Further changes to the ETS to crack down on non-compliance

The Government has announced part of the second tranche of its intended changes to the New Zealand Emissions Trading Scheme (ETS).

These changes, along with those announced in December 2018 and March 2019, will be wrapped up into a bill amending the Climate Change Response Act 2002.  The Bill is expected to be introduced to Parliament later this year and will be considered alongside the Climate Change Response (Zero Carbon) Amendment Bill (Zero Carbon Bill) (introduced last week).

Targeting compliance and transparency

The Government wants to improve the transparency of participation within the ETS regime and to future-proof New Zealand’s approach to emissions by increasing compliance with the ETS and regulating the price of participation in line with the emission reduction targets promised in the Zero Carbon Bill.  The changes will also support the proposed implementation of auctioning New Zealand Units (NZUs).

The changes signalled include:

  • Significantly strengthening and restructuring the penalty regime into:

–  an automatic surrender / repayment penalty where participants have failed to surrender or repay units by the due date (with each overdue unit incurring a penalty of three times the current market price);

–  a behavior-based reporting penalty, where the enforcement agency has had to make an amendment to an emissions return or emissions assessment – with a 100 percent market price penalty where the participant has knowingly reported their emissions incorrectly.

  • Requiring the emissions and removals data of individual ETS participants to be published and available to the public, in line with international best practice.
  • Enabling the appointment of an independent auction monitor to mitigate the risk of anti-competitive behaviour and promote fair access to auctions.
  • Provisions clarifying the types of decisions the Government must, or may, take when creating regulations for auctioning.
  • Removing the $25 fixed price option no later than 31 December 2022 to transition to the new price ceiling (the ‘cost containment reserve’) when the auctioning process begins.  The cost containment reserve is discussed in our December 2018 News Alert.
  • Enabling a price floor to be introduced in the future in the event that prices drop to an “extremely low” level.

Further information on the proposed changes is available here.  The specific details of the changes will become clear when the Bill is introduced later this year.

Decisions on insider trading and market manipulation deferred

The Government has decided that it will establish a separate work programme to advise on options for market governance.  This means previous decisions to prohibit insider trading and market manipulation and to find an appropriate regulator for the market will be deferred from inclusion in the upcoming Bill to enable further consideration.

More changes to come

Further changes are expected to be announced by the Government before the Bill is introduced –focusing on industrial allocation.  The Government has also indicated that it is considering how it will respond to recommendations delivered last month by the Interim Climate Change Committee on how surrender obligations could best be arranged if agricultural methane and nitrous oxide emissions enter into the ETS.

If you would like any further information about the proposed changes, or you have any queries arising from the announcements, please contact a member of our team.

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