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ETS review backs slower track to full carbon charging

Thursday 15th September 2011

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A government-appointed review of the Emissions Trading Scheme recommends slower implementation of the parts already in place, but still believes agriculture can be introduced into the scheme from 2015.

No decisions on the report are likely before the election, although Environment Minister Nick Smith did signal an early clampdown on the use of “questionable” Certified Emission Reduction units by major emitters to offset their ETS obligations.

CERs are international carbon units generated from offshore carbon-reduction projects, which some major emitters have reportedly been buying cheaply.This issue was being given “urgent consideration,” said Smith in a press conference for the release of the ETS review report, titled “Doing New Zealand’s Fair Share”. “It won’t require legislation and we could decide that before the general election” on Nov. 26, Smith said.

The report’s most significant recommendation is to slow down the implementation of a $25 a tonne charge for greenhouse gas emissions from the energy, transport and industrial sectors. A transitional rate of $12.50 a tonne is currently set to expire until 2013. The report recommends pushing the $25 a tonne charge out by two years, and phasing it in using three annual steps between 2013 to 2015 “to ease the price impact on households and businesses.”

The review panel, led by former Labour Minister David Caygill, believes this would not deter investment in low-carbon technologies.To implement such a decision would require legislation, a major challenge in itself, given the difficulty experienced in getting the current ETS legislation in place, said Smith.

On the even more contentious issue of whether and when to include agriculture in the ETS, the review panel concludes that some, but insufficient, practical carbon mitigation methods are already available, including the use of forestry planting to offset emissions, nitrification inhibitors, and improved farm management practices.“

There are sufficient abatement opportunities for agriculture to enter the ETS in 2015,” the panel concluded, while rejecting the farmer lobby criticism that New Zealand would be alone in imposing carbon costs on its agriculture sector.“

The argument that no other country includes biological emissions in its ETS ignores the point that these emissions are covered by the target for which New Zealand is accountable, whatever happens elsewhere,” the report says.“Cost imposts and incentives for mitigation actions can be managed by adjusting the ETS settings, including allocations, baselines and transition measures.”

There was no early fix likely for the largest source of agricultural emissions, methane, which make up around one-third of New Zealand’s total emissions. Nitrous oxide represents another 15% or so, giving the country an unusual greenhouse gas emissions profile for an OECD country, because half of its total emissions are from farm animals. In other developed countries, electricity and industrial production based on coal tend to crowd out other sources, while New Zealand has unusually high renewable electricity generation.

Smith trod a careful line, neither endorsing nor ruling out the review panel’s recommendations, saying the National Party had yet to finalise its ETS policy going into the election, and predicting the issue would inevitably arise in coalition negotiations to form a government afterwards.

The two key factors governing decisions would be the progress made by other countries on their climate change obligations, and the emergence of practical technologies for reducing agricultural emissions, he said.

The slower implementation proposed would cost the government around $500 million in lost revenue from the ETS, but would save households around a dollar a week.“This is a trade-off between emissions reductions and how much we are prepared to pay,” said Smith, who accepted the proposals would further soften an already soft entry into carbon pricing through emissions trading. “

The government is under pressure to reduce emissions, but we’re also under pressure to keep living costs down.”


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