New Zealand: Climate Change (Emissions Trading and Renewable Preference) Bill

Last Updated: 4 February 2008
Article by Neil Russ

The Climate Change (Emissions Trading and Renewable Preference) Bill was tabled in Parliament yesterday (Tuesday 4 December 2007)10:25 04/02/2008.

The Bill unexpectedly legislates for a 10-year moratorium on new thermal electricity generation, while its provisions to implement a greenhouse gas emissions trading scheme have been widely signalled and depart in only small ways from previously announced policy.

OVERVIEW

The Climate Change (Emissions Trading and Renewable Preference) Bill ("the Bill") has 2 parts:

  • Part 1 contains provisions to implement a greenhouse gas emissions trading scheme in New Zealand
  • Part 2 legislates the government's preference for renewable electricity generation by implementing a 10-year moratorium on new base-load thermal electricity generation, except to the extent required to ensure security of supply.

In summary, Part 1:

  • Provides for the entry of all sectors into the ETS, setting default points of obligation upstream but allowing major downstream emitters to become participants as follows:

Scheme entry date



Sector

Default participants

Possible participants

1 January 2008 Forestry Landowners (pre-1990 forests) Landowners or forestry right/registered lease holders (post-1989 forests)
1 January 2009 Liquid fossil fuels Fuel suppliers Major jet fuel users
1 January 2010 Stationary energy Coal, gas and geothermal suppliers; oil, tyre and waste burners for electricity or heat generation; petroleum refiners. Major users of coal and gas
Industrial processes End emitters Producers who embed carbon in their products
1 January 2013 (presumably this will need formatting??) Agriculture:

n/a

Default option:



Nitrogen fertiliser suppliers
(i) synthetic fertiliser

Possible option:



Farmers
(ii) enteric fermentation and manure management

Default option:



Meat/dairy processors

n/a

Possible option:



Farmer

n/a

Waste Landfill operators

n/a

  • Specifies the obligations of "participants" in the scheme and the consequences of non-compliance
  • Creates a "New Zealand Unit" and determines how emission units will be traded in New Zealand and overseas
  • Provides for the free allocation of New Zealand Units
  • Contains a number of forestry sector-specific provisions.

Part 2 makes it an offence to connect new thermal generation plant to the national grid or distribution network unless the Minister of Energy has issued an exemption.

PART 1: EMISSIONS TRADING SCHEME

In September 2007, the government announced details of a proposed New Zealand ETS. The Bill implements the policy as announced, with 2 key differences:

  • A relaxation of the penalty regime so that participants will not face full monetary penalties the first time they surrender units for any accidental shortfall (see clause 43, new section 175); and
  • A process for the issuing of allocation plans for the free allocation of New Zealand Units (see clause 43, new sections 73-74).

Participants In The Scheme

Clause 43 of the Bill amends the Climate Change Response Act 2002 ("the CCRA") by inserting new Parts 4 and 5, which implement the core provisions of the ETS. These provisions define who is covered by the ETS and from what date.

"Participants" are the firms and individuals with obligations under the scheme. Participants are defined with reference to certain activities, which are listed in new Schedules 3 and 4 of the CCRA (inserted by clause 44).

  • Schedule 3: any individual or firm who does an activity listed in Schedule 3 must register as a participant (see clause 43, new sections 54 and 56), but only from the date the relevant part of Schedule 3 applies (see table above).
  • Schedule 4: any individual or firm who does an activity listed in Schedule 4 may elect to register as a participant (see clause 43, new sections 54 and 57), but only from the date the relevant part of Schedule 4 applies. This allows the people to become participants from the dates as follows:
  • post-1989 forest owners or forestry right/registered lease holders - from 1 January 2008 (and therefore to earn units from that date)
  • firms that embed carbon in their products - from 1 January 2010 (and therefore earn units from that date)
  • firms that purchase more than 10m litres of jet fuel for domestic flights in a year – from 1 January 2009
  • firms that purchase more than 250,000 tonnes of coal, or 2 petajoules of gas, in a year – from 1 January 2010.

