Proposed NZETS Changes

https://www.mfe.govt.nz/overview-reforming-new-zealand-emissions-trading-scheme

Overview of the New Zealand Emissions Trading Scheme reforms

The Government is reforming the New Zealand Emissions Trading Scheme (NZ ETS). It is doing this through the Climate Change Response (Emissions Trading Reform) Amendment Bill and related regulations.

Purpose of the reforms

The purpose of the reforms is to help New Zealand reach its greenhouse gas emissions reduction targets. The changes would provide more certainty for businesses, make the scheme more accessible and improve its administration.

Status of the reforms

The Climate Change Response (Emissions Trading Reform) Amendment Bill (the Bill) is currently going through Parliament. It is expected to be passed shortly. Regulations are expected to be gazetted by the end of this year.

For more on the legislative process see Next steps.

Overview of the specific reforms

Support emissions reduction targets and emissions budgets  

The Bill would update the Climate Change Response Act (CCRA) to include: 

• New Zealand’s reporting and emissions reduction targets under the Paris Agreement
• New Zealand’s domestic targets and emissions budgets set by the Zero Carbon Act. 

For more information read Emissions reduction targets and emissions budgets in the New Zealand Emissions Trading Scheme.

Set a cap in the NZ ETS guided by a provisional emissions budget

• The Bill would enable a cap on emissions covered by the scheme. It would decline over time as our emissions reduce in line with our targets.
• The cap requires an emissions budget to be in place. The Climate Change Commission will advise on emission budgets later in 2021. These reforms required a provisional emissions budget to be set in the interim (2021-2025). 
• The Government has chosen a provisional emissions budget and a cap for the scheme over the period 2021-2025. This is in line with our 2050 target set by the Zero Carbon Act.

For more information read Emissions reduction targets and emissions budgets in the New Zealand Emissions Trading Scheme.

Introduce auctions

• Auctioning would allow the government to sell New Zealand emission units from within the cap.
• The Government has announced rules for selling units by auction to be set in regulations later this year. 

For more information read Auctioning in the New Zealand Emissions Trading Scheme.

Establish price controls

• The Government has announced new price controls designed to prevent unacceptably low or high prices in the market, which could then be passed on to businesses and households.
• The cost containment reserve would replace the fixed price option price ceiling. The Government has announced that in 2021 the reserve would be triggered when the unit price reaches $50. This would release more New Zealand units into an auction to ease demand. The trigger price would increase by two per cent in future years based on forecast annual inflation.
• The Bill has also enabled a price floor to be implemented through an auction reserve price. The Government has announced that this would be set at $20 in 2021 and this price would increase by two per cent in future years. 
• The fixed price option would increase to $35 and be available for participants to use from the start of 2020, and overlap with the start of auctioning.

For more information read Price controls in the New Zealand Emissions Trading Scheme.

Phase down of industrial allocation from 2021

• Phase-out of industrial allocation at a rate of 1 per cent each year would start from 2021 and continue until 2030.  The annual phase-out rate would increase to 2 per cent from 2031-2040 and to 3 per cent from 2041-2050.
• The Bill would set up a legislative mechanism which could apply further phase-out rates to activities at low risk of emissions leakage. This is when a company loses market share, or moves production to a country with less rigorous climate policy or carbon pricing.
• The independent Climate Change Commission would be able to recommend that increases to the minimum phase-out rate are paused beyond 2031 if there is still a risk of emissions leakage. 
• The Commission’s advice would also inform the level of any rates of phase-out for activities at low risk of emissions leakage.

For more information read Industrial allocation in the New Zealand Emissions Trading Scheme.

Improve the NZ ETS for forestry

By:

• introducing average accounting for some post-1989 forests 
• creating a new permanent forestry activity in the NZ ETS
• exempting post-1989 forests from the requirement to surrender units to cover emissions from temporary adverse events (such as fire or wind throw)
• allowing some types of post-1989 forestry participants to offset their deforestation liability by planting a forest elsewhere
• improving the pre-1990 forest land offsetting
• some forestry changes are delayed, and are included in supplementary order paper.

For more information read Summary of forestry changes in the New Zealand Emissions Trading Scheme.

Agriculture

• The Government is working together with primary industry organisations and iwi/Māori to find the best way of reducing primary sector emissions.
• He Waka Eke Noa has begun their work and would report back in 2022.

For changes relating to agriculture see Action on agricultural emissions. 

Compliance

• The penalties regime would be updated to improve compliance in the NZ ETS.
• New infringement offences would be introduced for low-level offending.
• Serious non-compliance would be publicly notified.

For more information read Compliance and infringements in the New Zealand Emissions Trading Scheme.

