A third set of fixes to the ETS has been made as the Government continues its work with industry to reach our climate change goals, Climate Change Minister James Shaw and Forestry Minister Shane Jones said.

The latest changes to the New Zealand Emissions Trading Scheme will give certainty, flexibility and incentives to participants in the ETS as the Government progresses its plan to tackle the long-term challenge of climate change.

Sensible improvements include allowing foresters using averaging accounting, to move their plantations to more suitable parts of their property and recover from storm or fire damage, without being financially penalised.

They also provide the long-sought-after detail on how to gradually reduce free allocation to major industrial emitters, which was envisaged at the creation of the ETS in 2008. This will not affect the 95 per cent free allocation to the agricultural sector.

“Phasing down free allocation to major industrial emitters that have been part of the scheme for some time helps the ETS do what it’s supposed to do: drive emissions down across all sectors of the economy to help ensure a stable climate for future generations,” said James Shaw.

“The previous Government had indicated plans to do this from 2013 but put them on hold, leaving the industry waiting and unable to make important investment decisions.
“We’ve consulted with stakeholders and are now providing them with the clarity and direction they’ve been asking for – a gradual and steady path of change with time for businesses and communities to adjust,” James Shaw said.

The plan is to begin phasing down industrial allocation at 1 per cent per year from 2021-2030, then at 2 per cent from 2030-2041, and at 3 per cent per year from 2041-2050.

“Officials have shown that the phase-down does not pose a financial risk to ETS businesses as the ETS accounts for only a small part of a firm’s operating costs, and any additional cost to large polluting businesses will be manageable and will encourage businesses to invest in clean energy alternatives that reduce emissions.

“But the Government is aware our industries face international influences, which is why the independent Climate Change Commission will review phase-down rates and advise governments on appropriate allocations if technology, or the economics, or the global situation changes.

“We are all in this together. Whether it’s supporting coastal communities to plan for sea level rise, making fuel efficient cars cheaper for families, or partnering with businesses and farmers to find the best ways to reduce their emissions and create sustainable jobs, our Government is working alongside New Zealanders to tackle the climate crisis,” James Shaw said.

A final set of changes to how forestry is treated in the NZ ETS has also been announced.

Earlier this year the Government announced averaging accounting will be an option available to forests registered from the beginning of 2019, and mandatory for forests registered from 2021 onwards.
Averaging accounting means a forest owner does not need to surrender emissions units upon harvesting. Instead they receive units as their forest grows, up to a determined average level of long term carbon storage, and they will not face any liabilities on harvest provided they replant.
“Cabinet has now decided that forests registered in the ETS before 2019 will not be able to transition to averaging accounting,” Shane Jones said.

Shane Jones said there were a range of reasons for this decision.

“Averaging is primarily intended to encourage new forests because they make the biggest contribution to reducing our carbon footprint.

“It’s also about managing the volume of carbon units entering the market to maintain a stable price to drive emissions reductions.

“This decision will be reviewed in 2021, once we have a better understanding of how the carbon market will be affected and the resulting costs,” Shane Jones said.

The design details announced today add to landowners’ flexibility and help ensure the ETS is the best scheme it can be, giving prospective participants more confidence.

“Forestry participants will be able to ‘relocate’ a forest under averaging accounting – perhaps to a less productive land area – without having to surrender units for the deforested area and they won’t have to pay back units in the event of natural disasters, such as a forest fire or major storm, provided they replant in four years.

“These are sensible changes, which make sure it’s easy for people to use their land how they want,” Mr Jones said.

“This Government, like increasing numbers of New Zealanders from all walks of life, understands that commitments like the Paris Agreement now need to be matched with action,” James Shaw said.

“The Climate Leaders Coalition of more than 100 businesses, which represent 60 per cent of New Zealand’s gross emissions, just last week strengthened their efforts to ensure they help limit temperature rise to no more than 1.5o Celsius.

“Farming leaders are on board with the need to measure, manage and reduce agricultural greenhouse gas emissions.

“And the Government is providing the framework for lasting progress on climate change action through the Climate Change Response (Zero Carbon) Amendment Bill, which will establish the independent Climate Change Commission to guide and advise future governments,” Mr Shaw said.

Legislation to enact ETS reforms is expected to be introduced to Parliament later this year.

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