Participant obligations

New sections 61-66 state participants' obligations and entitlements to:

  • Have an account in the emission unit Registry to hold emission units
  • Monitor emissions and removals in accordance with methodologies to be prescribed in regulations
  • Report annually by 31 March on any emissions or removals that result from activities in the previous year (except for post-1989 forest participants, who may report at the times defined in new section 167)
  • Surrender 1 emissions unit for each tonne of emissions (or earn 1 emissions unit for each tonne of removals)
  • Retain records showing their emissions and removals for 7 years (20 years in the case of forestry participants).

Compliance And Enforcement

Subparts 3-5 of new Part 4 contain the administrative provisions of the ETS and give the administering chief executive compliance and enforcement powers, including:

  • Requiring or obtaining information from participants (new sections 82-95)
  • Issuing "emissions rulings", which are similar to binding rulings issued under tax legislation (new sections 96-105)
  • Correcting participant errors (new sections 106-115)
  • Taking enforcement proceedings and imposing penalties in the case of non-compliance (new sections 116-130).

Subpart 5 gives the right of review and appeal to people who wish to challenge the chief executive's decisions.

Unit Of Trade And International Linkages

Clauses 4-42 of the Bill amend the existing provisions of the CCRA. These amendments extend the scope of Part 2 of the CCRA to:

  • Create New Zealand Units ("NZUs") and define how NZUs (and Kyoto Protocol units) are held, traded, and surrendered for compliance purposes under the ETS
  • Enable linking of the ETS to the international market for Kyoto units through the conversion of NZUs into defined Kyoto units for transfer overseas
  • Enable linking of the ETS to other countries' domestic trading schemes by regulation when appropriate.

The Bill also contains regulation-making powers giving government the ability to restrict the type of emissions units that may enter the New Zealand emission unit register (see clause 28, new section 30G). If the government decides to prevent "hot air" Assigned Amount Units from being used for compliance under the ETS, for example, it would do so in regulations made under this provision. Importantly, any regulations will only apply to units already in the Register on the date the regulations come into force.

Allocation of NZUs

With respect to the free allocation of NZUs, the Bill:

  • Specifies the broad parameters of free allocation of NZUs to the owners of pre-1990 forests, and to certain individuals and firms in the industrial and agriculture sectors (see clause 43, new sections 69-71)
  • Establishes a consultative process culminating in the issuing of an "allocation plan" to determine precisely who gets how many NZUs (see clause 43, new sections 73-74)
  • Specifies that no person other than the people provided for in the Act are able to receive a free allocation of NZUs.

The Bill provides for all free allocation to cease by 2025, although Hon David Parker, Minister Responsible for Climate Change Issues, has made it clear that the government is willing to engage further on the phase-out date for free allocation. The Bill also contains a review clause (new section 147), which requires aspects of allocation policy to be reviewed by March 2012, including the impact on allocation policy of the emissions pricing policies of New Zealand's major trading partners.

New section 75 empowers the Minister to sell NZUs by public auction.

Forestry: Sector-Specific Provisions

Although new Part 5 contains provisions that are specific to the forestry, transport, and stationary energy sectors, most apply to the forestry sector. They govern matters such as:

  • Who is, or may be, a participant in respect of pre-1990 forests and post-1989 forests
  • Exemptions for the owners of certain pre-1990 forest land
  • Provisions deeming when forestry activities have occurred and when participants must report any emissions (or removals) from those activities.

Consequential Amendments To Tax Legislation And The Ppsa

Clauses 45-65 consequentially amend other legislation in respect of the ETS, including:

  • The Income Tax Acts 2004 and 2007 to provide for the tax treatment of units transferred in respect of forestry activities
  • The Personal Property Securities Act 1999 to allow the registration of security interests over emissions units on the Personal Property Securities Register.

PART 2: 10-YEAR MORATORIUM ON NEW THERMAL GENERATION

Part 2 of the Bill inserts a new Part 6A into the Electricity Act 1992 placing a 10-year moratorium on new thermal electricity generation, except where required for security of supply purposes. It achieves this by making it an offence to connect new thermal generation plant to the national grid or distribution network unless the Minister of Energy has issued an exemption enabling the connection to occur.

The Minister of Energy will only issue exemptions when certain criteria are met (see clause 7, new section 62G). The Electricity Commission will receive and analyse exemption applications, and advise the Minister.

Resources

A copy of the Bill can be obtained here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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