in behaviour

• Inter-relationships between different modes of transport responding in different ways to fuel price increases

• Impacts of allocation of free NZU to transport sector

• Research on appropriate biofuel development for NZ

• Differential impacts on small and large businesses

• Relative population changes very difficult to determine: ETS could lead either to greater concentration, or to greater dispersion. Very difficult to separate ETS-driven changes from other pressures

• Implications of greater work-from-home (incl. perverse energy outcomes) – review overseas studies. Also how to enable if seen as positive

3.4 Land use – Dairy and other intensive agriculture

Policy Drivers & Assumptions

• ETS price signal relative to carbon price (or lack thereof) faced by competitors

• The environmental effects of the ETS will depend on where the point of obligation is for the agriculture sector, and in particular whether land users are exposed to the full price signal²

• Changes in cost of energy in 2009/2010 as energy enters ETS

• Compliance cost drivers

• Charge on methane and nitrous oxide flow through from point of obligation if at processor

• Public opinion and market expectations considered greater drivers than price effect in a fast growing and potentially cash rich industry

• High price of carbon required to trigger behaviour change with exception of land use change from sheep and beef to dairy

• Policies and research to reduce animal GHGs

Behaviour Change (what + when)

• First time agriculture emissions have faced direct price signal (agriculture energy emissions will get a price signal earlier than 2013) so sector could factor this into its strategic planning and investment decisions

• Given time lag until 2013, industry may not respond immediately in 2013, since inertia due to high growth and large capital investments between now and 2013

• After 2013 uptake of DCD, feed additives, biochar, herd homes, feedpads

• Less use of nitrogenous fertilizer

• More use of N inhibitors

• Output could decline (or fail to increase) due to price signal if high enough (higher than $50 a tonne)

• Increased cost of energy on the farm will lead to more use of waste for energy (biogas), greater use of feedpads, riparian management resulting in reductions in GHG emissions and nutrient leaching

• Increased investment in research by industry to mitigate emissions (and costs of liability)

• Changes in LU practices on DOC estate due to wilding pines at margins, increased pest management from adjacent land

• Dairy sector could invest some of higher payout into environmental best practice

GHGs & Environmental Consequences (what + where)

• Potential for slowing increase in emissions after 2013, but growth between 2008 and 2013 could be significant given pace of growth in sector

• Base case activities could compensate for some of the growth up to 2013 e.g. deployment of N inhibitors and on-farm management practices

• A focus on efficiency resulting in a decrease in associated environmental impacts –GHG emissions and water quality effects

• Use of N inhibitors could result in effects on wetlands

• Reduced fertilizer use and nutrients losses to water

• Energy to waste could have associated emissions to air and thus constitute pollution swapping

• Landscape changes in new dairy areas e.g. McKenzie country, locked in before 2013

• Better use of water could result but continued water demand impacts from dairy up to 2013 may slow the effect

• Added ETS cost will hasten landuse change and adoption of new technologies and management practices

• As sheep and beef decline in some areas as a consequence of land price rises some land could revert to indigenous vegetation with positive biodiversity outcomes and some could be used more intensively with negative environmental effects

• A premium on NZUs could result in good environmental outcomes

• Timing of agriculture sector entry to ETS could lock in unsustainable investments which will be slow to respond to ETS

• Regional effects will be different

• Offsets, greater intensification to offset costs, banking of NZUs are likely responses

• Post 2013 if carbon price slows dairy expansion and intensification there could be reduced environmental effects (NB: still higher than current due to delay in agriculture sector entering ETS

Cross-sectoral Linkages

• Effects on waste stream (both positive and negative)

• Reduction in pastoral farming emissions

• Increases in cropping (for dairy feed) and hence their GHG emissions

• Higher value-add products from farming (sheep and beef) incentivised

• Dairy intensification competing for sheep and beef land which also intensifies and uses indigenous regenerating land pressure to remove water from milk using efficient methods, before transport thus reducing energy demand from transport and processing

Response Measures

• Stronger central government signal for local government e.g. guidance material on likely environmental effects and how to manage them through RMA; NPS for biodiversity

• Introduce a NPS and NES for water quality to address nutrient leakage from intensification of agriculture as a complement to ETS and to get consistency across regions so not left to each council to deal with

• More comprehensive and assertive implementation of S15 and S17 of the RMA by councils

• Introduce water pricing and allocation plans

• Councils make dairying a discretionary activity subject to landowners ability to mitigate effects

