NEWS ON POLICY
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EMISSIONS TRADING SCHEME BILL - SELECT COMMITTEE REPORT BACKDeath by 1000 cuts? At 328 pages, and with nearly 1000 proposed amendments, the Select Committee report on the Climate Change (Emissions Trading and Renewable Preference) Bill leaves the reader wondering what in fact will emerge from the Parliamentary process and whether the legislation will be very different from that with which the Committee started. What is certain is that many of the substantive submissions made by industry seem to have been ignored. The reasons given by the Select Committee are the same as those long-touted by Climate Change Minister Hon David Parker and officials in response to concerns and criticisms raised at the many meetings held with interest groups around the country. As the Minister confirmed on release of the Select Committee's report, the fundamentals of the original Bill remain intact, and there are no big surprises. The critical question now is whether the Labour-led Government will be able to progress the Bill through its second and third readings before the House rises for the year. Practically speaking, from the end of this week there are at most 25 sitting days remaining in the current Parliamentary session. At least four of these will be reserved for Members' Bills. Given the number and nature of outstanding legislation (including significant Bills such as the Financial Advisors Bill, the Policing Bill and Real Estate Agents Bill), it is difficult to see how there will be enough time to analyse and debate the Select Committee report and its numerous amendments. There may be some late nights and long weeks coming up for the MPs as the House is more than likely to go into urgency. In any event, it is not a good recipe for responsible legislation. Adding to the Government's difficulties is the need to muster enough Parliamentary support to get the Bill through its remaining stages. National, United Future, Act and independent Gordon Copeland have all withdrawn support for the Bill and the Māori party is nervous. Of the Government's support parties the Greens have made their support conditional on major changes to the Bill, including bringing the agricultural sector into the scheme before 2013, and insisting on the sector paying for more of its emissions up front. As for New Zealand First, its demands will be very different from the Greens and even then its caucus has serious reservations about the unforeseen impacts on the economy. Among the deals New Zealand First will want to strike involve the treatment of any windfall profits received through SOEs such as Meridian. It has already signalled the possible redirecting of such profits to households to compensate them for increased electricity and petrol prices. How feasible all this will be remains moot. In the end all may turn on the sentiment of one former Labour Minister, Taito Phillip Field. Putting aside the merits or otherwise of the scheme, it is of serious concern that such a significant piece of legislation should be subject to the incidental horse-trading of minority parties. The fact that if the Bill passes at all it will do so without the consensus necessary to provide New Zealand's business sector with certainty is also a serious problem. Amendments At A Glance On the positive side of the ledger, the amendments proposed by the Select Committee are useful in tightening up some of the more uncertain aspects of the Bill, including:
Less positive aspects of the report back are:
Forestry Turning to the industry sectors, and beginning with forestry, although other sector start dates have been pushed out due to complexity in choosing points of obligation, calculating emissions and designing assistance, the forestry sector's start date of 1 January 2008 remains. The Select Committee was advised that a delay of one year could result in an additional 12-24 million tonnes of emissions from deforestation. Pre-1990 forestry owners will be upset that the Government thinks they will be happy with another sub-sector split. The committee has proposed that landowners who owned their pre-1990 forestry land before 2002 should receive an extra allocation of 21 emissions units per hectare (a 50% increase on the Government's earlier offering). However, at a cost of $25 per tonne of CO2 equivalent, that is only an average of $1500 per hectare - and only $500 more than other pre-1990 forestry owners. Given that the NZ ETS will effectively freeze forestry land use, the drop in land value for these owners will be significantly more than $1500 per hectare. The Minister's view is that this is good news for the forestry owners, and that this new offer will "provide sufficient incentives for alternative land uses, such as renewable electricity generation". Unfortunately much of the forestry estate suitable for more valuable conversion uses (ie the central North Island) was purchased after the mooted 2002 date, so these landowners will not be assisted. Another supposed peace offering for forest owners is the proposed inclusion of an offsetting mechanism in the legislation to allow deforestation at one site and replanting of the same amount (or more) trees elsewhere to offset the emissions released during harvest. However, this proposition is conditional on the international framework allowing the same thing. Given the remoteness of this, the concession is in real terms no concession at all. As to Māori forestry owners, any Treaty claimants who receive Crown Forestry Licence land under a settlement from 1 January 2008 will be entitled to receive 18 emissions units per hectare (ie on average, $450 per hectare at a $25 per tonne CO2 price). The report notes that any iwi that settled a Treaty claim involving Crown Forestry Licence land before 2008 would receive the same level of free allocation as any other landowner that purchased land at the same time (although it is also noted that there are two specific historic cases that will require express statutory provision otherwise). The Select Committee's report has no major changes for post-1989 forestry owners. However, these landowners will be pleased with the proposed amendment to strengthen their ownership claims to NZUs generated by their trees (via sufficient documentation prescribed in the Bill). The report also confirms that indigenous forest will remain outside of the NZ ETS, and that the NZ ETS is not the appropriate mechanism for addressing biodiversity issues (ie regulating which species should/should not be planted). Liquid Fossil Fuels As announced