Emissions Trading Scheme looks set to be a reality

In this article, senior associate Kate Radka provides a brief update on changes to the Climate Change (Emissions Trading and Renewable Preference) Bill following the release of the amended Bill and an update on the likelihood of the Bill being passed before elections.

The Finance and Expenditure Select Committee reported back on the Climate Change (Emissions Trading and Renewable Preference) Bill in the middle of June 2008, recommending a number of amendments including:

• the deferral of the introduction of liquid fossil fuels into the scheme from 1 January 2009 to 1 January 2011;

• the deferral of the start of the phasing-out of free allocations from 2013 to 2018, with the free allocation of units to agricultural participants and trade-exposed industries to be phased out gradually over the period 2018 to 2030;

• the deferral of the introduction of activities relating to sulphurhexaflouride, perflourocarbons and hydrofluorocarbons from 1 January 2010 to 1 January 2013;

• the inclusion of coastal fishing and shipping into the scheme, provided an Order in Council is passed;

• the inclusion of a number of new removals activities, which would be eligible to receive units for carbon removals, including (if an Order in Council is passed) carbon capture and storage activities;

• the ability (if it is accepted into Kyoto Protocol and an Order in Council is passed) to include forestry offsets, whereby the forest/land owner would be able to deforest an area of land without incurring deforestation liabilities provided they planted the same amount of forest elsewhere;

• the provision for settlement of Crown Forest Land to receive a one-off allocation of units similar to other pre-1990 forest land (albeit not on an equitable basis as other pre-1990 land);

• amendments to the provisions relating to trade-exposed entities to provide greater flexibility to enable small to medium sized enterprises to have the opportunity to receive an allocation of units for trade-exposure.

The Select Committee Report included two strongly worded minority reports from the National Party and the Green Party. National's report stated its support for an emissions trading scheme in principle, but specified that it would not support the Bill in its current state and voiced its concerns at the speed at which the Bill was being "rushed through".

The Green Party also voiced concerns about the Bill in its minority report, but unlike National it was concerned that the emissions trading scheme as set out in the Bill fails to truly achieve the level of emission reductions the Green Party considers necessary. Although the Green Party continues to voice concerns, it announced on 26 August 2008 that it would support the Bill in exchange for a number of substantial amendments. The Green Party has highlighted some of the agreed amendments and associated policy trade-offs as:

• the use of dividends from state-owned power companies towards a billion dollar fund to make New Zealand homes warm, dry and cost-effective to heat;

• a contestable pool of credits for firms with new technologies that help set our economy on a low carbon path;

• the tightening of rules around the allocation of free credits so that not all firms will get 90 percent if they don't need them; and

• allocation plans will be scrutinised by Parliament, which will have the opportunity to overturn them if they are not fair and effective.

The support of the Green Party alone is not enough for Labour to get the Bill passed. It also requires the support of New Zealand First, which was announced on 27 August 2008 following closely guarded negotiations that have been carried out over the last couple of months.

As anticipated, support from New Zealand First does not come lightly for Labour, with the announcement of further proposed amendments to the Bill in addition to those announced by the Green Party on 26 August. This includes a one-off allocation of funding to each household in New Zealand, with greater funding expected for low income households and Super Gold Card holders, for Labour to address. New Zealand First has also indicated that it brought about considerable changes to forestry and agriculture in the proposed emissions trading scheme and the Government has accepted these changes. What is not clear is whether this is a reference to amendments arising from the Select Committee process following the influence of New Zealand First, or whether further considerable amendments can be expected to be introduced in the Second Reading of the Bill.

The Government has only ten sitting days left in Parliament in which to get the Bill safely through its Second and Third Readings before the elections later this year. With necessary support from the minority parties now secure, it looks like the legislation for an emissions trading scheme may be passed in the next month.

For more information, please contact Kate Radka or Bell Gully's Climate Practice Group leader, Simon Watt

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.