Introduction
Participants
Trading units
Trading documents
2011 review
New Zealand has had an emissions trading scheme in place sincce 2008, requiring participants to account for emissions or removals of greenhouse gases. It has been developed as part of New Zealand's response to climate change in accordance with the Kyoto Protocol.
Scheme participants are generally the entities responsible for the import or first production of goods, materials and processes that give rise to greenhouse gases in the supply chain; they also include entities that undertake specified removal activities. Participants must surrender emission units to the New Zealand government for emissions of greenhouse gases and can claim credits for removals of such gases.
Emission units are traded through the New Zealand Emission Unit Register, which forms part of the scheme. A wide range of persons - both individuals and corporate entities - can open accounts with the register and trade accepted emission units through the scheme, irrespective of whether they are scheme participants.
Participants
The scheme imposes obligations to surrender emission units on certain entities, termed 'mandatory participants', but allows other entities that meet specified criteria and thresholds to opt in as voluntary participants.
Mandatory participants
Subject to thresholds, mandatory participants that must surrender emission units for greenhouse gases include:
- importers of transport fuels (or those removing transport fuels from a refinery);
- importers and extractors of coal or natural gas;
- those using geothermal fluid or combusting used oil, waste oil, used tyres or waste to generate electricity or industrial heat;
- those refining petroleum where the refining involves the use of intermediate crude oil products for energy or feedstock purposes;
- producers of iron, steel, aluminium, clinker, burnt lime, glass or gold; and
- those responsible for deforestation of pre-1990 forest.
Sectors still to be phased in as mandatory participants include
- importers or manufacturers of sulphur hexafluoride and some hydro-fluorocarbons and per-fluorocarbons;
- agriculture; and
- waste disposal facilities.
Voluntary participants
Voluntary participants may be emitters of carbon (in which case they must surrender obligations) or may undertake removal activities (in which case they are entitled to receive emission units). In both cases, they must meet certain criteria and thresholds.
Significant purchasers of jet fuel, coal and natural gas can opt in as voluntary participants, assuming surrender obligations and taking direct responsibility for compliance, rather than paying on a contractual, pass-through basis.
Voluntary participants that may receive emission units from the scheme include those responsible for planting post-1989 forests and those carrying out other qualifying removal activities.
Other entities may be entitled to receive emission units, even though they are not participants. Businesses in certain emissions-intensive, trade-exposed industries can qualify for free annual allocations of emission units, as can pre-1990 forestry owners and fisheries operators.
Trading units
Most units recognised under the Kyoto Protocol can be traded through New Zealand's emission trading scheme. Units derived from nuclear energy projects are not accepted.
New Zealand also has its own unit of trade, the New Zealand unit (NZU). NZUs are issued by the New Zealand government. If issued to the forestry sector, NZUs are backed by assigned amount units (AAUs) and are freely transferable nationally (as NZUs) and internationally (as AAUs). If issued to other recipients, NZUs cannot be swapped for AAUs until after May 31 2013 and so cannot be traded internationally until after this date. They can be traded nationally (and surrendered by participants in satisfaction of their obligation to surrender emission units).
Emissions units earned under the Permanent Forest Sinks Initiative can be traded under the New Zealand scheme. Only forests established after January 1 1990 are eligible for the initiative, which seeks to incentivise the establishment of permanent forests on previously unforested land.
Trading documents
There is no accepted standard form contract for emissions trading in New Zealand yet. Trading documents should be carefully tailored to meet the requirements of the parties and to reflect the nature of the deal.
International Swaps and Derivatives Association (ISDA) documentation is emerging as one of the preferred options for long-term active trading. Documentation based on the International Emissions Trading Association (IETA) is also being seen in the market. However, both ISDA and IETA documentation must be tailored to reflect New Zealand issues.
2011 review
A review of the New Zealand scheme is underway. It focuses on the improvements that can be made to ensure that it delivers New Zealand's fair share of emissions reductions at least cost to consumers.
The review is expected to give particular attention to options around:
- designing for possible international frameworks,
- considering whether New Zealand should drop transitional arrangements that ease the compliance burden from 2013 as scheduled, and
- considering whether synthetic greenhouse gases should be included in the scheme.
A major issue for New Zealand has always been whether the agriculture sector should be included. The agriculture sector is scheduled to be brought into the scheme in 2015, but the government has indicated that this decision is still subject to review, although this is not expected to be part of the current review.
For further information on this topic please contact Elisabeth Welson or Joanna Lim at Simpson Grierson by telephone (+64 9 358 2222), fax (+64 9 307 0331) or email ([email protected] or [email protected]).