The NZ Emissions Trading Scheme - November 2009 Update

The Climate Change Response (Moderated Emissions Trading) Amendment Bill passed into law last week.

As mentioned in our October update, the main changes to the ETS are:  

• The entry of agriculture into the scheme moved to 2015 (from 2013)
• All other sectors (energy, transport fuels, industry) to enter the scheme in July 2010
• Until the end of 2012, emitters have a 50% reduction in their obligations (i.e. through a 2 for 1 carbon credit arrangement) and a carbon credit price cap of $25
• Trade-exposed industry and agriculture receive free allocation based on the emissions intensity (rather than free allocation based on a level of historic emissions)
• A slower phase out of free allocation

To obtain the support of the Maori Party, the Government agreed to a number of changes to the Bill. Of particular interest is providing 5 iwi with the right to plant trees on 35,000 hectares of Crown land and keep the profits from any emission units earned.  The value will depend on the carbon storage and prevailing carbon price, but initial estimates are that the deal is between $25 and $50 million.  To some degree this addresses the Maori issue with the loss of value of their pre-1990 forested land, which if de-forested would incur significant carbon charge under the scheme.

There has been considerable debate regarding the burden that households and small businesses will bear under the scheme, as a result of the free allocation that emissions-intensive industries and agriculture will receive.  Through direct energy price increases and contributions from Government funds (i.e. taxation), the Sustainability Council estimates that households will bear about half (52%) of the total costs of the scheme in its first five years, while accounting for just one-fifth of emissions (19%).  Together with small-medium businesses and transport operators, they will pay 90% of the costs up to 2013 while being responsible for only 30% of emissions.