Government announces set of improvements to NZ’s Emissions Trading Scheme

Acting Climate Change Minister Julie Anne Genter has announced the first of two planned tranches of improvements to the New Zealand Emissions Trading Scheme (NZ ETS) following recent public consultation.

These improvements, together with the second tranche of decisions, are expected to be introduced to Parliament next year as amendments to the Climate Change Response Act 2002, which is the legislation that established the ETS.

The improvements will create a more effective ETS to help meet the Government’s goals to reduce greenhouse gas emissions and plant one billion trees, Ms Genter said.

The most significant improvement is establishing a framework which will enable New Zealand’s emissions under the ETS to be capped. This would restrict the number of units supplied into the scheme, increasing the incentive to reduce emissions.

“Up until now, the ETS has been the only emissions trading scheme globally which doesn’t have a cap. The ability to set a cap will help New Zealand meet its international climate change targets, as well as any new domestic targets,” says Acting Minister Genter.

The improvements also focus on providing more certainty to scheme participants.

Submitters to the recent ETS consultation told the Government that ETS settings needed to be more predictable so participants could confidently take further action to invest in low-emissions activities, Ms Genter said.

A predictable process to manage the cap over time will include annual announcements looking forward five years.

And auctioning will be introduced into the ETS in a way that aligns the supply of units with New Zealand’s emission reduction targets.

The cost containment reserve, operated through the auctioning mechanism, will replace the current price ceiling, or fixed price option (FPO).

The cap will include setting the number of units to be auctioned and the settings for the new cost containment reserve.

Currently, market participants can choose to pay $25 for every tonne of emissions they emit instead of buying units from emissions unit holders.

The fixed price option for surrenders due in 2019 will continue to remain at $25 “to maintain regulatory predictability.”

“We want the ETS reforms to be well-managed and well-signalled and this means keeping the FPO in place while those reforms go through,” Ms Genter says.

The Government will also investigate the potential introduction of a price floor in the scheme.

“We heard from submitters that having a price floor in the ETS might encourage investment to reduce emissions, so we are going to investigate this option further,” says Ms Genter.

“No decision has been made as to when the ETS will be reopened to international units but, at this stage, they would not be a first choice.

“If, in future, the Government decided to allow international units, we would ensure that the units were of high environmental integrity. 

“We’re confident that these changes provide an important balance between predictability for market participants, and flexibility for the Government to manage the ETS so that it supports our emissions reduction targets.”

Other key changes include setting up an infringement offence regime for low-level offending against the ETS rules, and taking steps to improve market governance.

Throughout August and September, the Ministry for the Environment, Ministry for Primary Industries, and Forestry New Zealand consulted on proposed improvements to the ETS.

Just over 250 submissions were received from businesses and industry groups, iwi and Māori, community groups and individuals. The majority supported the Government’s proposals.

Copies of the submissions can be viewed at http://www.mfe.govt.nz/consultation/ets

Information about the forestry changes planned for the ETS can be found by visiting the Ministry for Primary Industries webpage https://www.mpi.govt.nz/funding-and-programmes/forestry/emissions-trading-scheme/

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