• There is no incentive for farmers who want to abate before 2013

  • include in ETS legislation a generic clause that will allow the inclusion of new technologies for mitigation of non-CO2 GHG emissions as science develops
  • bring nitrous oxide emissions from agriculture into ETS earlier than 2013
  • pilot to demonstrate mitigation measures
  • use some of free allocation to incentivise mitigation

• Link ETS to good environmental performance – constraint on what is eligible for a carbon credit to avoid perverse incentives of ETS e.g. RMA has not protected biodiversity so more efficient to use ETS clause to restrict planting on regenerating areas

• Greater industry leadership and promotion of good environmental practice

• Use ETS just to deal with GHG (a contrary view to those who wanted to augment the ETS as an efficiency measure to deal with perverse effects

• Link ETS to good environmental performance – constraint on what is eligible for a carbon credit to avoid perverse incentives of ETS e.g. RMA has not protected biodiversity so more efficient to use ETS clause to restrict planting on regenerating areas

• Greater industry leadership and promotion of good environmental practice

• Use ETS just to deal with GHG (a contrary view to those who wanted to augment the ETS as an efficiency measure to deal with perverse effects

Uncertainties, Info Sources, Gaps & Studies

• More proactive use of current RMA to address environmental effects

• Need outcome of Motu Public Policy Research modelling of land use changes

• Review knowledge of effects of N-inhibitors on water quality of rivers, lakes and wetlands by locality and develop best practice guide

• Biochar research needs to include consideration of potential health effects on food

• Understand land ownership drivers better to better anticipate environmental effects of ETS

• Better information and its communication about the ETS and related policies

• Assess price thresholds for behaviour change

3.5 Land use – Extensive farming³,⁴

Policy Drivers & Assumptions

• ETS price signal relative to carbon price (or lack thereof) faced by competitors

• The environmental effects of the ETS will depend on where the point of obligation is for the agriculture sector, and in particular whether land users are exposed to the full price signal⁵

• Will add cost and reduce profits-input costs will increase through price on carbon e.g. for energy use

• Earlier price signal on energy will drive some mitigation where technologies exist, offsets and more intensive farming

Behaviour Change (what + when)

• First time process emissions have faced direct price signal so could be additional attention to these emissions

• Increased costs will reduce investment in weed control

• DOC pilot C- bank project initiated (report back 2009)

• Increased pest control needed by DOC

• Biofuel cropping on marginal land

• Forest planting likely to increase on sheep and beef land due to low margins for sheep and beef

GHGs & Environmental Consequences (what + where)

• Weeds will increase as a problem including wilding pine management

• DOC C- bank project provides an offsetting opportunity versus emissions reduction-seen as transitional

• Potential biodiversity and water and soil benefits if marginal sheep and beef land is “retired”

• Forestry planting and biofuel cropping in conflict with biodiversity, water and soil benefits on same land

• Intensification of smaller areas of land on farms due to price increases could increase environmental effects from sheep and beef-soil compaction, nutrient leakage due to increased fertilizer use

Cross-sectoral Linkages

• Pest control has a potential biodiversity and carbon benefit

• “New” weeds may have biofuels benefits e.g. sycamore and willow

Response Measures

Those noted for forestry all relevant to extensive farming areas:

• stronger central government signal

• use existing provisions of RMA including NES

• bonds for forestry owners

• link ETS and limits to what land and species can be used and where

• carbon credits for permanent forest sinks (including a range of non-pine species

• sector guidance and leadership

• offset incentive scheme

Uncertainties, Info Sources, Gaps & Studies

• Further studies of likely environmental impacts of landuse changes and of land value changes

• Identification of land areas and location where biodiversity impacts are greatest and full valuation of biodiversity benefits

• Assess how small forest owners (including farmers) can coordinate their plantings to gain from ETS with environmental benefits

3.6 Land use – Forestry

Policy Drivers & Assumptions

• ETS price signal relative to carbon price (or lack thereof) faced by competitors

• Credits for forestry provide an incentive for planting

• Afforestation Grant Scheme (AGS) working alongside ETS

Behaviour Change (what + when)

• Rules around pre-1990 forests will result in stranded assets and potential source of wilding pines since no management. Will go for one off pulp and then pulp industry exits after 2013 due to increased energy costs and diminishing wood for pulp

• First time forestry sector has faced a direct price, so can factor this into its strategic planning and investment decisions for post 1989 forests

• NZUs will be banked for security to harvest so few NZUs available for ETS and NZ will have to buy offshore

• AGS will increase value of marginal land

• Greater than $50 a tonne carbon would incentivise new planting while net deforestation below this level

