The Finance and Expenditure Committee has released its report on the Climate Change (Emissions Trading and Other Matters) Amendment Bill 2012 ("Bill").  As expected, the Committee has recommended that the Bill be passed, proposing few significant amendments. 

Not surprisingly, Labour, the Greens, and New Zealand First members of the Committee do not support the Bill's progression.  The opposition parties all believe that the Bill weakens the overall Emissions Trading Scheme ("ETS"), and does not go far enough in promoting the climate change objectives the ETS was originally designed for.  In particular, there is concern about implications for the forestry sector due to the Government's stance on continuing to allow ETS participants to source all of their emissions units internationally.  Due to the currently very depressed carbon market (and consequently the market price for carbon credits) internationally, no one is buying New Zealand units, which impacts on the incentives to plant more trees.  The opposition parties (as well as the Parliamentary Commissioner for the Environment) are very concerned about where this approach will lead New Zealand in the foreseeable future.

The Bill's key amendments, with the Committee's associated recommendations (minor and technical amendments are not included below), are as follows:

  • Keeping the 'two-for-one' (or 'half price') transition obligation in place (with no specified end date), so that ETS participants with emissions obligations are only required to surrender 1 NZU for every 2 tonnes of carbon dioxide-equivalent emissions [Committee recommendation: no change];
  • Maintaining the $25 fixed price for NZUs purchased from the Government indefinitely (in order to protect ETS participants if the international carbon price rises sharply over the next few years) [Committee recommendation: no change];
  • Suspension of the phase-out of industrial allocation of NZUs indefinitely (which was set to begin next year), associated with the continued ban on exporting of NZUs overseas (except for those NZUs created within the forestry sector) [Committee recommendation: no change];
  • Introducing an express regulation-making power to allow the auctioning of NZUs (within an overall cap on the number of NZUs auctioned and allocated) [Committee recommendation: no change];
  • Removing the requirement to “back” all NZUs issued with a Kyoto unit (to allow for auctioning) [Committee recommendation: no change];
  • Introducing offsetting for pre-1990 forestry land owners from 2013 (allowing them to change their core land use away from forestry without paying emissions penalties, and requiring them to off-set their forestry planting in an alternative location) [Committee recommendation: offsetting rules should be made more flexible than the current international framework in order to allow landowners to use land for offsetting purposes that may have been in forest as at 31 December 1989 but subsequently deforested.  The Committee estimates land in this category to be in the region of 60,000 hectares];
  • Allocating the planned full second tranche of compensation/NZUs to pre-1990 forestry land owners where offsetting is not taken up [Committee recommendation: the timing for the EPA to distribute allocated units (currently by end 2012) should be extended for practical reasons]; and
  • Leaving agricultural biological emissions out of the ETS indefinitely (with a review on this position to be carried out in 2015) [Committee recommendation: no change]
  • Aligning the ETS with international greenhouse gas accounting standards by adopting the latest internationally accepted global warming potentials [Committee recommendation: no change];
  • Removing the ETS obligation on the importation of synthetic greenhouse gases (SGGs) in motor vehicles and goods, and introducing a new levy instead [Committee recommendation: minor amendments regarding the new levy].

The Committee considered the issue of limiting the ability of ETS participants to utilise international units for their emissions liabilities (given that was a predominant issue arising in the 758 submissions received on the Bill).  The majority of Committee members considered that the regulation-making power in the existing Act which allows for regulations placing quantitative or qualitative restrictions on the surrender of units was sufficient, and it is for the Government to decide if and when to impose such regulations in future.

The Committee also noted that concerns had been raised regarding potential liability arising for custodian trustees in respect of the ETS and deforestation actions taken outside of their control on land they are responsible for.  Although the Committee noted that these concerns were valid, it preferred to leave the issue to be resolved by the Law Commission's current work on trust law (and the likely eventual solutions arising from that project).

The Government will be consulting with stakeholders separately on the detailed auction design features in respect of the proposed increase of NZU supply via auction.  Consultation is also expected to take place in the near future in respect of forestry offsetting technical details.


Clarification on carry-over of international units in ETS

Climate Change Minister Tim Groser has announced that the Government will be providing clarification on the domestic carry-over provision in the ETS legislation.

In 2015, New Zealand will be required to surrender emissions units equal to its emissions over the first Kyoto commitment period (CP1, which runs from 1 January 2008 - 31 December 2012).

Under international Kyoto rules, any units in the New Zealand Emission Unit Register that have not been approved for carry-over after this period will be cancelled and will not be eligible in future periods.  The Government is now to determine what that will mean for the domestic framework.  It only affects international units created during CP1 - New Zealand Units ("NZUs") are not affected.

At the same time, the Minister has confirmed that officials are reviewing the eligibility of certain units in the ETS.  He has confirmed that officials are looking into the environmental integrity of certain units following concerns raised that the restrictions placed on some Certified Emission Reduction (CER) units last year were not encompassing enough.  Any proposed changes will be subject to public consultation and Cabinet approval.

Consumer Law update - green marketing implications

The Commerce Committee has recently reported back on the Consumer Law Reform Bill which proposes major amendments to the broad suite of consumer law including the Fair Trading Act 1986, the Consumer Guarantees Act 1993, the Sale of Goods Act 1908 and number of smaller related statutes.

Of interest are the new provisions prohibiting unsubstantiated representations (to be inserted into the Fair Trading Act 1986).  Under the existing Act, the Commerce Commission must disprove such representations which can be difficult and costly.  The Bill introduces a new prohibition preventing anyone in trade from making an unsubstantiated representation.  As proposed by the Commerce select committee: (clause 12A(2))

"A representation is unsubstantiated if the person making the representation does not, when the representation is made, have reasonable grounds for the representation, irrespective of whether the representation is false or misleading".

Significantly, this new provision will require people making claims about products or services to ensure that these claims can be justified beforehand.  The prohibition applies regardless whether it later turns out that the representation was in fact accurate or true.

It is proposed that this new prohibition will make it easier for the Commerce Commission to challenge organisations making unsubstantiated environmental claims.

Australia joins with Europe for future emissions trading scheme

Australian Climate Change Minister, Greg Combet, has announced that Australia will be linking its eventual emissions trading scheme with Europe.  A full two-way link, by means of the mutual recognition of carbon units between the two cap and trade systems, is to commence no later than 1 July 2018.To facilitate linking, Australia will make 2 changes to its proposed ETS (which is due to start in July 2015):

  • the proposed price floor will not be implemented; and
  • a new sub-limit will apply to the use of eligible Kyoto units (participants will be able to meet up to 50% of their emissions liabilities through purchasing eligible international units, but only 12.5% of their liabilities will be able to be met by Kyoto units).

Since this announcement, Australian participants can purchase European units to meet liabilities under the new emissions trading scheme from its launch in July 2015.

What this means for New Zealand is yet to be clarified, given that New Zealand and Australia have also committed to linking their emissions trading schemes (and work is currently underway to facilitate that programme).  New Zealand is yet to confirm how any possible linking with Europe's emissions trading scheme might be achieved (as significant amendments to New Zealand's framework would likely need to be made).