The Emissions Trading Scheme select committee set up by the Government to review the emissions trading framework put in place by the Labour Government has reported its findings.
The report can be downloaded here.
Dr Peter Read, Honorary Research Fellow at Centre for Energy Research, Massey University comments:
“The Report should have stated clearly that meeting New Zealand’s post-2012 commitments at realistic cost depends critically on forestry policy and that this needs to be taken into account in designing the ETS scheme.
“The failure to meet Kyoto’s 2008-2012 commitment (contrary to forecasts of having surplus AAU’s to sell) springs entirely from Pete Hodgson’s foolish Treasury driven policy towards forestry which caused foresters to shut up shop.”
The report makes 34 recommendations outlined below. The SMC is seeking comment from scientists and economists on the review report. Comments will be posted to the SMC website as they are received.
Key recommendations:
1 We recommend that the IPCC assessment, its projections, and the findings of the Fourth Assessment Report, which represent a consensus on the scientific evidence, underpin New Zealand’s future international policy negotiations. We note that there are some uncertainties in the science and these are not yet adequately included in the models. However, we do not consider that these uncertainties undermine the main conclusions of the IPCC, or that they should be a reason to delay action by the international community, particularly as recent scientific analysis of actual trends strongly suggests that the worst-case IPCC projections are already being realised. (Opposed by the ACT New Zealand Party).
2 We recommend that New Zealand take action now to reduce its emissions and send a credible signal about the direction of future policy in order to protect our international reputation, particularly in the areas of trade and tourism. Human-induced climate change poses a global threat, and there is a need for a collective global mitigation effort. New Zealand has a commitment under the United Nations Framework for the Convention on Climate Change and its Kyoto Protocol to adopt national policies and take corresponding measures to limit its human-induced emissions and enhance its sinks and reservoirs. Under Kyoto, New Zealand has assumed legally binding obligations to reduce its average emissions to 1990 levels over the first commitment period (2008 to 2012).
International context
3 We recommend that New Zealand pursue an agreement at the December 2009 Copenhagen Climate Change Conference that reflects New Zealand’s willingness to do its fair share and play its part in setting the stage for further multilateral action for the post-2012 period. While we are hesitant to speculate on the form such an agreement will take, we are optimistic about the prospect of an international agreement resulting from the December 2009 Copenhagen Climate Change Conference that will set the stage for further multilateral action for the period post-2012.
New Zealand’s policy response
4 We recommend that a full and comprehensive regulatory impact analysis be undertaken preliminary to any amendments to the Climate Change Response Act 2002. The regulatory impact analysis is only one tool for evaluating policy. In addition, the models are based on a set of assumptions and the quality of the underlying data has a relative effect on the outcome of the study. However, the 2009 NZIER and Infometrics Report did emphasise the need for clear and consistent policy signals about the pricing of carbon so that businesses can make efficient long-term investment decisions.
Emissions trading scheme or carbon tax
5 We recommend an upstream point of obligation as the most suitable for the liquid fossil fuels and stationary energy sectors. For the agriculture sector, while it is preferable in the long term for the point of obligation to be at the farm gate, we recommend that it is initially set at the processor. Placing the point of obligation at the farm gate means regulating more emitters directly, with higher transaction and administration costs. However, it may also encourage them to respond more readily to a price signal. Therefore, it is desirable for the point of obligation to initially be set at the processor level, which would place obligations on only a small number of firms. The price impacts are likely to be passed through to farmers.
6 We recommend that New Zealand pursue an emissions trading scheme as the primary economic mechanism in its response to climate change. We consider that it is preferable to a carbon tax because of its ability to link internationally with other emissions trading schemes and to track the international price of emissions units, and greater flexibility for compulsory participants in managing price risks over extended periods. An emissions trading scheme devolves the management of uncertain emissions prices and behaviours to emitters, whereas under a tax, the Government, and ultimately the taxpayer, bear the cost of these uncertainties. (Opposed by the M?ori Party and the ACT New Zealand Party.)
Design of New Zealand Emissions Trading Scheme
7 We recommend that on the basis of long-term trends in markets and international circumstances, all sectors be included in a broad emissions trading scheme so that no sector is required to be subsidised by others in the longer-term, or by the taxpayer. We consider that a broader emissions trading scheme would lower the overall costs of abatement, deliver greater economic transformation, and would be more equitable. A broader scheme will also be more effective in achieving abatement across a number of sectors, enabling firms to become more efficient and to reduce costs.
8 We recommend international linkages be adopted between a New Zealand emissions trading scheme and other Kyoto-compliant schemes that would lower the overall cost of abatement with environmental integrity and deliver economic transformation more efficiently. Linkages also help to ensure liquidity, with environmental integrity, allowing the efficient functioning of an emissions trading scheme. They can expose businesses to any price volatility on the international market, but may also buffer price volatility in the domestic market. Restrictions on international linkages to the broader Kyoto compliance market may be applied to facilitate bilateral linking, to achieve domestic abatement, or in the interests of environmental integrity. There may also be good reason to limit international linkages in the short term while the New Zealand emissions trading market matures.
9 We recommend that certainty for the forestry industry be legislated for as soon as possible to ensure that further planting is not inhibited.
