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4. Appendix 1: Policy scenario to be assessed

The purpose of this scoping study is to identify potentially significant environmental effects associated with the proposed NZ Emissions Trading Scheme (ETS) and closely related measures, and to identify where the Government’s policy framework may need to be adapted to address significant environmental concerns and opportunities that are likely to arise in respect of those measures.

Table 1 lists the policies included in the “ETS and closely related measures”, whose environmental effects will be assessed against a base case scenario. The base case consists of all other policies and measures already implemented as at 1 January 2008 unless otherwise specified below. Table 2 lists base case policies of particular significance.

Measures that are already established and funded – for example, the Permanent Forest Sinks Initiative – are in the base case scenario and their interaction with the ETS will be assessed in that context.

We have also put new waste management policy in the base case category – we have made the assumption that Parliament will enact the Bill, and that it is not driven primarily by climate change considerations. And we have excluded policies that have goals or targets but no definitive measures – however, measures to achieve these goals might be identified in this project as new policy responses to address environmental concerns.

Finally, of policies related to agriculture and forestry, only the ETS itself and the proposed Afforestation Grants Scheme are in the policy scenario (Table 1); other measures in the Government’s Plan of Action on Sustainable Land Management and Climate Change are in the base case scenario (Table 2). These are driven mainly by climate change considerations, have in most cases been confirmed and will operate to support the ETS and closely related measures.

Table 3 lists some key assumptions regarding energy supply.

Table 1. Main features of the ETS and closely related measures to be assessed against the base case scenario

Measure	Main features	Comments
Emissions trading scheme
Forestry	a. As of 1 January 2008, post-1989 forests¹⁰ eligible to claim sink credits. If claimed, must account for any reduction for harvest or deforestation. b. As of 1 January 2008, owners of pre-1990 exotic forests will be liable for deforestation emissions; will receive some free allocation. c. Owners of pre-1990 indigenous forests are not included in the ETS, but government has signaled openness to further discussion.	Government will allocate 21 Mt for deforestation of pre-1990 exotic forest during CP1, plus 34 Mt thereafter. Distribution mechanism for these units will be determined in allocation plans issued under Order in Council. Deforestation exemptions: Owners of <50ha (must apply) Deforestation of <2ha per 5-year period (automatic) Removal of invading weed trees (up to 1,250 ha).
Liquid fossil fuels	As of 1 January 2009, those who import liquid fossil fuels, or remove them from refinery, are liable for emissions.	Exemption for fuel exported or used in international trips.
Stationary energy	As at 1 January 2010, importers or producers of fossil fuels¹¹ for generation of stationary energy (e.g. heat and electricity) liable for emissions.	Both Stationary energy & Industrial processes: Zero free allocation will be given to fuel suppliers and electricity generators.
