New Zealand expands emissions trading scheme

Outside the EU, the only country with a mandatory national emissions trading scheme is New Zealand. While similar schemes have stalled in Australia and the US, New Zealand recently expanded its scheme to cover the energy, industrial and liquid fossil fuel sectors. This means that from 1 July this year, a price has been placed on greenhouse gas emissions from, for example, electricity production, steel, aluminium and cement manufacturing and petrol and diesel consumption.

The New Zealand scheme was introduced in 2008 and is an economy wide scheme that covers the six main greenhouse gases in the Kyoto Protocol. It phases in different sectors of the economy over time with forestry the first to enter in 2008. Other sectors are scheduled to enter later with the waste and synthetic gases sectors to be covered from 2013 and agriculture, which on its own accounts for around half of New Zealand’s emissions, to be covered from 2015. The scheme has its own units (New Zealand Units) but some Kyoto units (including certain types of certified emissions reductions, emission reduction units and assigned amount units) can also be used for compliance.  

The scheme had an uncertain beginning as it was introduced shortly before a general election in which the ruling Labour party lost power. The incoming National government, which had proposed changes to the scheme during the election campaign, made a number of amendments once in office. For example, a transitional phase to the end of 2012 was introduced during which credits can be bought for a fixed price of NZ$25 (currently £11.40). In this transition phase, participants in the energy, industrial and liquid fossil fuel sectors only need to surrender one emission unit for every two tonnes of emissions they produce.

Despite changes to soften the scheme, the government still faced strong opposition prior to the latest sectors entering on 1 July. For example, Consumer NZ warned that the scheme will bring in a barrage of price rises and the Greenhouse Policy Coalition, a business lobby group, has argued that the scheme puts the country’s businesses at a competitive disadvantage as New Zealand’s main trading partners do not have such schemes. Some in the farming sector remain strongly opposed to the scheme.

However, the impact of these new sectors entering the scheme last week is likely to be modest with the government estimating that cost increases for the average household will only be around NZ$3 (£1.40) per week. Similarly, trade exposed businesses will get most of their units allocated for free in order to address competitiveness concerns. New Zealand’s environment minister Nick Smith has argued that the costs of not acting would be higher: “We need to protect our clean, green brand. We need to honour our commitments to foresters and our international commitments. Business needs a steady, consistent approach”. Whether the scheme will actually be enough to help reduce New Zealand’s emissions to 1990 levels, as required by the Kyoto Protocol, is less clear. A review of the scheme is scheduled for 2011.