• Some land will convert, some revert to weeds and some to indigenous⁶

• Planting location will still be affected by land competition for dairying since latter not in ETS till 2013

• Planting likely to increase on sheep and beef land due to low margins for sheep and beef

• No incentive for indigenous forestry planting

• Increased cost of energy for forestry will lead to more use of wood waste for energy which could reduce CO2 emissions depending on the system adopted

GHGs & Environmental Consequences (what + where)

• Increased sequestration of carbon through increased planting due to price signal

• Reduced peak flows and flood risk, and sediment reduction from plantings on erodible land

• Possible increases in sedimentation in coastal and fresh waterways at harvest

• Possible reduction in biodiversity where forests planted in biodiversity rich areas for credits or for biofuels and replace indigenous regeneration e.g. low high country (less than 800m) and lowland and wetland areas. Intensification of farming as a result has same issues. Landscape changes due to increased forestry on hill country

• Better weed control on land in planted forests c.f. land where no income for weed control (decreasing returns from sheep and beef and increased input costs to maintain income)

• Protection of remnant ecosystems on farm where in PFSI

• Increased water use/energy use from irrigation for more intensive land uses

• Biodiversity gain through indigenous re-vegetation as an expanded land use

• Co-benefits on the farm and offsite benefits and negative effects

• C- sequestration may be unreliable (risks)

• Potential low flow impacts but shading benefits to rivers and streams where riparian management using trees

• Large land areas could be taken out of production for private and national gain with local impacts

Cross-sectoral Linkages

• Increases in wilding pines across NZ and need for resources and responsibility for managing on private land and DOC land

• Reduction in extensive farming emissions

• Increases in cropping (for dairy feed) and hence GHG emissions

• Intensification on sheep and beef land remaining after planting with increased nutrient leakage, soil compaction

• Increased energy use for biofuels consumption

• Permanent forests have wider benefits – recreation, tourism

• Incentivises bio-char and bio-oil production

• Incentivises demand for wood as an renewable energy source for households and industry and soil enhancer for household and horticulture use

• Native forest restoration and energy benefits – household firewood and soil conditioner (compost)

• Potential for small-scale energy production (1MW) for woodchip on farms

• Urban planting with many co-benefits

Response Measures

• Stronger central government signal for local government e.g. guidance material on likely environmental effects and how to manage them through RMA; NPS for biodiversity

• Greater use of existing provisions in RMA by councils for compliance and to protect water quality

• Use of NES for forestry activities as a permitted use under RMA

• Possible bonds for forestry owners to manage the wilding pines off their sites, so taxpayer/ratepayer doesn’t have to pick up the tab.

• Include in the ETS legislation a clause which mirrors clauses in the NZ Climate Change Accord and the Forest Accord, and with respect to:

  • limitations on what land and species can be used where
  • subject to best practice forestry code (e.g. not harvesting riparian areas)
  • recognize value (premium) of eco-certified post-1989 forests
  • provisions to apply to public and private land
  • verification requirement to show impact of how credits have been generated

• No credits for environmentally damaging forestry

• Issue carbon credits for permanent forest sinks and auditing system for voluntary carbon sinks

• Guidance for sector on best practice and case studies for local government to manage impacts

• Local government /SMF support for energy/ecology park for native forest restoration-co-benefits for household firewood and compost

• Offset incentive scheme under ETS

Uncertainties, Info Sources, Gaps & Studies

• Information needed on location and hectares likely to be convertible to forestry of different species Ref OECD environmental review of NZ

• Need social and economic studies of impact of land value increases on environmental values

• Assess how small forest owners can coordinate their plantings to gain from ETS with environmental benefits

3.7 Medium & Heavy Industry

Policy Drivers & Assumptions

• “Medium & Heavy Industry” includes cement, steel, aluminium, fertiliser and other manufacturing industries

• ETS price signal relative to carbon price (or lack thereof) faced by competitors.

• Preference for renewable electricity could also be a factor; could undermine security of supply and therefore create price instability, which would deter long-term investment and re-investment in manufacturing plant and equipment.

Behaviour Change (what + when)

• This is the first time that process emissions have faced direct price signal (although some industries addressed these earlier via voluntary agreements) so could be additional attention to these emissions

• Output could decline (or fail to increase) due to price signal

• Could be shift in demand away from steel and concrete toward wood

• Increased cost of energy could lead to more use of waste for energy

• Increased energy cost could make glass recycling less competitive with imported glass

• Timing will depend largely on when plants are due for significant reinvestment.

