NZETS Proposed Changes – Supply of NZU Post 2012

The Government discussion document at http://climatechange.govt.nz/emissions-trading-scheme/ets-review-2011/statement-for-consultation.html excerpt on NZU supply post 2012

The situation

New Zealand’s ETS is linked to international carbon markets. ETS participants can buy eligible international units to meet their obligations and post-1989 forest owners or pre-1990 forest landowners can sell their units on the international market.

However, the current design of the ETS provides participants with limited access to NZUs and they are required to purchase international units in order to meet their surrender obligations under the ETS. This presents a real risk that New Zealand will end up holding more international units than it requires to meet its international obligations.

With the uncertainty regarding future international agreements, these surplus units may have no market value. This would result in an unnecessary flow of funds offshore which may have an adverse impact on the economy.

Other trading schemes, such as that in Europe from 2013 and the planned Australian Carbon Pricing Mechanism from 2015, plan to manage their level of purchasing of international units by selling additional domestic units through an auction. These schemes set a cap on the total number of domestic units supplied through auction and free allocation. This cap reflects their national targets, thus ensuring that overseas purchasing is no more than the level needed to meet their international commitments.

Cap and auction

The Government intends to introduce a mechanism through legislation that will allow the Minister for Climate Change Issues to auction NZUs. The number of NZUs auctioned, combined with the NZUs allocated to trade-exposed, emissions-intensive businesses, would not exceed the agreed target level of emissions in any one year.

Auctioning NZUs would not raise revenue for the Government as each additional NZU sold would mean one less international unit of equal value would be surrendered to the Government to meet participants’ obligations. However, auctioning would ensure the supply of NZUs to participants is consistent with New Zealand’s targets, avoiding excessive purchasing of international units and unnecessary offshore cash flows.

The use of this auctioning power, including the level of the cap and detailed auction settings, would be subject to a further consultation before implementation. The Government proposes to amend the legislation to allow these matters to be set out in regulations. The legislation would state clearly the matters the Minister for Climate Change Issues must have regard to when setting the cap, such as the level of any domestic or international target to reduce emissions. It would also set a process for amending the regulations.

Any auction would likely be introduced in 2014 or 2015, with a pilot auction held in advance.

What does this paragraph actually mean?

Auctioning NZUs would not raise revenue for the Government as each additional NZU sold would mean one less international unit of equal value would be surrendered to the Government to meet participants’ obligations. However, auctioning would ensure the supply of NZUs to participants is consistent with New Zealand’s targets, avoiding excessive purchasing of international units and unnecessary offshore cash flows.

It seems self evident as the Vendor the Government would receive money for the NZU it Auctions. The money would otherwise go to off shore vendors of JI or CDM credits. Moreover in the absence of an international agreement pre 2015 these NZU are from ‘thin air’ and don’t represent any link to an obligation other than one that is self imposed.

And what about the principal enshrined in international units under the JI and CDM, that is technology transfer, particularly in the CDM that investment in the form of purchasing units will save developing countries from repeating the creation of carbon intensive economies. Have we forgotten that post GFC and is the preservation of our balance of payments more important?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: