New Zealand emissions trading scheme

Questions and answers

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What is an emissions trading scheme?

‘Emissions trading’ is a market-based approach for achieving environmental objectives. A cap and trade emissions trading scheme sets an overall limit on the quantity of greenhouse gas emissions that can be emitted. Emissions trading schemes often operate on a ‘net’ basis (ie, there may be an increase in emissions from one source, or even one country, but this increase is offset by emission reductions elsewhere).

How will the emissions trading scheme help the environment?

An emissions trading scheme will help us meet our international obligations to reduce greenhouse gas emissions.

In the short term, it is clear that introducing an emissions trading scheme will result in emissions reductions relative to business as usual (ie, emissions might continue to rise, but at a slower rate).

The long-term effects are likely to be significant, particularly if predicted developments in technology and complementary measures emerge, such as energy-efficiency programmes. This is because the price of things with carbon in them, such as petrol, cement and electricity production, will go up relative to the price of things without carbon, such as biofuels and solar water heating. As a result, what firms and households actually do to adopt more resource-, energy- and emissions-efficient practices will change.

We also hope that our action on climate change will encourage other countries to take action.

Why is the government so concerned about climate change? Will New Zealand really be affected?

For New Zealand, the impacts of climate change are likely to mean higher temperatures, a higher sea level, and more frequent and more extreme weather events, such as droughts and storms. Different regions will be affected differently. For example, the east of the country is expected to become drier and the west wetter.

These impacts are expected to have significant effects on our economy and way of life. While reducing global emissions of greenhouse gases will reduce the severity of these impacts in the long term, the gases the world has already emitted mean that we will face some degree of climate change.

Which greenhouse gases will be covered?

The New Zealand emissions trading scheme will cover emissions of the following six greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). These are the greenhouse gases covered by the Kyoto Protocol.

What are emission units and carbon credits?

An emission unit can represent any of the greenhouse gases named above. A carbon credit is one kind of emission unit and relates only to carbon dioxide directly, or as the climate change equivalent of the other gases.

A variety of emission units are traded in voluntary and mandatory emissions trading schemes throughout the world, for example:

* The Kyoto Protocol provides for six types of emission unit, all of which represent one tonne of carbon dioxide-equivalent greenhouse gas emissions

* The EUA, which is the unit of trade in the European Emissions Trading Scheme and includes only carbon dioxide

* Many other kinds of voluntary “grey market” units, including the units created through Landcare’s CarbonZero programme in New Zealand (these are being called “carbon credits” on TradeMe).

Why do we need to control our greenhouse gas emissions?

Climate change is not a uniquely New Zealand problem – it is a global problem.

The rate at which the world is emitting greenhouse gases is unsustainable and future growth in emissions, if unchecked, could lead to drastic changes in the Earth’s climate, impacting on all economies and societies. New Zealand’s greenhouse gas emissions are small from a global perspective (around 0.2 to 0.3 per cent of global emissions). However, on a per capita basis we are a high emitter by international standards.

If New Zealand is to be part of the world’s solution to climate change, we must take action to be more sustainable.

Why has the government chosen emissions trading as part of its climate change response?

There has been wide consultation with business and stakeholders on a range of possible policy responses to climate change. These included emissions trading, a carbon tax, direct regulatory measures, and other possibilities.

Introducing an emissions trading scheme is a fair and flexible way to reduce emissions at least cost. There was broad support among stakeholders for emissions trading over other options.

How will an emissions trading scheme impact on our economy?

We already have obligations under the Kyoto Protocol – an emissions trading scheme is simply a mechanism for meeting those obligations.

Kyoto compliance carries costs, but the overall effect on the economy is expected to be negligible. Economic modelling estimates that instead of growing 15 percent between 2005 and 2010, the economy might grow by 14.9 percent. Emissions trading will affect different players in the economy differently but, for example, we expect that its impact for the average household would be no more than a few dollars a week.

Transforming to a more sustainable economy will also create many opportunities. New Zealand is already a world leader in technology in important areas like agriculture, forestry and biotechnology. There will be significant new economic and trade opportunities for those sectors if they are at the forefront of developing new carbon-friendly technology and products.

Am I involved in the scheme and do I need to do anything?

Over time, the entire economy will be participating in the New Zealand emissions trading scheme, in the sense that the cost of greenhouse gas emissions will be reflected in the price of the fuels, foods, and other goods and services we buy. In this way, the emissions trading scheme sets up a framework in which we are all contributing and, over time, will change behaviour towards more resource-, energy- and emissions-efficient practices.

