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Govt bans dodgy climate change units from ETS

Thursday 22nd December 2011

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The government is banning from tomorrow the use of carbon emissions reductions earned in Third World countries where subsidies to reduce emissions have prompted increased production of some of the most powerful greenhouse gases.

Climate Change Minister Nick Smith confirmed the decision, recommended as an urgent necessity in a review of the New Zealand Emissions Trading Scheme, this morning.

The Business New Zealand lobby group attacked the move as adding unnecessary cost to businesses seeking to comply with the ETS.

The decision to ban Carbon Emissions Reduction Units (CERs) derived from the destruction of industrial gases, including hydro-fluorocarbons that also damage the ozone layer, follows similar decisions by the European Union and Australia.

“Concern has been raised about the environmental integrity of CERs from HFC-23 and N2O industrial gas destruction projects,” say notes on the decision from the Ministry for the Environment. “Some sources have suggested the economics of these projects may create perverse incentives to increase production of these gases in non-Annex I Countries.

“There is a further concern that profitability from HFC-23 destruction projects creates a perverse incentive to increase production of HCFC-22, a precursor of HFC-23. HCFC-22 is an ozone depleting gas which also has a high global warming potential, and is being phased out under the Montreal Protocol.”

“BusinessNZ supports emission trading as the most effective means of delivering an efficient carbon price into the economy,” said executive director Phil O’Reilly in a statement. “However, it’s imperative that businesses are able to find the least cost form of carbon abatement wherever it is.

“Kiwi businesses will be forced to buy higher priced units, resulting in increased costs for both business and households at a time when they can least afford it.”

The statement made no mention that the decision coincides with a collapse in carbon prices, particularly for CERs, in recent weeks on global markets. One parcel of CERs is understood to have changed hands for less than $6.70 a tonne in New Zealand within the last fortnight, compared with a cap for New Zealand carbon prices of $25 a tonne under the ETS.

As a result, major emitters in the electricity, industrial and transport sectors who must buy carbon reduction units under the ETS have never had access to cheaper units than at present.

The CER over-supply is global and is unlikely to be significantly affected by the bans announced in the EU and Australasia, prompting calls for the local ETS to require a certain proportion of carbon reduction to be sourced from higher quality, more costly New Zealand Units, which are quoted currently at around $8.40 a tonne, still well below the prices major emitters were expecting to pay to offset their emissions.

“The ETS is the most important tool New Zealand has to reduce emissions and meet our international obligations on climate change but it is complex and will require ongoing refinement,” said Smith in a statement. “We will be monitoring future developments in the Clean Development Mechanism certification process to ensure any units entering the New Zealand scheme are consistent with its purpose.”

Smith’s senior climate change policy adviser, George Riddell, told BusinessDesk decisions on further changes to the ETS would emerge early next year, after MfE provides advice to the government on other modifications suggested by the ETS review panel.

Asked whether this could include moves to require a proportion of carbon offsets to be purchased from New Zealand rather than offshore CERs, Riddell said: “I don’t know at this stage. Officials have been looking round at those sorts of issues, but there’s nothing definitive.”

Other expected changes involve likely changes to the quantity of allocations available for the owners of pre-1990 forests, and will require legislative change.

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