GHGs & Environmental Consequences (what + where)

• Some decrease in process emissions (relative to base case scenario) per unit of output

• Energy use and associated emissions related to output decline relative to base case, but this likely to cause leakage. Could also be social consequences depending on how adequately any free allocation protects existing production levels

• Any decline in output will mean decrease in associated environmental impacts – mostly air emissions (e.g. particulates) but also discharges to water and reduced waste stream (e.g. used cathodes)

• Energy to waste could have associated emissions to air

• Increase in waste glass to landfill if recycling becomes less competitive

Cross-sectoral Linkages

• Effects on waste stream (both positive and negative)

• Transport of raw material to plants might decline, but could be offset by increased imports.

Response Measures

• Border tax measures to equalize cost of carbon with imports

• Consumer labelling to recognize that NZ product is carbon-efficient and/or has accounted for its carbon (but might not be effective, as sectors are producing mostly intermediate products not consumer goods)

• Ensure that RMA consent process does not inhibit installation of more efficient plant and equipment

• Improved transport infrastructure would reduce costs and also, possibly, reduce transport-related emissions

Uncertainties, Info Sources, Gaps & Studies

• Nothing noted during the workshop for these sectors

3.8 Agricultural & Forestry Processing

Policy Drivers & Assumptions

• ETS price signal relative to carbon price (or lack thereof) faced by competitors

• Preference for renewable electricity could also be a factor; could undermine security of supply and therefore create price instability, which would deter long-term investment and re-investment in manufacturing plant and equipment

• Strong linkage to effects of ETS on land use, because supply of primary product will drive the demand for processing. But the linkage also goes the other way i.e. the competitiveness of the processing sector will have implications for land use

Behaviour Change (what + when)

• Output could decline (or fail to increase) due to price signal

• Could be shift in demand away from steel and concrete toward wood, increasing demand for forest processing in NZ

• More conversion of waste to energy (already utilized in forest processing sector)

• Timing will depend largely on when plants are due for significant reinvestment.

• Could eventually see more on-farm processing, using farm-based energy supply (e.g. methane from animal waste)

GHGs & Environmental Consequences (what + where)

• Decline in output relative to base case, so decline in energy use and associated emissions, but this likely to cause leakage. Could also be social consequences depending on how adequately any free allocation protects existing production levels

• Any decline in output will mean decrease in associated environmental impacts – mostly air emissions (e.g. particulates) but also discharges to water

• Energy to waste could have associated emissions to air

Cross-sectoral Linkages

• Strong linkages to land use effects (see Policy Drivers above)

• Transport of raw material to plants might decline, but could be offset by increased imports

Response Measures

• Same as for Medium & Heavy Industry, PLUS

• Government should acknowledge carbon stored in wood products and give credits to forest owners, and pursue change in Kyoto definitions and methodologies

Uncertainties, Info Sources, Gaps & Studies

• The forestry industry is completing a study on when its members’ major plants are due for re-investment – many of them are old and require renewal. Or companies might decide to build new in a developing country without emissions obligations

3.9 Mining, including oil and gas exploration⁷

Policy Drivers & Assumptions

• ETS price signal in electricity and liquid fuels, as mining sector is energy-intensive

• Preference for renewable electricity could also be a factor, if it has significant effect on domestic demand for fossil fuels (especially gas)

Behaviour Change (what + when)

• Output could decline (or fail to increase) due to price signal

• Re-mining of tailings and other waste streams is possible if this is more energy-efficient than mining natural deposits

GHGs & Environmental Consequences (what + where)

• Decline in output will lead to reduction in energy use and associated GHGs, but this likely to cause leakage

• Associated decline in impacts on water, air, biodiversity and landscapes, but possibly “exported” to other countries

Cross-sectoral linkages

• Transport of raw material to plants might decline, but could be offset by increased imports

Response Measures

• None identified

Uncertainties, Info Sources, Gaps & Studies

• None identified

3.10 Seafood (fishing and aquaculture)⁸

Policy Drivers & Assumptions

• ETS price signal in liquid fuels, as fishing is energy-intensive

• Note that fishing industry is already under-taking energy efficiency initiatives with EECA in response to the increased cost of diesel fuel that has already occurred

Behaviour Change (what + when)

• Shift in production focus to aquaculture (less energy-intensive than fishing)

• Possible use of mussel shells as renewable energy source in cement kilns?

