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19 Jun 2009

Bill Delays ETS Timing as Government's ETS Review Continues

On Thursday 18 June, the Government introduced the Climate Change Response (Emissions Trading Forestry Sector) Amendment Bill amending the timing of the emissions trading scheme relating to forestry. In this FYI, we look at extracts from the Government press release on the bill, comment on the more substantive changes being proposed and note the release of a Government commissioned economic report on climate change policy.

Government Press Release

In the Government's press release, Dr Smith said "the bill delays reporting requirements under the ETS and publication of an allocation plan by the Government because the Emissions Trading Scheme Review Committee process is yet to be completed."

"The current law under the Climate Change Response Act requires foresters to have reported any deforestation during 2008 by 31 January 2009 and to apply for exemptions for small forest blocks by 30 June 2009. These dates are unreasonable given the Committee review and the lack of public awareness of these requirements. Without this bill, many forest owners would unknowingly find themselves in breach of the law or adversely affected."

"Nor does it make sense for the Government to publish an allocation plan by 30 June 2009 for pre-1990 forest owners when issues over offsetting and the underlying ETS approach to forestry are under consideration by the Review Committee."

"New Zealand is the first country in the world to attempt to introduce forestry into an ETS. These extensions are about taking the time to get critical details right for an industry that is of enormous financial and environmental importance to New Zealand."

Specific Amendments

Applications for Exemptions: Rather than specify a new date for making applications for exemptions for small forest blocks (previously set down for 30 June 2009), the bill simply proposes that a new date be set by regulations or by notice when an allocation plan of emission units is issued. By leaving the timing open, the Government is giving itself the flexibility to complete its ETS Review without setting itself another deadline. While this may seem a pragmatic approach, frustrated foresters awaiting some certainty around an ETS would prefer a fixed deadline to create some deadline pressure for the Government. Labour has signalled that it will be seeking fixed new dates rather than open ended extensions.

Timing of Surrender of Units for Deforestation: The bill clarifies the first time when foresters who deforest pre-1990 land will be required to surrender emission units - between 1 January 2011 and 30 April 2011.

Reporting Deforestation: The current requirement for foresters to have reported any deforestation during 2008 by 31 January 2009 has been changed so that any deforestation in 2008 or 2009 must be reported by 31 January 2010. As noted in a previous FYI, foresters were previously put in a difficult position given the uncertainty of the ETS Review. For example, a forester may have harvested trees, but may have been undecided about whether or not to replant pending the outcome of the ETS Review. Consequently it was unclear whether deforestation had occurred and whether that forester should have reported the harvesting. Now those foresters can await the outcome of the ETS Review before making a decision about replanting without fear of technically being in breach of the Act.

Allocation Plan Publication: The bill does not specify a date for the publication of an allocation plan for allocating emission units to owners of pre-1990 forests, but rather gives the Minister the power to withdraw or suspend any draft allocation plan publicly notified before commencement of this new section of the bill.

Given the Government was targeting completion of the ETS Review and introduction of new law by September 2009, it is no surprise that the dates under the current Act need to be postponed. What is disconcerting for foresters and other participants in the ETS is the signal being given by the fact that new deadlines are not being set.

The Government expects to pass the bill by the end of the month and to introduce a substantive climate change amendment bill later in the year after it has completed its ETS Review. 

NZIER / Infometrics Report on Economic Modelling of NZ Climate Change Policy

As part of the ETS Review, the Ministry for the Environment commissioned a report by NZIER and Infometrics on the economic modelling of climate change policy. The recently released report examines the macroeconomic effects of policy options for climate change mitigation in New Zealand and compares the short run and long run impacts of a number of possible scenarios, including the currently proposed ETS and various carbon tax alternatives.

NZIER and Infometrics conclude that in the short run there is little difference, at a macroeconomic level, between alternative options for funding New Zealand's Kyoto liability. In the long run, however, a broad based full price on carbon, with no free allocation or exemptions, is the least cost way to meet our post 2012 obligations. Their recommendation for the short term, is therefore, to "introduce an ETS with free allocation to competitiveness-at-risk sectors, with agriculture excluded if measurement of its emissions is prohibitively expensive. Free allocation should be output-linked and phased out as our competitors adopt carbon pricing. If agriculture is initially excluded it should be transitioned into the ETS, with free allocation if required, as measurement becomes economic." 

Authors

Peter Stubbs

Partner - Corporate & Commercial

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Dave Trueman

Partner - Corporate & Commercial

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Elisabeth Welson

Partner - Corporate & Commercial

DDI: +64 4 924 3400

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Craig Nelson

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5185

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Michelle van Kampen

Senior Associate - Public Sector

DDI: +64 9 977 5258

Mobile: +64 21 221 4206

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