Emission trading reforms another step to meeting climate targets

  • Hon James Shaw
Climate Change

The Emissions Trading Scheme (ETS) will finally start to cut New Zealand’s greenhouse gas pollution as it was originally intended to, because of changes announced today by the Minister for Climate Change, James Shaw.

The changes include a limit on the total emissions allowed within the ETS, rules to ensure emission prices are more predictable, and a provisional emissions budget for the 2021-2025 period.

“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.

“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,” James Shaw said. 

Today’s announcement sets out:

  • The amendments the Government is making to the Climate Change Response (Emissions Trading Reform) Bill, which will better incentivise emissions reductions
  • The changes that are necessary to make the ETS work as it should. These changes will be implemented through regulation once the Bill is law and include the cap on the total emissions allowed in the ETS, and rules for the auctioning of emission units

“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.

“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.

“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.

“As a complete package, these reforms take a big step towards a safer future. New Zealanders now know what our emissions limit is for the first half of this decade, and the contribution the ETS will make towards keeping us below that level.

“We have also put everything in place to make sure businesses covered by the ETS can play their part in tackling the climate crisis in fair and affordable way,” James Shaw said.

Further Information

The Emissions Trading Reform Bill will have its second reading later today. The rules announced today that will be enacted through regulation once the Bill has passed include:

  • A provisional emission budget for the 2021-2025 period of 354 million tonnes of CO2 equivalent greenhouse gasses.
  • The Climate Change Commission will provide advice next year on future emissions budgets. They may also propose a revised emissions budget for the 2021-25 period that would supersede the provisional emissions budget announced today.
  • A new cap on the ETS of 160 million tonnes of CO2 equivalent greenhouse gases over 2021-2025.
  • Price controls that will act as a backstop when auctioning is introduced – preventing prices going too low or too high.
  • Rules that govern auctioning to provide certainty on how auctions will be scheduled and run.

The Supplementary Order Paper (proposed amendments to the Emissions Trading Reform Bill) published today will:

  • Extend participants’ access to the Fixed Priced Option (the ETS’s de-facto price ceiling) to cover 2020 emissions, providing certainty about compliance costs.
  • Defer implementation of major forestry policies to January 2023 whilst ensuring foresters who register under the current announced settings are not disadvantaged.
  • Delay the introduction of penalties for small foresters.
  • Extend cover for surrender liabilities to foresters during temporary adverse events using stock change accounting, and introducing exceptions of the new penalties for small forest participants.