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The Emissions Trading Scheme Bill: what you need to know before Christmas

17 December 2007

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Recently the Government introduced the cornerstone of its climate change policy agenda, the Climate Change (Emissions Trading and Renewable Preference) Bill. This is a brief overview of the two most important areas – the consultation process that will occur throughout 2008 and the issues still open for consultation.

Here are the three key points you need to take away with you:

  • Submissions on the Bill close on 29 February 2008.
  • There are still a number of significant issues unresolved and multiple channels of consultation.
  • To be heard, you need both a good submission on the Bill and a plan of engagement for 2008.
The legislation establishes the framework for an emissions trading scheme (“the scheme”); imposes a 10-year moratorium on new fossil-fuelled thermal generation; and outlines a process to deal with the many unresolved design issues.
The Government intends to have the Bill passed by July 2008. Submissions on the Bill will close on 29 February 2008, with the Finance and Expenditure Committee reporting back to the House 10 June 2008.
Given the complexity of the Bill this is an ambitious timetable. This highlights the fact that some of the most difficult elements of this package are to be negotiated after the Bill’s passing, possibly even after next year’s election.
Significantly, the basic shape of the policy has bi-partisan support. In the event there is a change of government in 2008 this policy is not expected to be overturned.
This makes it even more pressing that the details of this policy are well worked through and workable, since they may not be revisited for some time.

The consultation process

The Bill deals only with the structural architecture of the scheme and the policy detail necessary for the immediate future. Beyond that the Bill establishes a parallel process of consultation to resolve the necessary detail.
The Government intends to have this parallel process largely completed by the end of 2008, with the final determination to be made by the relevant minister post-election. This is a challenging timeframe for the Government, officials and business.
This means interested parties should look to both the select committee submission process and the parallel process of consultation to input their views on the design of the ETS and moratorium.
The process of consultation has a number of entry points. These include:
  • the usual suspects – ministers, MPs, select committee, and officials.
  • Two technical advisory groups – One for energy and industry, and one covering agriculture. There is an expectation that sector interests will be represented on these groups, although the Bill is silent on this point. These groups are likely to be consulted on the shape of promised assistance packages.
  • The Agriculture Peak Group – The Group, advises on the strategic direction of climate change policy in the agriculture sector. The Group is chaired by the Director-General of MAF and includes representatives from the forestry and agricultural sectors, Māori and local government. The Group reports to the Ministers for Forestry and Agriculture, and Climate Change.
  • Draft allocation plans – The Bill provides for submissions to be made on the draft plans.
  • The Leadership Forum – The group led by Stephen Tindall will continue to meet and advise the Government until mid-2008. The Forum will likely discuss the treatment of pre-1990 forests, the types of emission units allowed into the NZETS, phase out of free allocation, and whether an intensity-based approach can be included within an absolute cap on free allocation.
  • The Māori Leadership Group – Unlike the Leadership Forum the Māori Leadership Group does not appear to have its own sunset clause.

What’s still on the table?

The most significant of these are:
  • the targeting of free allocations, in particular the targeting of emission units to pre-1990 exotic forest owners
  • the shape and nature of assistance packages to affected sectors
  • the types of overseas emissions units that will be allowed into the NZETS
  • the frequency of reporting commitments under the scheme
  • taxation issues. A separate taxation bill will be introduced in 2008 though the Bill itself also makes a number of amendments to the Income Tax Act; and
  • much of the operational detail for scheme – to be determined by regulations made under the Act.
The Bill shows that the Government has settled on a number design aspects. However, while they have not altered the timeline for phasing in sectors, the explanatory note accompanying the Bill details that entry of sectors into the scheme is “based on the sectors’ preparedness for trading, administrative feasibility and consideration of price effects through the economy”. This leaves open the possibility of justifiably delaying the phase-in date in some circumstances.
The explanatory note also shows that the Government has become more flexible in allowing an intensity based mechanism to feature as part of the industry assistance package.
Momentum, both domestic and international, has been the distinctive characteristic of the climate change debate. The recent election of Kevin Rudd as Australia’s Prime Minister, with his commitment to sign up to Kyoto, will only add to this momentum. Meantime the New Zealand Government is in no mood to delay the introduction of the scheme.
The New Zealand ETS is now being studied closely by the Australians. The success of this implementation phase will depend in large part on the effectiveness of the consultation process and the ability of business to meet the resourcing demands of intense consultation.


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