New Zealand's modified emissions trading scheme to help combat climate change was passed into law yesterday.
The Climate Change Response (Moderated Emissions Trading) Amendment Act 2009 introduces a revised emissions trading scheme (ETS) to that originally enacted.
The new law means that from 1 July next year the industrial, energy, and transport sectors will face a price on carbon. However their compliance obligations are halved to soften the transition. Until the end of 2012 they need only surrender one emission unit for every two tonnes of emissions, and the carbon price is capped at NZ$25 per unit.
Agriculture will enter the scheme in 2015. In the meantime incentives for afforestation have applied since the original scheme was enacted in September 2008.
Another key change is to cushion trade-exposed heavy industry with free allocations of emission units over a longer period than was originally proposed, on an uncapped emissions intensity basis. This is to avoid "carbon leakage", whereby manufacturing moves off-shore to developing countries that impose no emission obligations on business, only increasing global emissions.
The free allocation to trade-exposed industry is closely aligned to the model that would apply under the emissions trading scheme proposed in Australia. This underlines the degree of integration between the two economies, and New Zealand's desire to keep in step with its major competitor for business investment.
The scheme is the first of any country outside Europe, and on 1 July 2010 will be the most comprehensive by including transport, industrial and energy emissions. New Zealand is the first country to include forestry and agriculture.
Bell Gully partner Simon Watt, an expert in climate change issues, including emissions trading, has been advising New Zealand and international organisations for a decade as they become involved in trading or prepare for new climate change laws.
One of just seven lawyers world-wide identified as leading legal experts in climate change by researchers, he was last night called upon by TV3's Nightline news programme to help explain the new emissions trading scheme.