Industrial processes	As at 1 January 2010, industrial facilities will be liable for non-energy industrial process emissions.¹²	Eligible trade-exposed industrial firms will receive free allocation equal to 90% of 2005 emissions from stationary energy¹³ and industrial processes from 2010 to 2013, with annual allocations declining to zero by 2025.
Agriculture	As of 1 January 2013, the agriculture sector¹⁴ will be liable for non-CO2 emissions, though point of obligation yet to be determined.	Sector will be given free allocation in 2013 equal to 90% of 2005 non-CO2 emissions, with annual allocations declining to zero by 2025. (Energy emissions already covered as of 2010 under “Stationary Energy”.)
Waste	As of 1 January 2013, solid waste disposal facilities will be liable for non-CO2 emissions from operations.	(Energy emissions already covered as of 2010 under “Stationary Energy”.)
Closely-related Measures
Preference for renewable electricity generation	10-year ban on construction of new fossil-fueled thermal baseload generation capacity >10 MW, subject to exemptions.	Exemptions apply, subject to application criteria set out in Climate Change (Emissions Trading and Renewable Preference) Bill currently before Parliament.
Biofuels sales obligation	From mid-2008, oil companies required to sell biofuels as certain proportion of total fuel energy sold, starting at 0.53% and rising to 3.4% in 2012.	Based on energy content of diesel and petrol sales (aggregated). Biofuel Bill currently before Parliament. Bioethanol currently has an exemption from petrol excise duty. There is no equivalent exemption for biodiesel; vehicles that use biodiesel are subject to Road User Charges in the same way as vehicles that use petroleum diesel.
NZEECS
Energywise homes – all actions in 2.1–2.3 (except 2.1.5, 2.2.5, 2.3.2-4), 2.4.1, 2.5.1	Insulation retrofits and clean-heat installation in private and Housing NZ homes. New minimum energy performance standards, accelerated household appliance retirement (esp fridges). Building Code changes: increased use of compact fluorescent lighting, higher thermal performance and hot water system standards. Solar water heating: financial and other assistance.	Some questions remain as to which of these are existing programmes, and what is new for the 2007 NZEECS.
Energywise business – 3.1.1.a&b, 3.1.2.1 and 3.1.2.3, 3.1.3.3,	Business energy audits and capital grants for energy intensive businesses. Technology transfer for compressed air, electric motors and industrial heat. Capital grants for woody biomass demonstration projects and pilot scheme for school boiler conversion to woody biomass. Electricity efficiency programme for commercial buildings.	Some questions remain as to which of these are existing programmes, and what is new for the 2007 NZEECS.
Energywise transport – 4.3.1,4.3.2 and 4.3.6 only	Light vehicle fuel economy labelling introduced by March 2008. Average fuel economy standards for new and used vehicles entering the fleet (around 7 litres/100km).	Fuel economy standards for light vehicle fleet still being finalised.
Afforestation Grant Scheme
Afforestation grants	Grants by competitive tender for new afforestation that is not in ETS, PFSI or ECFP. Exotic, planted indigenous and “assisted indigenous reversion” are eligible.	Maximum grant rates to be determined. Level of funding not yet known. Grantees enter 10 year contracts with Crown. No obligations after 10 years.

Table 2. Main features of significant policies included in the base case scenario

Measure	Main features	Comments
Sustainable land management: A. Forestry – Creating carbon sinks and reducing emissions
East Coast Forestry Project	Erodible land in Gisborne District eligible for grant to assist afforestation, targeted at most highly erodible land. Grants available for exotic forestry, gully planting and native reversion. Since 1992, 37,000 ha planted.	Proposed that ECFP grant be reduced if grantees opt in to ETS, but only for applications received after ETS announcement in September 2007. Can combine PFSI with ECFP without penalty, but if participant later opts into ETS, must refund difference between full and reduced ECFP grant.
Permanent Forest Sinks Initiative	New forests can earn emission units with permanent covenant and harvesting restrictions.	Proposed that PFSI participants have option of switching to ETS (more ability to harvest, but with associated obligations) within 18 months. Scheme will develop methodology for measuring carbon storage.
Public conservation land carbon storage	Six pilot projects on 40,000 ha, in which investors pay DOC to establish forest carbon sinks on specified areas of conservation land. Two options: planting or natural regeneration of land not in forest at 1990; or measured pest control initiatives to increase carbon storage for pre-1990 forest.	Tenders for initial round due on 31 March 2008. Tenders are also invited to sponsor additional conservation activities on public conservation land. Investment term for carbon sink projects is 45 years.
Hill Country Erosion Initiative	$2 million available annually to help hill-country farmers treat erosion-prone land. Covers assistance to farmers for afforestation plus research, training and other support.	Primarily for regional initiatives through regional councils at this stage.
MAF policy on illegal logging	Awareness and action amongst New Zealand producers, suppliers and consumers to reduce illegal logging.	Covers domestic and international illegal logging. MAF researching feasibility and practicality of introducing a regulatory requirement for a supplier’s declaration of conformity on all timber and wood products sold in New Zealand.
Forests Act	Provisions for sustainable management of indigenous forest on private land, primarily through Sustainable Management Plans and Permits. Also covers milling and export controls.
Biofuels R&D	Bioenergy Research & Development (R&D) and other R&D in the Plan of Action related to forestry measurement and management.	Biofuels R&D is part of a larger R&D programme with the wood industry.
B: Agriculture
Government investment initiatives for agriculture emissions mitigation in the Sustainable Land Management and Climate Change Plan of Action	Adaptation partnerships and community irrigation fund. Farm level GHG reporting. GIS infrastructure. Business partnerships, biochar R&D. Adaptation, mitigation and inventory R&D fund. Technology transfer partnerships with industry through SFF and CC funding.	Total investment in the SLM Plan of Action is $175 million over 5 years (38.811 p.a.) A number of initiatives are partnered with industry and are currently being developed but are progressively being implemented over the next 3 years. Refer NZ Climate Change Solutions SLM and CC Plan of Action A Partnership Approach September 2007 pp 18.
Waste management
Waste levy	Levy per tonne of waste to landfill. Default rate of $10/tonne of waste, but regulations can vary the rate (higher or lower) and set a different rate for different facilities and in different locations. Levy revenue is split between local authority and central government and must be used for waste minimisation.	Levy proposed in Waste Minimisation (Solids) Bill, and also in Supplementary Order Paper September 2007. Government indicated support for the Bill when SOP referred to Select Committee.
Product Stewardship Scheme	A product stewardship scheme must be developed and accredited for products declared (by the Minister through Gazette notice) to be "priority products". Other products can apply for voluntary accreditation of schemes.	Extended producer responsibility proposed in Waste Minimisation (Solids) Bill, amended to Product Stewardship Scheme in Supplementary Order Paper Sept 07. Government indicated support for the Bill when SOP referred to Select Committee.
Transport
Existing funding and expenditure policies	National Land Transport Programme 10 year forward programme (including Northern Busway) plus existing commitments for ONTRACK, including Auckland rail electrification and Wellington rail extension. Existing active living programmes maintained and Walking and Cycling strategy implemented.	These are examples of new initiatives. The base case scenario assumes that other aspects of existing transport funding policy are maintained.
RMA and other environmental management statutes and policies
Resource Management Act, Conservation Act, NZ Biodiversity Strategy, etc	All existing statutory RMA policies, plans and standards at national and local level, including those that have been formally notified as proposed; all existing Conservation strategies and plans; existing policies, programmes and plans under the Biodiversity Strategy, the Biosecurity Act, the Fisheries Act and other statutes are considered part of the base case scenario.	Any policies, plans, programmes or standards that are currently under development and have NOT been formally notified as proposed are excluded from the base case scenario, but could be identified in this project as new policy responses to address environmental concerns arising from the ETS and closely related measures.

Table 3. Assumptions about energy supply and price

Energy
For the purposes of this project, we assume:	No major oil and gas finds in New Zealand during the period 2008–2020. International oil & gas prices remain high and rise over the course of the study. Sufficient domestic gas reserves to meet existing commitments.

10 Excludes post-1989 land subject to a forest sink covenant under section 67ZD of the Forests Act 1949.

11 Includes importing or mining coal or natural gas; off-taking geothermal steam; using geothermal fluid for generating electricity or industrial heat; combusting used oil, waste oil, used tyres and waste for generating electricity or industrial heat; and refining petroleum where the refining involves combustion of obligation fuel or obligation jet fuel.

12 Note that the importation of sulphur hexafluoride (SF6) will not carry obligations until 1 January 2013.

13 This includes both direct emissions from stationary energy and indirect emissions associated with the consumption of electricity. Note that the basis for allocation for electricity consumption will be one that compensates firms for the cost impact. It therefore is likely to be based on the emissions from marginal generation rather than average generation.

14 In this context, the agriculture sector includes pastoral and arable farming and horticulture.

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