• Possible further change in fishing strategies – e.g. aim for higher biomass to increase catch per unit effort

• Trawling, which is energy-intensive, could decline relative to other methods

• Possible development of more efficient fishing gear & techniques

• Fleet rationalisation as least profitable fishers are forced out – perhaps more pressure on inshore fish stocks (as fuel cost makes deep sea fishing less viable)

GHGs & Environmental Consequences (what + where)

• More pressure on coastal resources for aquaculture and commercial fishing

• If fishers aim for higher biomass, stocks would be less susceptible to collapse

• Less trawling would lead to less benthic disturbance

• New fishing techniques could cause more or less environmental effects (e.g. seabird bycatch) than existing methods

Cross-sectoral Linkages

Response Measures

• Improve process for allocation of coastal space, as this is impeding development of aquaculture, and/or facilitate development of land-based and open ocean aquaculture

• Review Fisheries Act to ensure stocks can be managed for maximum economic yield if this means a higher biomass than maximum sustainable yield

Uncertainties, Info Sources, Gaps & Studies

• None identified

3.11 Solid waste management⁹

Policy Drivers & Assumptions

• Price of emissions relative to waste levy and product stewardship requirements that could emerge from Waste Management Bill before Parliament

Behaviour Change (what + when)

• Solid waste does not enter ETS until 2013, so the ETS is unlikely to drive any change in waste generation before then (although the waste levy could do so)

• Not clear how landfill operators will respond – would expect increased attention to separation of organic waste at source, especially for sites without methane collection

• Increased interest in use of waste as an energy source

• Reprocessing of recycled materials (e.g. paper and glass) likely to become less attractive relative to importing virgin product from countries without emissions obligations (leakage). Collection and transport of recyclables for export will also become less attractive

GHGs & Environmental Consequences (what + where)

• Should be less organic waste to landfill and lower GHG emissions over time, but change likely to be gradual

• Potential for increased air emissions from burning waste for energy

• Recycling programmes less viable; more recyclables to landfill

• Possibility of increased illegal dumping of waste if price gets too high

• Overall change in demand for landfill space (relative to base case) is difficult to predict

Cross-sectoral Linkages

Response Measures

• Wastewater and closed landfills likely to be exempted from ETS, so projects mechanism might be appropriate to incentivise emissions reductions

• Provide composting guidelines and other assistance to businesses and households, and assist councils to design price structures that reward separating organic waste

• Review national air quality standards that prohibit incineration of municipal waste to assess whether this could be allowed under strict conditions

Uncertainties, Info Sources, Gaps & Studies

• Monitor combined effect of waste levy and carbon charge to ensure it is not leading to significant increase in illegal dumping of waste

3.12 Tourism and other service industries

Policy Drivers & Assumptions

• Fuel and energy price increases as a result of carbon price

• Greater awareness of energy/carbon costs of tourism

• Many assumptions and other aspects of analysis as for transport sector: transport costs constitute the highest energy demand for tourism and most service industries. For tourism, accommodation energy costs are the next highest

Behaviour Change (what + when)

• Slightly higher costs of tourism travel and all types of accommodation and services

• Slightly less internal travel by tourists (esp domestic), BUT

• Less overseas travel by NZers because of greater awareness of carbon costs of flying, could result in greater internal travel by NZers

• More moves towards sustainable tourism – carbon neutral. Higher interest in offset schemes and other mitigation measures

• Tourism industry taking leadership in sustainability

GHGs & Environmental Consequences (what + where)

• Higher travel costs for all tourism operators (TIANZ estimate of 3–14% loss of income for operators)

• More group holiday packages and fewer FITs (free and independent travellers) – but doubted by some because FIT is a major attraction for overseas tourists

• Reduced capacity for air freight

Cross-sectoral Linkages

• Many close linkages to travel sector. Some linkages to stationary energy sector (accommodation and services energy demand)

• Reduced economic activity and employment from tourism or reduced numbers of international tourist arrivals could have multiple consequences, especially in regions away from main truck routes

• Concern that tourism could be disproportionately affected by higher travel costs because seen as discretionary travel

Response Measures

• Adoption by operators and sector of travel/energy demand reduction measures

Uncertainties, Info Sources, Gaps & Studies

• Major uncertainty around inclusion of aviation fuel into Kyoto framework. This could significantly reduce number of international tourists and would have major impact on NZ tourism

• Even without aviation fuel inclusion, number and types of overseas tourists (country of origin, demographics, preferences and environmental awareness) could change significantly because of greater international awareness of energy/carbon costs of long-term travel

• Impacts of higher travel costs very hard to predict – relationship of domestic to international tourist numbers, changes in travel patterns, demand for tourism products, etc

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