New Zealand Revises Emissions Trading Scheme

by Mary Swire, Tax-News.com, Hong Kong

15 September 2009

The New Zealand government is to revise the Emissions Trading Scheme (ETS) to reduce the costs to households and the impact on employment.

Towards the end of August this year, the parliamentary Emissions Trading Scheme Review Committee issued its recommendation of a continued ETS, rather than a carbon tax. At that time, New Zealand’s Minister for Climate Change Issues, Nick Smith, stated that the government’s preference also remained with an amended ETS.

Smith has now reiterated that “New Zealand needs an emissions trading scheme to discourage carbon pollution, improve energy efficiency and reward afforestation.” However, he added that “amendments to the existing legislation are required to make the ETS workable and affordable.”

Features of the revised ETS include:

• revised entry dates of July 1, 2010 for transport, energy and industrial sectors and January 1, 2015 for agriculture;
• a transitional phase from July 1, 2010 until January 1, 2013 in which emitters will only have to meet 50% of their obligations, and a NZD25 (USD17.50) fixed price option for the transport, energy and industrial sectors;
• a production-based industry average approach to allocations for emissions-intensive businesses;
• a phase-out of industry support, which would be aligned with trading partners;
• incentives for afforestation created by a domestic and international market for carbon credits; and
• enhanced transitional support for the fishing industry.

“These changes will halve the price impact on households for fuel and electricity,” Smith said. “The fixed price option will provide certainty and stability to enable carbon markets to mature. The changes to transitional support for industry will encourage cleaner technologies without driving jobs, investors and emissions offshore.”

Smith added that the changes reflected concerns over the impact of the ETS on low-income households and primary industries such as fishing, forestry and agriculture. Further work would be done on energy-efficiency assistance for low-income households, the promotion of afforestation and on biodiversity protection. He said New Zealand was the first country to include the agricultural sector in its climate change policies but, as it was technically complicated, it had been decided that it could not be implemented before 2015.

The ETS, it was said, is being closely aligned with Australia's proposed carbon pollution reduction scheme. The objective is to have the revised law passed by parliament in time for the Copenhagen climate change conference in December this year.

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