10 We recommend that if a short-term price cap is introduced, a clear exit strategy is critical for maintaining market confidence and development. A case can be made for a short-term price cap to assist firms while the market is developing. In the long term, however, price caps stand in the way of market development and shield business from the real price of carbon to the economy. (Opposed by the New Zealand Labour Party, the M?ori Party, the ACT New Zealand Party, and the Green Party.)
11 We recommend that any border tax adjustment be considered only as a last resort and in response to the actions of other countries. The Kyoto Protocol does not endorse or provide for border tax adjustments. Annex I parties are left to manage their own domestic policies to minimise adverse effects, including any on international trade. If New Zealand were to impose a unilateral border tax adjustment, it would be likely to draw adverse international attention and meet challenges in the World Trade Organisation. A border tax might address competitiveness concerns but the case for free allocation to the industrial and agricultural sectors under an ETS would need to be reviewed, along with the general process for developing allocation plans. Border tax adjustments do not provide strong domestic incentives to reduce emissions, while Kyoto-style obligations impose an economic cost on countries that do not reduce their emissions.
12 We recommend that direct regulation be used to provide a more targeted response to specific activities with high emissions, which may in turn accelerate changes in behaviour. We consider that there is merit in preparing an analysis of the direct regulations that have been introduced in Australia, the United States, and the European Union to establish how direct regulation of such things as energy efficiency standards, vehicle emissions standards, waste levies, recycling regulations, and requirements to purchase renewable energy might be best applied in New Zealand
Transition to New Zealand Emissions Trading Scheme
13 We recommend that the agriculture sector be included in the NZ ETS with the long-term goal being that the point of obligation is placed at farm level, once issues relating to the number of participants and the ability to verify farm-level information are resolved. The New Zealand Labour Party and the Green Party strongly support the entry of the agriculture sector no later than January 2013. The ACT New Zealand Party is opposed to the agriculture sector being included in the ETS.
14 We recommend that officials continue to work with the synthetic gases industry to develop a workable model to address concerns around the surrender obligations for synthetic gases, HFCs, PFCs, and SF6s before January 2013.
15 We recommend that emission trading scheme rules be confirmed as soon as possible so that those who have significant interests in the primary sector may make practical and robust investment decisions quickly.
Forestry sector
16 We recommend that the issue of offsetting be pursued by those currently negotiating its international recognition, but no changes to domestic policy be made unless such an agreement is reached.
17 We recommend that further research be conducted on the role of forestry sequestration in mitigating emissions, including an investigation of the carbon sequestration rates of indigenous species and management techniques for their enhancement.
18 We recommend that the carbon look-up tables for indigenous forests be amended to reflect the best scientific information on sequestration as soon as possible.
19 We recommend that a clear decision be made about in what circumstances, if any, wilding pines may be used for carbon sequestration, given the negative economic and environmental impact of tree weeds in some areas of New Zealand. Post-1989 tree weed forests are eligible to earn carbon credits under the current Emissions Trading Scheme, creating a disincentive to control wildings.
Maori interests
20 We recommend that the obligations of the Crown to M?ori, including those under the Treaty of Waitangi, not be compromised by the New Zealand Emissions Trading Scheme. This is particularly important in the case of those iwi whose Treaty settlements involve forests.
21 We recommend that action be taken to implement a communication and engagement strategy to achieve maximum involvement of New Zealanders in climate change policy.
22 We recommend that action be taken to implement a targeted communication and engagement strategy to achieve maximum involvement of M?ori in climate change policy, including the Emissions Trading Scheme and to ensure that they are not unduly exposed to risk.
23 We recommend that a better-targeted structure for M?ori research and development of emissions reduction technologies and new climate change-related technologies.
24 We recommend that, as a general principle, M?ori not be asked to bear a greater burden or be more disadvantaged than other sections of the New Zealand community.
Complementary measures
25 We recommend that long-term infrastructure be developed in line with climate change considerations and that New Zealand support Pacific nations in adapting to climate change.
26 We recommend that high priority be given to research into reliable and accurate estimation and monitoring systems for agricultural emissions, particularly at farm level.
27 We recommend that New Zealand’s economic and environmental planning activities include climate change mitigation, and adaptation strategies. Because climate-resilient infrastructure and economic development will reduce the future vulnerability of our communities and economy, it is important that the social and cultural implications of mitigation and adaptation are well thought through.
28 We recommend that research be undertaken into soil carbon sequestration, specifically to determine its advantages on the basis of a thorough and impartial assessment of the relevant New Zealand science.
29 We recommend that funding of research and development be directed toward giving New Zealand a competitive advantage in the future, allowing it to capitalise on its expertise in sectors such as agriculture, geothermal energy, and forestry.
30 We recommend that New Zealand-specific research be conducted into the adverse effects of climate change on our principal sectors, and the opportunities that might arise from it.
31 We recommend that significant ongoing investment be made to reduce agricultural emissions and improve efficiency in pastoral systems.
32 We recommend that a full array of assistance measures be adequately considered and targeted at rural communities, lower-income households, and other members of the economy who are likely to be more vulnerable to the impacts of climate change and less able to meet the costs of an emissions trading scheme.
33 We recommend that the Emissions Trading Scheme be supplemented with policies to improve its effectiveness and that any policies that undermine its effectiveness be identified.
34 We recommend a comprehensive study be undertaken to identify and assess existing and potential complementary measures specific to New Zealand.