last month, the liquid fossil fuels sector has been given a reprieve and will not join the scheme until 2011 - two years later than originally proposed. However, they will be encouraged to begin voluntary reporting of emissions from 2009. Another amendment makes it possible for international ships carrying out domestic shipping or fishing in New Zealand waters to be brought into the NZ ETS in future via Order in Council. The Select Committee accepted that domestic shipping and fishing operations face higher costs than foreign competitors in respect of domestic emissions, but preferred to bring the international competitors into the NZ ETS regime rather than offer assistance to the affected New Zealand businesses. Energy The Select Committee proposes the Bill clarifies that fugitive coal seam methane gas emissions will be captured under the NZ ETS (this was not clear in the original Bill). Industrial Processes The Select Committee has recommended the addition of participants who directly combust any used oil or waste oil (ie used lubricating oil) for the purpose of generating electricity or industrial heat to the allocation pool for free NZUs. There is also good news for participants in respect of imported hydrofluorocarbons and perfluorocarbons. It is proposed that these emissions will only be captured from 2013 (instead of 2010). See further news below under "Allocation Plans". Agriculture The Select Committee grappled with the contentious issue of whether 2013 is too late for entry into the scheme for our largest emitting sector. The report notes that there are valid arguments for and against the earlier inclusion of this sector, but in the end practicality won the argument (due to the current operational issues in monitoring and reporting on emissions in this sector). As a compromise, the report recommends that voluntary reporting begins in 2011, with mandatory reporting starting in 2012. With respect to the point of obligation being placed at the processor or farm level, the Select Committee has proposed a deadline for making this decision by July 2010. And, in the event that the processor level is chosen as the point of obligation, the legislation will provide for the option for farmers to opt into the NZ ETS if they choose to do so (although this option will only be a potential option that must be brought into force via Order in Council, and this option will expire if not brought into force by 2013). Waste The Bill's late start date of 2013 for this sector has been approved by the Select Committee. This is because the Waste Minimisation (Solids) Bill looks set to proceed through its second and third readings in the House in the next few months, thereby establishing a new waste management regime with associated levy. The report recommends amendments to the proposed allocation plan processes for trade-exposed industrial firms in order to streamline the process, and to specify the criteria which will guide the Minister of Finance's decisions on allocating free NZUs to the agriculture and industrial process sectors. With respect to the mooted 50,000 tonnes annual eligibility threshold in the industrial process sector, the Select Committee (and, it seems, the Minister) has listened to the SME submitters and, although there is no proposed limit to be contained in the Bill, the report notes that the appropriate threshold should be "significantly less" than 50,000 tonnes. The report also emphasises the importance for business (and investors) to have an element of certainty in respect of allocation plans. No Safety Valve For Volatile Pricing The Select Committee has rejected calls for a price cap, stating that price caps do not reduce the impact of price volatility on the economy as a whole - they only transfer the cost from emitters to taxpayers. In addition, a price cap is seen as a barrier to linking with other schemes, and the need for a price cap will be limited in New Zealand whilst a wide number of emissions units are allowed to be purchased internationally and surrendered for NZ ETS obligations. At the same time, however, the report recommends that a restriction be placed on the ability of participants to surrender AAUs imported during the first commitment period (2008-2012) to meet obligations that accrue after this period (ie post-2012). These units will still be able to be banked in New Zealand and traded internationally, but they will become useless in terms of NZ ETS obligations after 2012. Offences And Penalties The Bill's proposed offences and penalties remain largely the same as originally drafted. Future Development And Review Of NZ ETS The Select Committee has recommended what it calls "a substantial revision" to the Bill's provisions relating to the future development and review of the NZ ETS. The report suggests that any reviews of the NZ ETS should be carried out by an independent panel, rather than officials. Any decisions on the future development of the scheme should follow the review of the NZ ETS, which must be completed at least 12 months before the end of the first commitment period. The report also recommends that the legislation explicitly states the NZ ETS will continue after 2012 even in the absence of any new international Kyoto Protocol-equivalent agreement. Carbon Capture And Storage The Select Committee agrees with submitters that carbon capture and storage technologies need to be factored into the NZ ETS in the future and, accordingly, the report recommends that the Bill provides for the future inclusion of carbon capture and storage activities once a robust domestic regulatory framework has been established in this area. The report notes that this may occur before 1 January 2010. New Tax Bill The Select Committee report notes that a separate tax Bill is expected to be introduced in the House this month to deal with tax matters in relation to the NZ ETS. Baseload Fossil Fuel Generation "Restriction" The Select Committee requests that the formerly titled "moratorium" is rebranded as a "restriction" (because it is not a blanket moratorium). A number of practical/technical amendments (mostly to definitions) are proposed to this part of the Bill. Notably, the restrictions will not cover landfill gas (because it is not a fossil fuel or NZ ETS obligation fuel). Further, the Electricity Commission will have a more pronounced role to play in the consideration of applications for exemptions from the Bill's restrictions, as the Minister of Energy will only be able to accept or reject the Commission's recommendations. |
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