Climate Change
Russell McVeagh acts for a number of international and national clients in respect of climate change-related matters. Our expertise spans a number of sectors, including forestry (pre- and post-1990); agriculture; transport; energy, industrial and waste management.
Our work in this area includes developing submissions to the Government on the proposed introduction of the emissions trading scheme via the Climate Change (Emissions Trading and Renewable Preference) Bill; assisting clients in engaging with officials and MPs during the legislative process; advising on the implications for business following the introduction of the new legislation; advising on compliance with the legislation; and drafting contracts related to emissions trading (ie purchase and sale of emissions units).
Background
As a signatory to the Kyoto Protocol, New Zealand needs to move quickly to meet our climate change obligations, both in the "first commitment period" (2008-2012) and beyond. The Government has announced a number of initiatives designed to achieve this, which will impose liabilities on the private sector, but will also create opportunities. Climate change initiatives will impact on all business sectors, particularly energy, transport (air and land), agriculture, forestry, export, tourism, and manufacturing/industrial. It is crucial that businesses know what is happening in the climate change area. This includes knowing about initiatives affecting particular sectors as well as those that affect business generally, such as the domestic emissions trading scheme announced in September 2007.
What is the Kyoto Protocol?
The Kyoto Protocol is an international agreement between 170 countries who have agreed to reduce their greenhouse gas emissions. Each developed country has a specified, and binding, target for the first Commitment Period (1 January 2008-31 December 2012). New Zealand has agreed to reduce its emissions to the same levels reached in 1990. Countries must meet the specified targets or take financial responsibility for the difference (New Zealand Treasury currently estimates that New Zealand's liability is in the region of $583 million, as at 30 September 2008).
New Zealand's greenhouse gas emissions have risen sharply since 1990 (current estimates show a 25% increase), so achieving this objective will require significant effort.
What is emissions trading?
Emissions trading is a flexible market-based mechanism for reducing greenhouse gas emissions. There are a number of different emissions trading models. The Government's preferred model is a 'cap and trade' model. Under this model, a cap is set on the emissions an emitter can release each year. The emitter is allocated emissions allowance units equal to this cap. Because the objective of climate change initiatives is to reduce emissions, the cap is likely to be less than the quantity of emissions the emitter has produced in the past. New Zealand's scheme will operate under the wider umbrella of the Kyoto Protocol's cap and trade system.This means that domestic participants will not have actual caps.
Emitters have three choices - they can reduce their emissions; purchase emmissions units, either from the Government, from another emitter who has some spare emissions units, or from offshore; or they can reduce their emissions beyond the level of the cap and sell their spare units to another emitter. Being able to trade emissions units results in an efficient outcome in the sense that those emitters for whom it is least costly to reduce emissions will reduce emissions to the level of the cap or below that level, while those emitters for whom reducing emissions is more expensive will purchase emissions allowance units from other emitters.
A number of emissions trading schemes already exist around the world, the best example being the European Union's model. Australia has recently announced its intention to set up an emissions trading regime, but, in contrast to New Zealand's tight timeframes, four years have been set aside for design and implementation.
Climate Change Legislation
The Climate Change (Emissions Trading and Renewable Preference) Bill, which established the New Zealand Emissions Trading Scheme (NZ ETS), was introduced in Parliament on 4 December 2007. The Finance and Expenditure Select Committee's report was released on 16 June 2008. The Bill was eventually divided into two separate Bills :
1. Climate Change Response (Emissions Trading) Amendment Bill; and
2. Electricity (Renewable Preference) Amendment Bill.
These Bills had two key objectives:
- to establish the NZ ETS by amending the Climate Change Response Act 2002 (which ratified New Zealand's commitment to the Kyoto Protocol); and
- to create a preference for renewable electricity generation by implementing a 10 year ban on new baseload fossil-fuelled thermal electricity generation (except to the extent required to ensure the security of New Zealand's electricity supply).
These Bills were enacted on 25 September 2008.
We note that the new National Government is reviewing the NZ ETS legislation via a special Select Committee review early in 2009. The Renewable Preference legislation was repealed by the new government in December 2008.
ETS Design
The ETS will be phased in for the major sectors as follows:
1 January 2008 Forestry
1 January 2010 Stationary energy and industrial processes
1 January 2011 Liquid fossil fuels (transport)
1 January 2013 Agriculture, waste and "other emissions" (including HFCs and PFCs)
By 2013, all sectors and all six major GHGs will be covered by the NZ ETS, so that all major sectors of the New Zealand economy will be exposed to the international price of emissions, at the margin, for all operations.
