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The Carbon Fund

NZ puts hard cap on emissions for first time to strengthen its trading scheme

13 June 2020


Michael Mazengarb


The New Zealand government has moved to strengthen the country’s Emissions Trading Scheme, announcing a series of reforms that will include placing a hard cap on emissions for the first time.


The reforms to the New Zealand Emissions Trading Scheme will place a cap on the total amount of emissions permits that will be issued under the scheme, and will also introduce new price controls, to ensure permit prices remain within a sustainable range for businesses, while providing a sufficient incentive to cut emissions.


Previously, the number of permits issued was effectively uncapped, but the New Zealand government has moved to strengthen the scheme as it ramps up efforts to reduce emissions.


“We know that meeting New Zealand’s climate targets is a real challenge, but it is becoming more and more achievable because of the policies our Government is putting in place,” said New Zealand climate change minister James Shaw, a member of the Greens.


“A reformed ETS will be one of New Zealand’s most efficient and cost-effective tools for reducing emissions and ensuring we leave behind a safe planet for our children and grandchildren.”


The reforms will include an interim overall cap on New Zealand’s emissions, set at 354 million tonnes for the 2021-2025 period, with an additional interim cap of 160 million tonnes during the same period for industries covered by the Emissions Trading Scheme.


The limit on total emissions represents an effective annual target of 70.8 million tonnes per year between 2021 and 2025, which is around 10 per cent below New Zealand’s 2018 reported emissions of 78.9 million tonnes.


The New Zealand emissions trading scheme currently applies to the electricity sector, fuel use, industrial emissions, waste and the forestry sectors, however the agricultural sector, which is responsible for around half of New Zealand’s emissions is currently exempt from the scheme.


The New Zealand government will introduce a set of carbon price controls, to ensure that emissions permit auction prices too not fall too low, nor reach to high, to provide certainty for businesses.


The government will also draw upon a newly established independent Climate Change Commission to provide advice on future emissions budgets, as well as establishing a final set of emissions caps for the 2021-2025 period.


“Our announcement today will give business and foresters the certainty they have been asking for – as well as reassuring New Zealanders that there is a clear pathway towards meeting our climate targets,” Shaw added.


New Zealand has had an emissions trading scheme in place since 2008, however a lack of emissions caps, and an abundance of free permits in the early years saw the scheme place only a minimal burden on emitters.


For many years, the New Zealand emissions price fell below $5 per tonne, providing only a minimal cost impost on emissions, but following reforms in recent years, the ETS permit price has risen to consistently trade at around $25 per tonne.


The New Zealand government hopes to further strengthen the price signal established by the Emissions Trading Scheme by finally placing a cap on the allocation of emissions permits.


“An effective Emissions Trading Scheme is a key part of what needs to be done. Unfortunately the rules set by previous Governments left the scheme too weak to have any real impact on reducing our emissions,” Shaw added.


“A good example of this is the fact that until now the ETS has been a cap and trade system without a cap. This has meant that emissions permitted under the scheme were, in effect, unlimited. I am delighted to say we are finally changing that.


“The changes I have announced today will better translate our emission reduction targets into a predictable emission price, which will incentivise our biggest polluters to invest in the transition to a clean, climate-friendly economy.”


Last year, the New Zealand parliament passed its historic Zero Carbon Bill, establishing a set of policies that aim to see the country achieve zero net carbon dioxide emissions by 2050, as well as committing funds for green investment.


The Bill was hailed as a positive development in international action on climate change but faced some criticism within New Zealand for providing carve-outs for the agricultural sector, responsible for half of the country’s emissions.

The New Zealand government has moved to strengthen the country’s Emissions Trading scheme, announcing a series of reforms that will include placing a hard cap on emissions for the first time.


The reforms to the New Zealand Emissions Trading Scheme will place a cap on the total amount of emissions permits that will be issued under the scheme, and will also introduce new price controls, to ensure permit prices remain within a sustainable range for businesses, while providing a sufficient incentive to cut emissions.


Previously, the number of permits issued was effectively uncapped, but the New Zealand government has moved to strengthen the scheme as it ramps up efforts to reduce emissions.


“We know that meeting New Zealand’s climate targets is a real challenge, but it is becoming more and more achievable because of the policies our Government is putting in place,” new Zealand climate change minister James Shaw said.


“A reformed ETS will be one of New Zealand’s most efficient and cost-effective tools for reducing emissions and ensuring we leave behind a safe planet for our children and grandchildren.”


The reforms will include an interim overall cap on New Zealand’s emissions, set at 354 million tonnes for the 2021-2025 period, with an additional interim cap of 160 million tonnes during the same period for industries covered by the Emissions Trading Scheme.


The limit on total emissions represents an effective annual target of 70.8 million tonnes per year between 2021 and 2025, which is around 10 per cent below New Zealand’s 2018 reported emissions of 78.9 million tonnes.


The New Zealand emissions trading scheme currently applies to the electricity sector, fuel use, industrial emissions, waste and the forestry sectors, however the agricultural sector, which is responsible for around half of New Zealand’s emissions is currently exempt from the scheme.


The New Zealand government will introduce a set of carbon price controls, to ensure that emissions permit auction prices too not fall too low, nor reach to high, to provide certainty for businesses.


The government will also draw upon a newly established independent Climate Change Commission to provide advice on future emissions budgets, as well as establishing a final set of emissions caps for the 2021-2025 period.


“Our announcement today will give business and foresters the certainty they have been asking for – as well as reassuring New Zealanders that there is a clear pathway towards meeting our climate targets,” Shaw added.

New Zealand has had an emissions trading scheme in place since 2008, however a lack of emissions caps, and an abundance of free permits in the early years saw the scheme place only a minimal burden on emitters.


For many years, the New Zealand emissions price fell below $5 per tonne, providing only a minimal cost impost on emissions, but following reforms in recent years, the ETS permit price has risen to consistently trade at around $25 per tonne.


The New Zealand government hopes to further strengthen the price signal established by the Emissions Trading Scheme by finally placing a cap on the allocation of emissions permits.


“An effective Emissions Trading Scheme is a key part of what needs to be done. Unfortunately the rules set by previous Governments left the scheme too weak to have any real impact on reducing our emissions,” Shaw added.


“A good example of this is the fact that until now the ETS has been a cap and trade system without a cap. This has meant that emissions permitted under the scheme were, in effect, unlimited. I am delighted to say we are finally changing that.


“The changes I have announced today will better translate our emission reduction targets into a predictable emission price, which will incentivise our biggest polluters to invest in the transition to a clean, climate-friendly economy.”


Last year, the New Zealand parliament passed its historic Zero Carbon Bill, establishing a set of policies that aim to see the country achieve zero net carbon dioxide emissions by 2050, as well as committing funds for green investment.


The Bill was hailed as a positive development in international action on climate change, but faced some criticism within New Zealand for providing carve-outs for the agricultural sector, responsible for half of the country’s emissions.


Source: https://reneweconomy.com.au/nz-puts-hard-cap-on-emissions-for-first-time-to-strengthen-its-trading-scheme-27417/



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