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Brief Counsel

ETS architecture under review but the builders carry on

12 June 2009

The release this week of draft climate change regulations is a timely reminder that, although the architects have the Emissions Trading Scheme under review, the builders are still very much on site and getting on with business.

Submissions are called on the design of the technical emissions reporting system under the ETS.  Unless the Government rips up the ETS in favour of a carbon tax (and all the signals are that this is not on the table), these methodologies will apply whatever other changes may be made through the select committee process or as part of the harmonisation programme with Australia.

And the consultation period is short with a submission deadline of 30 June 2009.  

The broader political context

The Climate Change Special Select Committee is expected to report back in late July and to incorporate into its deliberations the report of the Trans-Tasman Officials Group on harmonising the New Zealand ETS with the Australian Carbon Pollution Reduction Scheme (CPRS). 

The fate and shape of the Australian CPRS still hangs in the balance as Kevin Rudd does not yet have the numbers to get his legislation across the line.  He needs the support of the Coalition in the Senate and the Coalition is playing hard ball, refusing to negotiate the Bill’s passage until they have a clearer view of the final form of the Obama Administration’s emissions trading laws and of the likely outcome from the UN Copenhagen Conference at the end of this year.

But, through all of this uncertainty and until the National Government amends it, the Climate Change Response (Emissions Trading) Amendment Act 2008 remains in place, complete with the timetable which has the stationary energy and industrial processes sectors coming within the scheme’s full obligations at 1 January next year.

We know that the Rudd Government has already delayed the CPRS start date twice:  first from mid 2010 to the end of 2010 and then for a further six months to 1 July 2011.  And it is reasonable to expect, given the high level of integration between the two economies, that our Government may defer the implementation schedule of the ETS to bring it more into alignment with the Australian scheme.

But the Ministry for the Environment (MfE) officials need to work to what the existing law requires, to the extent that they can, which means settling the reporting methodologies for stationary energy and industry this year.  Areas which are likely to be affected by the ‘Australian connection’ have been deferred, notably the allocation plan for industry’s free emission allowances.  

Obviously it is far from ideal to be making design decisions while the big picture issues remain unresolved.  But the Government’s amendments to the Act are expected to focus on implementation dates, transitional arrangements and the supports offered to ease the economic impacts of the ETS, and these are unlikely to affect the technical detail of the emissions reporting regime. 

The draft regulations

The principles underlying the methodological framework are that it should:

  • neither advantage nor disadvantage the Crown fiscally

  • send a clear price signal with no perverse incentives

  • minimise transactional costs for participants and the Government, and

  • provide for an accurate and verifiable statement of emissions.

Input is being sought on:

  • methods for monitoring and calculating emissions, particularly focusing on default emissions factors for stationary energy and industrial process activities (these regulations are a follow up to a first draft released for consultation in October last year)

  • processes whereby certain participants in the stationary energy, industrial processes and liquid fossil fuels sectors can apply for approval to use a unique emission factor in place of the default emission factor when calculating their emissions, and

  • processes for receiving New Zealand emission credits for activities which remove emissions where certain conditions are met.

In addition, the Government is seeking to engage with business in:

  • the development of standards and guidelines on measurement, and

  • industry-specific workshops in late June and early July on application and registration processes and data collection and emissions reporting requirements.

Next steps

The methodologies for measuring and calculating emissions will be important from a compliance perspective and will impact directly on the extent of your ETS liability.

It is therefore important that stakeholders engage in the consultation opportunity being provided.  The turn-around time is relatively short, with submissions closing at 5pm on 30 June.

Click here for the draft regulations and an explanatory bulletin.

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