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What is an Emissions Trading Scheme and why do we need one?

Jeanette Fitzsimons, MP

28 Aug 2008
Subject: Climate Change

The simplest answer is that an emissions trading scheme (ETS) is a way to put a price on carbon so that industries that produce greenhouse gases, like carbon dioxide, pay a price based on how much they emit. This cost should encourage them to find more efficient ways of doing business. This in turn will help us reduces the damage that all countries are doing to the atmosphere and reduce the risk of dangerous climate change, as well as promoting a clean energy economy.

The New Zealand ETS is quite similar to the one in Europe and similar to those proposed in Australia and California. It sets up a market for carbon similar to the stock exchange so people can trade carbon they save with the carbon pollution caused by other people. It also makes exceptions for some industries which have to compete with overseas firms with no pollution control. These come in the form of tradable credits that can be bought and sold on the market. Gradually those exemptions will be phased out and everyone has to pay the full cost of their emissions.

The Greens believe that getting a price on carbon is a critical first step in tackling climate change. Although not our first choice, the ETS does achieve this important first step.

It was a difficult decision but in the end we decided that we had won just enough from our negotiations and that it was time to get started. Our environment is just too precious to gamble on delay.

The biggest risk is that people will think this is all we have to do on climate change. It is nowhere near enough. We will campaign during this election on the other measures that are needed, like more investment in public transport and rail freight, and use what ever influence we have after the election to make this legislation fairer and more effective, for all New Zealanders.

The following is the list of changes we managed to secure in negotiations:

 

Emissions Trading Scheme -Green Party Achievements

Issue

Summary

Household Energy Efficiency Fund

A new $1 billion fund over 15 years, managed by EECA, for household investment in energy efficiency, such as improved insulation. The fund will will be set in legislation with appropriations being required as the money is to be spent.

National Policy Statement on Biodiversity

NGOs have been calling for years for an NPS on Biodiversity. The Greens have gained a commitment that development of an NPS on biodiversity will begin immediately.
A due date of 1 February 2011 will be gazetted before the election. The effects of the ETS on biodiversity will now be part of the ETS review process.

Assistance to
Households

There will be a one-off payment to all households as well as a needs based payment to help households to adjust to the first price impacts of the ETS.

Establishment of
an Innovation Fund

A fund of carbon units will be set aside to promote innovative, low emission technology. It will be contestable and available to firms that face competition from overseas.

Approval Process for Allocation Plans

We have always complained that the difficult decisions around allocations were being left to officials after parliament signs off the
legislation. There is now a new requirement for the agriculture and industry allocation plans to be scrutinised by select committee, and parliament. This means greater public transparency for how free units get doled out.

Emission Reduction Targets

Government will gazette all of the agreed emission reduction targets, including the new one for agriculture. They will form part of the regular reviews of the ETS

Restrictions on “hot air” AAUs

As well as keeping nuclear units out of the
scheme, AAUs (assigned amount units) from countries whose economies have declined since 1990 will not be redeemable unless they have been “greened” by schemes ensuring the money goes into emission reduction programmes.

Support for
Electric Public Transport

With electricity generators joining the ETS a year before fuel suppliers, the Wellington Regional Council (the only regional council that operates electric public transport) will see its electric buses and trains facing a cost disadvantage relative to their diesel buses. A one-off payment will be made to offset the increased electricity costs WRC faces in relation to its electric public transport fleet in 2010.

Additional Matters
to Include in the Regular ETS Review

Two important new requirements have been added to the regular ETS reviews:

  • the impacts of the ETS on biodiversity
  • the costs and benefits of establishing an independent or semi-independent government body to carry out the allocation process

Additional
Principle to Guide the Industrial and Agriculture Allocation Plans

The Greens felt that industries should only get help for the amount that they are actually trade exposed. This makes the scheme fair for all businesses and keeps the costs to the taxpayer down.

where a person is eligible to receive an allocation of NZUs free of charge under an allocation plan, it is desirable that that person only receive units in relation to emissions from the production of the subset of goods they produce that are trade exposed”

Free Allocation to the Fishing Sector

The fishing sector has to compete with foreign
vessels working in our waters. This change gives them some breathing space once the transport sector (petrol and diesel) come into the scheme. There will be a free allocation of units for the fishing sector equal to 50% of the impact on fuel costs for a three year period.