Transparency

• Emissions and removals (greenhouse gas emissions removed from the atmosphere (eg, carbon stored in trees)) data would be published at the level of individual participants in the NZ ETS, following 10 days notice.  

Operational and technical improvements 

• The Bill would make a number of operational and technical improvements. These include changes that will remove redundant references to the Kyoto Protocol, allow easier correction of errors and resolve a number of minor administrative issues.
• The Bill would also provide for legacy Kyoto Protocol emission units in private accounts to be cancelled.

The government is continuing to work on further areas

Improving market governance

A separate market governance work programme has been established as the Government has decided that further work is required on this area. This approach would ensure that proposals are fully developed and consulted on and that any impacts on market participants are well-understood before final decisions are taken.

Earlier decisions to prohibit insider trading, market manipulation and to find an appropriate regulator for the NZ ETS market would be included in the market governance work programme. 

A separate Bill would be presented to Parliament at a later date to amend the Act and other legislation as necessary.

Some forestry changes delayed

The key forestry changes in the Bill were originally supposed to take effect at the beginning of 2022. However, the COVID-19 pandemic has impacted Government’s ability to deliver forestry regulations by then, given the regulations’ complex and technical nature. As a result, a supplementary order paper defers implementation until January 2023.

Agriculture decisions

For changes relating to agriculture see Action on agricultural emissions. 

NZETS Auctioning Rules and Settings Announced, Fixed Price option now $35NZD Up from $25

https://www.beehive.govt.nz/release/emission-trading-reforms-another-step-meeting-climate-targets

The Emissions Trading Scheme (ETS) will finally start to cut New Zealand’s greenhouse gas pollution as it was originally intended to, because of changes announced today by the Minister for Climate Change, James Shaw.

The changes include a limit on the total emissions allowed within the ETS, rules to ensure emission prices are more predictable, and a provisional emissions budget for the 2021-2025 period.

“A reformed ETS will be one of New Zealand’s most efficient and cost-effective tools for reducing emissions and ensuring we leave behind a safe planet for our children and grandchildren.

“Our announcement today will give business and foresters the certainty they have been asking for – as well as reassuring New Zealanders that there is a clear pathway towards meeting our climate targets,” James Shaw said. 

Today’s announcement sets out:

• The amendments the Government is making to the Climate Change Response (Emissions Trading Reform) Bill, which will better incentivise emissions reductions
• The changes that are necessary to make the ETS work as it should. These changes will be implemented through regulation once the Bill is law and include the cap on the total emissions allowed in the ETS, and rules for the auctioning of emission units

“We know that meeting New Zealand’s climate targets is a real challenge, but it is becoming more and more achievable because of the policies our Government is putting in place.

“An effective Emissions Trading Scheme is a key part of what needs to be done. Unfortunately the rules set by previous Governments left the scheme too weak to have any real impact on reducing our emissions.

“A good example of this is the fact that until now the ETS has been a cap and trade system without a cap. This has meant that emissions permitted under the scheme were, in effect, unlimited. I am delighted to say we are finally changing that.

“The changes I have announced today will better translate our emission reduction targets into a predictable emission price, which will incentivise our biggest polluters to invest in the transition to a clean, climate-friendly economy.

“As a complete package, these reforms take a big step towards a safer future. New Zealanders now know what our emissions limit is for the first half of this decade, and the contribution the ETS will make towards keeping us below that level.

“We have also put everything in place to make sure businesses covered by the ETS can play their part in tackling the climate crisis in fair and affordable way,” James Shaw said.

Further Information

The Emissions Trading Reform Bill will have its second reading later today. The rules announced today that will be enacted through regulation once the Bill has passed include:

• A provisional emission budget for the 2021-2025 period of 354 million tonnes of CO2 equivalent greenhouse gasses.
• The Climate Change Commission will provide advice next year on future emissions budgets. They may also propose a revised emissions budget for the 2021-25 period that would supersede the provisional emissions budget announced today.
• A new cap on the ETS of 160 million tonnes of CO2 equivalent greenhouse gases over 2021-2025.
• Price controls that will act as a backstop when auctioning is introduced – preventing prices going too low or too high.
• Rules that govern auctioning to provide certainty on how auctions will be scheduled and run.

The Supplementary Order Paper (proposed amendments to the Emissions Trading Reform Bill) published today will:

• Extend participants’ access to the Fixed Priced Option (the ETS’s de-facto price ceiling) to cover 2020 emissions, providing certainty about compliance costs.
• Defer implementation of major forestry policies to January 2023 whilst ensuring foresters who register under the current announced settings are not disadvantaged.
• Delay the introduction of penalties for small foresters.
• Extend cover for surrender liabilities to foresters during temporary adverse events using stock change accounting, and introducing exceptions of the new penalties for small forest participants.