Emissions trading scheme for New Zealand

Emissions trading scheme for New Zealand

Business NZ has released a report on the way an emissions trading scheme should operate in New Zealand.

The NZIER report ‘Emissions Trading Scheme for New Zealand’ was commissioned by Business NZ and funded by a cross-section of business, agricultural and energy organisations.

These include Contact Energy, Fletcher Building, Fonterra, Genesis Energy, Mighty River Power, New Zealand Steel, Rio Tinto Aluminium New Zealand and Solid Energy.

The report recommends a broad based emissions trading market, to be implemented across all sectors of the economy after 2012, as the best way for New Zealand to minimise greenhouse gas emissions in the long term.

However, it says this should be introduced only when New Zealand’s trading partners and competitors are participating in the same way.

Business NZ chief executive Phil O’Reilly says he hopes there will be widespread political support for an emissions trading market post 2012.

He says the report shows significant leadership from the private sector on an important area of policy for New Zealand and is a valuable milestone towards sustainability.

“It is an independent report and some of its financial contributors may not agree with every part of it.

“Nevertheless, it provides a valuable contribution to the climate change debate, setting out the nuts and bolts of an emissions trading scheme in New Zealand.”

The report recommends an internet-based trading platform for emissions entitlements. It says the registry should be contracted out to the private sector and connected to those in other countries.

It addresses the issue of ‘competitiveness at risk’ for some firms (particularly commodity producers such as timber, aluminum, steel, cement, paper and dairy processors) that will be vulnerable to competition from international competitors not subject to emissions constraints.

The report recommends allocating emissions entitlements to these firms on the basis of their achieving international ‘best practice standards’, so New Zealand’s emissions from a firm facing competitiveness at risk are likely to drop.

Emissions will grow subsequently only if the firm is efficient – both economically and in terms of emissions relative to its international peer group – with increased output likely to displace less efficient production elsewhere.

The NZIER proposal advocates reassessing emission targets on a rolling three-year basis. This provides an opportunity to impose tighter allocation constraints on all firms and sectors if the overall level of emissions is not coming down as needed.

Rolling three-year reviews of 10-year evergreen contracts will also ensure adjustments to ‘competitiveness at risk’ allocations provide adequate lead times to any changes in world best practice or the spread of obligations to competitors.

Firms that can pass the costs of emission entitlements through to customers, such as electricity generators, should not receive any gratis allocations. They should be required to purchase their entitlements.

The report makes the following recommendations as to how the emissions trading scheme should operate:

-          Annual emission entitlements for all participants should be allocated on a rolling three-year basis. This allows the administrators to adjust allocations when circumstances change here or overseas.

-          Entitlements relating to all internationally recognized greenhouse gases should be convertible to their CO2 equivalent according to the international Global Warming Potential (GWP) factor in force at the time. This will see all greenhouse gases equated to units of CO2 captured by the system and will significantly ease administration.

-          Banking of unused entitlements would be allowed so that companies can carry over any surplus credits from one year to the next.

-          Borrowing of up to 10% of any year’s obligation from future years’

entitlements would also be allowed so that companies investing in improved efficiency are not penalized in the year of implementation.

-          Failure to hold the correct level of emission entitlements within three months of the end of the calendar year for which they are required should incur a monetary penalty.

-          Carbon sinks from forestry and other sequestration activities would be convertible into tradable emission entitlements.

-          Any party, whether New Zealand based or not, would be able to buy and hold emission entitlements. This would facilitate a liquid market and allow dealers to purchase credits for future sale.

-          Emission entitlements from other recognized countries would be tradable in New Zealand and used to meet local and international obligations. This is the ultimate linking of a New Zealand based scheme with the rest of the world on a common certified basis.

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