New Zealand is about to embark on the most comprehensive emissions reduction programme in the world, affecting all sources of its domestic greenhouse gas emissions.
Instead of, like the European trading scheme, capping the emissions of heavy industry, New Zealand will take an upstream approach. From Jan 2009 oil companies, and from Jan 2010 gas and coal companies will be required to buy carbon credits from the CDM and the domestic market to offset all the greenhouse gas emissions released from their products.
“We have learnt valuable lessons from the European scheme – namely that energy providers automatically pass the costs of carbon allowances to consumers”, says Mark Storey, from the New Zealand government treasury.
The New Zealand approach to emissions trading will work on the principle that higher brown energy prices will drive energy efficiency and clean technology in all sectors of the nation's economy.
Heavy industry will be allocated free carbon credits, or New Zealand units (NZUs) to sell on the domestic carbon market, until Jan 2010 in order to soften the blow of passed on energy costs. However, New Zealand plans to gradually phase out these free credits altogether by 2025.
Meanwhile New Zealand’s domestic fuel users will be expected to take on all of the passed on costs, meaning higher petrol prices. Electricity prices will not suffer as much, as New Zealand already generates 70% of its electricity from hydropower.
Five sectors of the New Zealand economy will feel the impact of the new trading scheme. These include industries usually associated with the burning of fossil fuels: the transport sector, heavy industry, and domestic / business energy users; as well as two less usual additions: agriculture and forestry.
Whilst New Zealand's forests, planted after 1990, will help to absorb carbon dioxide in the first Kyoto period until 2012, they are due to release carbon dioxide between 2020 and 2033, when the matured trees are scheduled to be felled.
Participation in the emissions trading scheme will be voluntary for foresters, starting Jan 2008, whereby they will receive credits for the trees they plant or that remain unfelled, and pay for credits for trees they cut down.
Largely due to the potent greenhouse gas effect of the methane released by farm animals, New Zealand’s agricultural sector emits more greenhouse gases than all of the nation's fossil fuel emissions combined.
Agriculture is due to be included on a mandatory level into the emissions trading scheme, in 2013. Farmers will recieve free NZUs to sell on the domestic market to compensate them for 90% of their 2005 emissions.
By 2025, however, the government plans to reduce these credits to zero. Making farmers pay to offset their entire emissions has been one of the most controversial aspects of the trading scheme, according to Storey. He says its going to be one of the hardest parts of the scheme to push through.
Storey is not concerned that including farmers in the trading scheme will affect their competitiveness, however. “The dairy industry is doing very well… our farmers are extremely efficient”, he explains. So efficient he says, that the agricultural sector receives no government subsidies in New Zealand.
Farmers have a long and difficult road ahead, before achieving carbon neutral status in 2025. Currently no commercial technologies exist to reduce methane from farm animals. The agricultural industry has been granted five years to find and commercialise emissions reducing technologies that work, before it becomes part of the scheme.
New Zealand will be looking to alleviate concerns about food miles, raised by trade ministers at this weekend's UNFCCC meetings. Pioneering the technologies to reduce methane emissions from farm animals, one of the world's largest source of GHG emissions, will go a long way to securing New Zealand's future as a global supplier of agricultural goods. The country's new emissions trading scheme does not include international aviation or marine transport, however, the justification being that neither are part of the Kyoto agreement.
Some other NZ climate targets:
- to generate 90% of its electricity from renewable sources by 2025
- to halve GHG gases by 2040
- to pioneer mainstream use of electric cars
- to stimulate growth in the CDM market by requiring companies to purchase CDMs (between 7-17 euros per tonne carbon equivalent saved)
- possible linkage to a future Australian mandatory market
NZ ETS omissions:
- aviation / marine transport (although they may be hit by higher fuel prices)
- HFC refrigerant emissions, potent greenhouse gases from fridges and air conditioning. Alternative refrigerants exist. According to Brent Hoare from the Natural Refigerants Transition Board, a conference attendee: “HFCs aren’t low hanging fruit, they’re ankle hanging”.
See http://www.greenpeace.org/raw/content/china/en/reports/problem-factsheet.pdf for info on HFCs.
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