The NZ Emissions Trading Scheme

Page - September 18, 2008
On September 10 2008, the New Zealand Emissions Trading Scheme (ETS) became law. The scheme was contained in the Climate Change (Emissions Trading and Renewable Preference) Bill, which also included some other climate-related measures.

By having an ETS, New Zealand has joined a growing number of countries  and states that are using this mechanism as one of a range of measures to tackle climate change. But is an ETS a real solution to climate change? What does the passing of the bill mean for New Zealand and for the climate? And just what IS an emissions trading scheme?

What is the emissions trading scheme?

An Emissions Trading Scheme (ETS) puts a price on climate change-causing emissions - green house gases. Businesses that emit greenhouse gases and fall under the scheme must pay for those emissions. This is done using "credits". One tonne of greenhouse gas (GHG) pollution equals one credit. So a business that emits 5 million tonnes of GHG a year, will need 5 million credits to cover that pollution. ??

Essentially, an ETS uses financial markets to determine how to deal with the problem of pollution.

Is our Emissions Trading Scheme the solution?

The ETS sounds good in theory but alone it is not the answer to climate change. All it does is put in place a framework to start to deal with the problem. And, thanks to intense pressure from big business,, the New Zealand scheme was weakened and watered down before it became law. As a result the scheme is too generous to agriculture and other big polluters and won't result in the deep emission cuts needed to tackle climate change.

If the cap fits...

Usually, carbon trading involves what they call a "cap", or limit, for the overall amount of emissions a country or sector can produce. Under the New Zealand ETS there is no cap.

The risk with a scheme that has no cap is that there is no guarantee of actually reducing our emissions, which, after all, should be the whole point of climate change policy. For instance the owner of a coal fired power station can keep on polluting as long as they can buy credits off a company doing the right thing, like a wind farm.

Without a cap New Zealand stands to lose the head start that we need to add value ahead of our global competitors, key markets for our products, our international credibility, negotiating power, trade partners, political allies and our clean green brand.

Is the Emissions Trading Scheme fair?

The ETS is not particularly fair - especially for the taxpayer. The government is giving away lots of free credits for the first 10 years or so of the scheme. It has proposed to give the agriculture sector and industrial polluters (such as NZ Steel and Holcim Cement) 90 per cent of their credits for free in the first year and only gradually decreasing the amount they get each year from then on.

Recently the Government announced plans to delay the phase out until 2018, with the end date set at 2030. This is, in effect, a subsidy to large polluters and means that there isn't really any incentive for big polluters to reduce emissions - negating much of the point of an ETS.

What now?

Implementing the scheme was certainly better than doing nothing, but unfortunately its impact on New Zealand's emissions will be minimal.

Thinking that the job is done would be a big mistake. In other countries where emissions trading schemes are in place, the schemes are viewed as one small part of a much broader package of solutions. New Zealand does have a strong broader package and some key elements of climate policy are missing. The ETS is a small step in a long journey ahead

What does the ETS mean for New Zealand?

Some good things did come out of the process. During negotiations with the Labour-led government over the ETS, the Green Party secured a billion dollar fund for energy efficiency and conservation. Also contained in Emissions Trading and Renewable Preference Bill (the broader piece of legislation of which the ETS is a part) is a partial ban on new fossil fuel generation in New Zealand. What this means is that any new thermal generation projects (such as gas fired power stations like the one proposed for Rodney, and coal-fired power stations like Marsden B in Northland) are banned by law unless they get special consent from the government under a range of exemptions. Couple this with the government's 90 per cent renewable electricity target by 2025, and our electricity sector at least is looking good.

.But there are two major areas of climate policy missing. Firstly, New Zealand has no overall emissions reduction target. Greenpeace is calling on all political parties to set an emission reduction target of 30 per cent by 2020. This target is within the range of 25- 40 per cent signed up to by developed countries - including New Zealand - at the Bali climate change negotiations in 2007. We must then reach that target, and to do so we must deal with agriculture.

The cow in the corner of the room

Agriculture makes up half of all New Zealand's emissions, yet does not have to take any responsibility for those emissions. It is exempt from the ETS until 2013, and even then will receive the vast majority of its emission permits for free. So for the foreseeable future, agriculture gets a free ride while taxpayers pick up the cost of the sector's pollution under Kyoto. Greenpeace is calling for agriculture to be brought into the ETS before 2013, and for a range of other measures to be put in place to encourage low input, less intensive agriculture around New Zealand.