ETS Bill to put a price on agricultural emissions and name and shame emitters
The Government has introduced a second bill to Parliament amending the Climate Change Response Act. The Climate Change Response (Emissions Trading Reform) Amendment Bill (ETS Bill) modifies the New Zealand Emissions Trading Scheme (ETS) and reflects a string of announcements made by the Government over the last 12 months.
Of most interest, the ETS Bill includes provisions putting a price on agricultural emissions from 2025. Until now, it has been unclear how and when the Government would introduce the sector into the scheme. The other changes to the ETS are not surprising; they’re broad ranging and are targeted at reducing greenhouse gas emissions, including by making data about individual participants emissions and removals public.
The farming sector will pay for its emissions from 2025
Consistent with proposals made by the farming sector, from 2025 the ETS Bill will price agricultural livestock emissions at farm level, and fertiliser emissions at processor level (fertiliser manufacturers and importers as opposed to users).
The ETS Bill requires the Minister for Climate Change and Minister of Agriculture to report in 2022 on the development of an alternative farm-level pricing mechanism. The ETS will be used as a fall-back option for emissions pricing if an alternative mechanism cannot be determined. The ETS Bill does this by:
- Requiring farmers to start mandatory reporting on livestock emissions from 1 January 2024;
- Requiring payment for emissions from livestock and fertiliser from 1 January 2025; and
- Increasing the free allocation of units available to the agriculture sector from 90% to 95%, which will soften the obligation the payment obligation.
Unusually the Explanatory Note to the ETS Bill signals that the detail in the Bill is not complete. Further changes are expected to be incorporated into the ETS Bill through draft text provided to the Select Committee and/or via a Supplementary Order Paper as it proceeds through various readings in Parliament. These changes will provide more detail on how decisions during the interim period to 2025 will be made, the requirement to develop (in 2022) an alternative farm-level livestock emissions pricing mechanism and ‘other policy decisions'. The later this information arrives the more difficult it will be for the farming sector and the public to engage in the debate about the appropriateness of the proposals.
Other changes proposed by the ETS Bill:
- Making data publicly available online about the emissions and removals of individual businesses. This will contribute to a public focus on naming and shaming emitters (only those caught by the ETS).
- Updating the purpose of the CCRA to support New Zealand’s obligations under the Paris Agreement, and domestic targets and emissions budgets to be set under the Climate Change Response (Zero Carbon) Amendment ETS Bill.
- Enabling the supply of NZUs to be restricted, capping allowable emissions.
- Removing the current $25 fixed price option and replacing it with a cost containment reserve, that will operate through auctions. This will be a limited reserve supply of NZUs that the Government will release only when NZU prices reach a particular level. Regulations will set the trigger level, or levels, and the number of units to be released.
- Mandating a phase-down of industrial allocations from 2021. The ETS Bill reduces the level of allocation for every activity by 0.01 each year from 2021 to 2030, with greater reductions after 2030.
- Strengthening the compliance regime. The ETS Bill will introduce new infringement offences for low-level offending and separate the excess emissions penalty into two categories. This includes a penalty for failing to surrender or repay units, set at three times the current price of carbon; and penalties for failing to report emissions or make mandatory allocation applications, or reporting or applying allocations inaccurately.
- Making technical changes and updates, mainly to forestry provisions.
- Introducing averaging accounting for post-1989 forests registered from 1 January 2019. The ETS Bill will add three features for post-1989 forestry under averaging:
– Removing liabilities for carbon lost from adverse events, as long as the forest is replanted;
– Enabling liabilities to be offset by planting a carbon-equivalent forest elsewhere; and
– Preventing foresters from deforesting and re-registering land in order to game the averaging accounting provisions.
- Disestablishing the existing Permanent Forest Sink Initiative and replacing it with a new permanent post-1989 forest activity in the ETS.
The Government is prioritising amendments to the Climate Change Response Act
The ETS Bill follows shortly after the Environment Committee issued its recommendation that the Climate Change Response (Zero Carbon) Amendment Bill (Zero Carbon Bill) should be passed with a range of amendments. The amendments recommended by the Committee are fairly extensive, but do not alter the general intent of the Zero Carbon Bill.
The Zero Carbon Bill (including the Committee’s recommendations) will now be considered (read) for a second time by Parliament and pass through its remaining stages to become law by early next year.
The ETS Bill will receive its first reading in the week beginning Tuesday 5 November. It is expected that the ETS Bill will be referred to Select Committee after the first reading and that this process will allow for public submissions.
How we can help
Please contact a member of our team if you would like more information about how the bills may affect you and your business or if you would like assistance in preparing a submission on the ETS Bill.