With a slight majority of 61 to 58, the Climate Change Response (Emissions Trading and Other Matters) Amendment Bill was passed by Parliament into law on 8 November 2012. It amends the Climate Change Response Act 2002 (the CCRA) in a manner which Minister Groser says will help strike the right balance between doing our fair share and not impacting unreasonably on New Zealanders. Labour, the Green Party, NZ First, Mana and the Maori Party, who all voted against the Amendment Bill do not agree.

The sentiments of the Minister are not dissimilar to some of those expressed by the 2011 Review Panel, yet the changes recommended by it following its review and those now incorporated through the Amendment Act into the CCRA differ somewhat. That said, the amendments passed by the Government are not surprising in the current economic climate, and simply seek to moderate further the financial impacts of the NZ ETS in the short-term. Whilst financially beneficial to most businesses and end consumers, the lack of change to restrict international trading is likely to raise concerns for forestry participants seeking good returns on the trading of their units.

Key amendments to the CCRA

The key amendments to the CCRA arising from the Amendment Act are:

  • The extension of the transitional measures beyond 2012 and indefinitely, meaning that the 'one for two' surrender obligations and the $25 per tonne fixed price option (as an alternative to surrendering eligible units) remain. This also means a deferral of the phase-out of industrial allocations (which was expected to occur at a reduction of 1.3% per annum from 1 January 2013, being the date from which the transitional measures were no longer to apply).

  • The indefinite deferral of surrender obligations for biological agricultural emissions, which were otherwise due to commence from the start of 2015.

  • Introducing an 'offsetting' option for pre-1990 forests, which allows pre-1990 forest landowners to deforest and convert the land to another use without incurring liability. Such an offset option is available provided a new forest which would achieve the same carbon stocks within a set time is established elsewhere by direct planting on land eligible for post-1989 planting.

  • Confirming delivery of the second tranche of pre-1990 forest allocations. However, if a pre-1990 forest landowner takes up the option to offset, they are required to repay the second tranche of NZUs received in relation to that forest land.

  • Introducing the power to allow any New Zealand Units (NZUs) allocated under the Permanent Forest Sink Initiative (if NZUs were to be the type of emissions unit to be awarded to participants under the PFSI in future) to be converted and exported. NZUs awarded to forestry participants in the NZ ETS itself are unable to be converted and exported while the transitional measures continue to apply.

  • Introducing the power to implement an 'auction' scheme to enable the Government to increase the supply of NZUs to the market, up to a set cap. The details of this scheme are yet to be developed and it is expected that consultation on the proposed auction scheme will be released in late 2012 or early 2013.

  • Confirmation that there will be no quantity restrictions in the CCRA itself on the number of international units a participant may surrender for compliance purposes. However, the Government has referred to its power under section 30G(1)(C) of the CCRA to make regulations placing quantitative or qualitative restrictions on the surrender of units. The Select Committee did consider the possibility of a legislative restriction on international units, possibly along the lines of the 50% restriction that applies in Australia, but decided to rely on the existing regulatory powers. Furthermore, Hon. Peter Dunne referred to this existing regulatory power in the CCRA when he announced that he would be supporting the Amendment Bill. At this stage, there has been no announcement that the Government is intending to introduce through regulations a quantitative restriction on the number of units that may be surrendered for compliance purposes (although there has been a recent announcement on a further qualitative restriction – see below).

  • Completely re-organising the manner in which the synthetic greenhouse gases (SGG) sector is treated. This means (amongst other matters) that the current NZ ETS obligations which relate to the importation of SGG in goods and motor vehicles will be removed and replaced with a levy applied when a motor vehicle is first registered for on-road use in New Zealand on or after 1 July 2013, and in relation to other goods, at the point of import.

Whilst many of the amendments benefit most participants in the NZ ETS and their consumers, forestry participants on the whole are likely to be disappointed with the lack of a legislative restriction on international trading, the lack of any floor price for the trading of units, and the continuation of transitional measures.