The Government recently released Updating the New Zealand Emissions Trading Scheme which proposes a number of amendments to the Emissions Trading Scheme ("ETS") to ease the country's transition into full obligations.  A copy of the consultation document is available here.

The proposed changes follow on from the first mandatory review of the scheme which took place last year, and are intended to strike a balance between ensuring New Zealand does its "fair share" while softening the impact on the economy arising out of the operation of the ETS.

The proposals will affect all emissions-producing businesses, particularly the agricultural and forestry sectors, and include:

  • A more gradual phase out of the "transition measures" put in place for business from 2013 to 2015.
  • The introduction of more explicit powers for the Government to auction New Zealand Units ("NZU") within an overall cap and to restrict the use of overseas units in the ETS.
  • Maintenance of the $25 fixed price option and the ban on export of NZUs from non-forestry sectors until at least 2015, with a power to extend this to align the option with any price ceiling in Australia should we link with the Australian scheme.
  • The introduction of offsetting for pre-1990 forest landowners to provide more flexibility to convert land to its highest value use, with a review of the level of compensation being provided in light of reduced deforestation liabilities.
  • Subject to a 2014 review, provision for a maximum three-year postponement of the agriculture sector’s inclusion (ie until 2018).

The proposed further postponement of the agricultural sector's inclusion in the ETS has been criticised by the Green Party, with co-leader Russel Norman commenting that delaying the introduction of the ETS was effectively subsidising carbon inefficiency, and that "[i]f the agricultural sector doesn’t pay for its emissions that means the taxpayer pays". 

However the Government has maintained that it will only support the entry of the agricultural sector under two conditions, namely that there are technologies available to reduce agricultural emissions, and that international competitors are taking sufficient action on their emissions in general.  The 2014 review will be to gauge the extent to which these two conditions have been satisfied.   

The Government has signalled that further decisions will be made in the near future to deal with the other 2011 review recommendations concerning synthetic greenhouse gases, the waste sector and other forestry changes.

The closing date for submissions on the changes proposed in the consultation document is Friday 11 May 2012.  The Government intends to introduce a legislative bill to amend the Climate Change Response Act 2002, and have this passed by the end of this year.