However, it is not proposed that small or medium businesses (with the exception of some parts of forestry and agriculture) or households will face any direct obligations.

Why are firms and not individual citizens covered by the emissions trading scheme?

If a scheme were to cover individuals, each individual would be granted a quantity of emission units and would then be charged for the emissions in the goods and services they consume. Although it may have some attractions in making the environmental effects of individual decisions more transparent, such a scheme would be very expensive to run.

By choosing instead to impose scheme obligations on a small number of main firms in each sector, the costs of compliance and administration are kept low. The behaviour of individuals and households, as well as firms outside the scheme, is still affected indirectly through price changes flowing through the economy.

How will emissions trading impact on me?

That depends on the choices you make.

Initially, the most obvious impact of emissions trading will be on the price of electricity and petrol when those sectors enter the scheme (2010 for energy and 2009 for transport). Over time, there will also be an emissions price embedded in all of the other goods and services we purchase, because they require energy to produce and transport. Eventually, the cost of greenhouse gas emissions will even be reflected in the disposal of waste and in agricultural products such as milk.

The government is looking at options to help households through the transition to a low-emissions energy system. The government will put in place programmes to reduce the financial impacts on low- and modest-income households, while still ensuring incentives remain for people and businesses to become more energy-efficient.

You will be able to respond to emissions trading in a number of ways. The government has in place a range of energy-efficiency and conservation programmes to help consumers and businesses reduce their energy use and the amount of money they spend on energy. It is intended that the emissions trading scheme will encourage households and firms to move to more energy-efficient practices, which will in turn reduce the financial effects of the scheme.

How much will the emissions trading scheme cost me?

That depends on the choices you make. If you take no action to reduce your energy consumption, the following table shows the expected impacts on households, assuming two different prices for emissions.

Click to enlarge

Average increase in household energy expenditure (eg, electricity, coal, natural gas and transport fuels) per year $100-$200 $170-$330

Approximate percentage of total household expenditure 0.3%-0.5% 0.5%-0.8%

As mentioned above, the government is looking at options to help households through the transition to a low-emissions energy system. The government will put in place programmes to reduce the financial impacts of higher electricity prices on low- and modest-income households, while still ensuring incentives to adopt energy-efficient options remain.

Of course, if households use energy more efficiently – by conserving power in the home or using public transport, for example – the impact on household costs will be reduced. As mentioned above, the government has in place a range of energy-efficiency and conservation programmes to help consumers reduce their energy use and the amount of money they spend on energy, and other programmes will be developed over time.

When will my power bill go up? How much will it cost me?

Emissions trading puts a price on fossil fuels to encourage more renewable energy. Coal, gas, and geothermal fuels will be required to begin incorporating the cost of their emissions under the emissions trading scheme from 2010, which will flow through to the price of electricity. You can expect to see the impact on your energy bills from this time or slightly before, as energy producers anticipate the change in their costs. A price increase of 4 or 5 percent may result.

However, the government is looking at options to help residential consumers through the transition to a low-emissions energy system. And the government already has a range of energy-efficiency and conservation programmes in place to help consumers and businesses reduce their energy use and the amount of money they spend on energy.

When will petrol prices go up? How much will it cost me?

Users of liquid fossil fuels (petrol, diesel) will be required to begin incorporating the cost of their emissions under the emissions trading scheme from 2009, which will flow through to the price of petrol and diesel. Fuel prices are likely to rise from this time or slightly before.

We expect fuel prices may increase by about 4 cents a litre.

Will the government help households adjust to these changes?

The government is looking at options to help households through the transition to a low-emissions energy system. It will put in place programmes to reduce the financial impacts of higher electricity prices for low- and modest-income households, while still ensuring incentives for energy-efficient choices remain.

In addition, existing assistance programmes for the elderly and people on low incomes may be available, such as the Accommodation Supplement, the Special Needs Grant, and the Special Benefit.

I want to help the environment. How can I?

There are many simple actions you can take to help reduce your impact on the environment. Making a real difference will require everyone to think carefully about the energy they use, the way they build their homes and the waste they produce. Some examples of actions that individuals can take are as follows.

* Use cars less often – use public transport, car-pool, walk or ride a bike.

* Use less electricity – turn off lights and appliances when they are not in use, use heaters sparingly, and keep the heat in by closing windows and doors and drawing curtains.

* Reduce waste – recycle, compost, reuse and choose less packaging.

* To find out more about things you can do around the home to reduce your impact on the environment, visit:

o www.energywise.org.nz

o www.smarterhomes.org.nz

Where do I go for more information?

For more questions and answers, visit www.climatechange.govt.nz

ENDS

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