December 2020
New Zealand’s emissions trading scheme has been under reform since 2015, with the Government announcing various changes to the trading scheme that was commenced under the Climate Change Response Act 2002.
The basic principle of the scheme is that organisations can choose to reduce carbon emissions, or off-set carbon emissions, by purchasing (or earning) New Zealand units (known as an NZU) as carbon credits. The NZUs are then surrendered to the Government. There is also provision for NZUs to be traded between entities.
The Environmental Protection Agency is the entity that administers the Emissions Trading Register which is the record of NZUs held by an entity and records the changes to their holdings.
The latest tranche of changes to this scheme was effected with the passing of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020.
This provides for price controls for NZUs. This amending legislation has also introduced automatic penalties in the form of infringement fines for a failure to accurately report emissions on a return, or for a failure to surrender NZUs by the required deadline. The forestry sector will be subject to these automatic fines and penalties from 1 January 2023.
There are further proposals being considered by Government for reform. One area that is being prioritised is the introduction of the agricultural sector to the emissions trading scheme. Currently it is necessary to measure and report carbon emissions, but it is not necessary to offset those emissions by purchasing NZUs if emissions cannot be reduced.
The Government has signaled that the agricultural sector exemption will end from 2022. It is expected that farms will have prepared and implemented a written plan to manage emissions by the end of 2021. The amending legislation that came into effect earlier this year has included a price for agricultural emissions. That will operate at a farm level and will be pricing mechanism linked to stock and fertilizer. The Government anticipates this will be in full effect by 2025.
Resources:
Relevant legislation:
Climate Change Response Act 2002: http://legislation.govt.nz/act/public/2002/0040/latest/DLM158584.html?search=qs_act%40bill%40regulation%40deemedreg_climate+change_resel_25_h&p=1&sr=1
Climate Change Response (Emissions Trading Reform) Amendment Act 2020: http://legislation.govt.nz/act/public/2020/0022/latest/LMS143384.html
Policy overview of emissions programme in New Zealand:
https://www.mfe.govt.nz/publications/climate-change/guide-new-zealand-emissions-trading-scheme
MFE resources for the ETS reforms:
https://www.mfe.govt.nz/reforming-nzets-resources
Information on the NZU register:
https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/the-emissions-trading-register/register-guidance/
He Waka Eke Noa – Primary Sector Climate Action Partnership:
https://www.mfe.govt.nz/sites/default/files/media/Climate%20Change/he-waka-eke-noa-primary-sector-climate-action-programme-July-2020.pdf