NZ ETS review begins alongside the redesign of the Permanent Forest Category

New Zealanders are being invited to have their say on the New Zealand Emissions Trading Scheme (NZ ETS) and the NZ ETS permanent forest category, with public consultation opening today.

Announcing this today, Climate Change Minister James Shaw said it was important the best tools available be used to cut carbon pollution.

The NZ ETS, the main tool for meeting New Zealand’s domestic and international climate change targets, puts a price on carbon emissions and charges polluters for every tonne of carbon they emit.  This sends price signals to producers, consumers, and investors to pollute less.

The Government now is asking: can the NZ ETS work any better? And if so, how?

“The Climate Change Commission has advised us that, in its current form, the NZ ETS may not be incentivising emissions reductions at source. Currently it is cheaper for most companies to just buy emissions units, rather than invest in ways to cut pollution,” Mr Shaw said.

“We want to make sure the NZ ETS is doing the job, as well as it can be, for the work it was created for.

“Emissions pricing is a valuable part of an effective strategy for reducing emissions, although it can’t and shouldn’t be the whole story. Drawing down carbon dioxide from the atmosphere and storing it in forests is also critically important, and we need to do more of it.

“However, true decarbonisation can only be achieved through measures like improving public transport, incentivising EV uptake, increasing energy efficiency, and supporting clean-tech industries, such as the new electric arc furnace at New Zealand Steel,” James Shaw said.

The NZ ETS review will focus on the benefits, trade-offs, and risks of changing the NZ ETS to incentivise gross emissions reductions.

Submissions will support the Government to make decisions about the purpose, function, and goals of the NZ ETS.

“In its current state, the price of carbon is not high enough to drive significant change. We know a higher carbon price leads to faster emissions reductions. We want to find out whether changes are needed to provide a stronger incentive for businesses to transition away from fossil fuels,” said James Shaw.

“If a decision is made to change the design of the NZ ETS, the Government is looking at four ways this could be done. The broad options range from using existing levers within the NZ ETS to increase the price of carbon, to incentivising reductions and forestry plantings through separate markets,” Climate Change Minister James Shaw said.

The four options are:change 

Option 1 – Use existing levers to strengthen incentives for net emissions reductions e.g., reducing the number of NZUs sold through auction.

Option 2 – Increase the demand for emissions units by allowing the Government and/or overseas buyers to purchase them.

Option 3 – Strengthen the incentives for gross emission reductions by changing the incentives for removals.

Option 4 – Create separate incentives for gross emission reductions and removals.

Forestry Minister Peeni Henare said forests are hugely significant to the economy, rural communities, and to Māori, both culturally and economically.

But encouraging afforestation should not replace or delay gross emissions reductions.

“We need to consider how the NZ ETS can provide the necessary price for both gross emissions reductions while continuing to incentivise the planting of trees.”

Environment Minister David Parker said there is potential for the NZ ETS to lead to wider environmental and health benefits, through encouraging alternative transport, such as cycling and public transport.

“The NZ ETS affects everyone in different ways so it’s important that as many people as possible have a say on how it works and give their views on the right balance to strike,” said David Parker.

NZ ETS Permanent Forest Category

The Government last year consulted on proposals to restrict permanent exotic forests in the NZ ETS in response to concerns about the impacts on the environment and rural communities from these forests.

Peeni Henare said the proposals generated wide interest, prompting the Government to look further into the permanent forest category.

“The announcement today ensures that we work alongside our valued communities, iwi Māori, local Government, and the forestry sector, to redesign the permanent forestry category,” he said.

“Government has heard that more urgent climate action is required, with Māori communities disproportionately vulnerable and already facing the impacts of climate change. Many have voiced that more ambitious action on climate change is needed. For some of our Māori landowners, having exotic forestry in the NZ ETS is important.

“Together, we can ensure the forestry sector grows in a way that is productive, sustainable, and inclusive and helps build a high value, high wage, and low emissions future for New Zealand.”

Forestry is estimated to contribute up to 95 million tonnes of carbon dioxide removals between 2021 – 2030 towards New Zealand’s first Nationally Determined Contribution target. Under current policy settings, between 0.97 and 1.44 million hectares of additional afforestation out to 2050 are needed to meet New Zealand’s climate change targets.

The three key design choices that guide the redesign of the permanent forest category are:

  • What forests should be allowed in the permanent forest category
  • How transition forests should be managed to best ensure a successful transition; and
  • What rules will best maximise the benefits of permanent forests in the category

Peeni Henare said the consultation is an opportunity for New Zealanders to boost the benefits of permanent forests for the climate, environment, and landowners, while also minimising the risks of these forests in the same areas.

There is also an opportunity to better support the establishment of long-term indigenous forests through enabling permanent exotic forests to transition to indigenous forests over time, which would have economic, emissions and biodiversity benefits.

“The proposals complement the recently announced changes to the National Environment Standards for Plantation Forestry (NES-PF) that will give local councils more control over deciding which land can be used for plantation and carbon forests. The proposals being consulted on consider the overall incentives driving afforestation and aim to help ensure the right types of forests are in the right locations,” Peeni Henare said.

Following public consultation, a report on the outcome of the consultation will be provided to Government.

People can have their say here:

The NZ ETS explained

The NZ ETS is one of many emissions trading schemes in operation around the world. Almost one third of the global population lives under an operational ETS.

All sectors of New Zealand’s economy, apart from agriculture, pay for their emissions through their NZ ETS surrender obligations.

The New Zealand Emissions Trading Scheme helps reduce emissions by:

  • Requiring businesses to measure and report on their greenhouse gas emissions
  • Requiring businesses to surrender one ‘emissions unit’ (known as an NZU) to the Government for each one tonne of emissions they emit
  • Allocating NZUs to activities that remove carbon emissions from the atmosphere, such as forestry
  • Through the government auctions, the volume of units available to buy is limited in line with the emission budgets
  • The government also provides free allocation of NZUs to Emissions Intensive Trade Exposed firms to address the risk of emissions leakage

Businesses that participate in the NZ ETS can buy and sell units directly from each other. The price for units reflects supply and demand in the scheme. This price signal allows businesses to make economically efficient choices about how to reduce emissions.

Ongoing government programme of work

The NZ ETS is a key tool in the government’s climate action toolbox, but in addition to the NZ ETS further policies are required to drive emissions reductions across New Zealand’s economy and to ensure fairness across society

Complementary policies are outlined in New Zealand’s first emissions reduction plan (ERP), which includes more than 300 actions to reduce emissions, in line with domestic emissions budgets.

The Government is committed to climate action that supports a fair and equitable transition, recognising the potential impacts of higher carbon prices, particularly on lower-income families. To this end, the ERP outlines a mix of regulation and policies, such as equitable transition measures and behaviour change and finance, needed alongside emissions pricing.

  • For example, the Government is focused on ensuring there are affordable and accessible low-emissions transport options, such as public transport, safe walking and cycling options, available for households that are impacted by higher fuel prices.
  • The Government Investment in Decarbonising Industry (GIDI) fund provides grants to accelerate emissions reductions in industry through energy efficiency and switching from fossil fuels to low-emissions fuels.
  • The Government will support the adoption of low-emissions business models, and the transition of workers to low-emissions job opportunities, through guidance, advisory support and training programmes.

The next emissions reduction plan will be published at the end of 2024.

The table of actions list in the emissions reduction plan can be found here:

New Zealand’s first emissions reduction plan: Table of actions | Ministry for the Environment

 Source:  Ministers of Climate Change and Forestry


Author: Bob Edlin

Editor of AgScience Magazine and Editor of the AgScience Blog