Climate Change Response Act 2002
The Climate Change (Emissions Trading) Amendment Act 2008 introduces new Parts 4 and 5 to the Climate Change Response Act 2002. These Parts implement the core provisions of the NZ ETS, including:
- who is covered by the NZ ETS and when;
- the obligations placed on participants;
- compliance and enforcement provisions;
- allocation of emission units; and
- certain sector-specific provisions (mainly in relation to the forestry sector).
The Act creates a core obligation for "participants" who carry out "activities" which result in GHG emissions to surrender one emissions unit for each tonne of GHG emissions that the participant is responsible for. To meet this obligation, participants are required to monitor their emissions activities and calculate any emissions that arise from their activities. NZ ETS participants will know who they are by reference to the "activities" prescribed in Schedule 3 of the Act. A person who carries out one of the listed activities must register as a participant under the scheme and comply with the obligations in respect of that activity.
Voluntary participants
The Act also allows some emitters to "opt in" to the NZ ETS. The following groups will have this option:
- Owners of, or holders of, forestry rights/leases over forests planted from 1 January 1990;
- Producers who embed carbon in their products;
- Major users of jet fuel used for domestic aviation; and
- Major users of coal and natural gas.
Major users will be defined based on the amount of product purchased (eg 10 million litres of jet fuel or 250,000 tonnes of coal or natural gas per annum).
Regulations
In order to calculate their emissions liabilities under the NZ ETS, participants will need to use prescribed emissions formulas which will be set in regulations (eg the quantity of carbon dioxide emitted when a litre of fuel is burned).
Regulations for the forestry and transport sectors were recently enacted. Draft regulations for the energy and industrial sectors are currently the subject of public consultation.
Useful Links
New Zealand Government's Climate Change website http://www.climatechange.govt.nz/
New Zealand's liability under the Kyoto Protocol http://www.treasury.govt.nz/government/liabilities/kyoto
InterGovernmental Panel on Climate Change (IPCC) publications on climate change and the Kyoto Protocol http://www.ipcc.ch/index.htm
European Union Emissions Trading Scheme ec.europa.eu/environment/climat/emissions.htm
UK Emissions Trading Scheme www.defra.gov.uk/environment/climatechange/trading/uk/index.htm
Australia Federal Government
www.greenhouse.gov.au/emissionstrading/index.html
Publications
"Emissions Trading Scheme Passed Into Law"
10 September Public Law Newsletter
"One of These Things is Not Like the Other: Australia's 'Green Paper' Emissions Trading Scheme"
"Australia's Emissions Trading Proposal"
23 July 2008 Public Law Newsletter
Emissions Trading Scheme Bill - Select Committee Report Back
19 July 2008 Public Law Newsletter
"Climate Change - Draft Garnaut Climate Change Review Report Released"
10 July 2008 Public Law Newsletter
"Commerce Commission Fires Warning Shot Over Green Puffery"
25 June 2008 Public Law Newsletter
"Emissions Trading in Australia"
11 June 2008 Public Law Newsletter
CLIMATE CHANGE UPDATE
"New Kyoto Figures Give More Flexibility to Phase in Emissions Trading Scheme"
"Forestry and Emissions Trading"
"Climate Change Bill"
20 May 2008 Public Law Newsletter
"Sustainability Policy Package Unsustainable"
"Fine Tuning of Emissions Trading Policies Recommended"
"Biofuel Regulations"
7 May 2008 Public Law Newsletter
"Greenhouse Gas Inventory 2006 - 2006"
"Transmitting Renewable Energy"
23 April 2008 Public Law Newsletter
"A Matter of Opinion - Sustainability"
"Commencement of Biofuel Obligations May be Delayed"
10 April 2008 Public Law Newsletter
"Government Stance on Forestry Carbon Price Negotiations"
27 March 2008 Public Law Newsletter
"Emissions Trading and Deforestation"
"Carbon Abatement"
11 March 2008 Public Law Newsletter
"Emissions Trading Update"
22 February 2008 Public Law Newsletter
"Climate Change Update - Five Weeks and Counting"
29 January 2008 Public Law Newsletter
SPECIAL REPORT
"Climate Change (Emissions Trading and Renewable Preference) Bill"
5 December 2007 Public Law Newsletter
CLIMATE CHANGE SPECIAL EDITION
"Welcome to the NZ ETS and NZU"
21 September 2007 Public Law Newsletter
