The New Zealand Emissions Trading Scheme NZ ETS

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The New Zealand Emissions Trading Scheme (NZ ETS)

• Presentation to the 9th Annual Conference of the
  New Zealand Transport Agency and the New Zealand
  Institute of Highway Technology
• 14 October 2008
• Leah Murphy, Senior Adviser, Ministry of
  Transport and member of the Emissions Trading
  Group (Treasury)

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Emissions Trading

• Part 1 Emissions Trading 101
• Part 2 New Zealand Emissions Trading Scheme
• Part 3 Transport in the New Zealand Emissions
  Trading Scheme
• Part 4 Impacts on contractors and asset land
  managers of the NZ ETS
• Questions

3
How does the Kyoto Protocol work?

• Aims to reduce emissions of developed countries
  (and economies in transition) to 5 below 1990
  levels (in total) during 2008 to 2012
• Binding targets for 37 industrialised countries
• NZ target is for 100 of 1990 emissions 309
  million tonnes of CO2e
• Targets get met via national measures, emission
  trading (AAU, RMU), clean development mechanism
  (CER) and joint implementation (ERU)
• The estimate of the cost of New Zealands
  obligation at 31 May 2008 is NZ480 m (Treasury)

4
How does Kyoto fit into the big picture?
(Note that this is illustrative only, and
reflects the outdated net position projection as
reported in July 2007)
5
What is happening around the world?

• Australia Australian Carbon Pollution Reduction
  Scheme 2010
• Europe EU ETS 2005
• US/Canada Western States Climate Initiative
  2012 Regional Greenhouse Gas Initiative 2009
• Federal scheme McCain/Obama
• Japan Voluntary Emissions Trading Scheme
  2005

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Emissions trading 101

• Firms must surrender units to match the emissions
  they are responsible for
• Firms may either reduce emissions, receive units
  for free from the government, or buy/sell units
  in the commercial trading market
• A limit on the number of emission units in the
  market creates a cap on emissions and gives the
  units an economic value
• The price signal changes behaviour across the
  economy

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New Zealand Emissions Trading Scheme
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New Zealand Emissions Trading Scheme
UN Framework Convention on Climate Change and
Kyoto Protocol
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New Zealand Emissions Trading Scheme
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New Zealand Emissions Trading Scheme
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New Zealand Emissions Trading Scheme
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New Zealand Emissions Trading Scheme
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Emissions trading 101 Example

• Why are we here?
• What action is needed?

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Core design features

• All sectors, all 6 Kyoto gases by 2013
• Internationally linked
• Absolute rather than intensity-based obligations
  one unit surrendered per tonne emitted
• Initial free allocation at 90 of 2005 emission
  levels for eligible industry and agriculture
• Free allocation to pre-1990 forest owners of 55
  Mt CO2
• Reflects international rules (i.e. Kyoto
  Protocol)
• Compliance financial penalty plus make-good
• Self-assessment model for monitoring, reporting,
  verification and enforcement

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Timing of entry
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Who are the Participants? (1)
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Who are the Participants? (2)
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Who are the (potential) Participants? (3)
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How will the ETS affect our economy?

• Important to adjust soon as the costs of
  inaction outweigh the costs of action
• NZ economy already faces the marginal cost of
  emissions via the Kyoto Protocol
• Macroeconomic modelling shows that the impacts of
  Kyoto obligations are negligible
• ETS designed so firms face the marginal cost
  for their emissions
• Structural change anticipated but in a good
  way
• existing technologies and carbon-friendly
  techniques to be applied where cost-effective
• move to a lower carbon economy
• change in thinking carbon simply another a cost
  of production, just as labour, energy and capital
  are now

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Liquid Fossil Fuels The Details

• ETS obligation
• the person who imports or removes obligation
  fuels from a refinery (if total amount exceeds
  50,000 litres per year)
• the person who purchases more than 10 million
  litres of jet fuel per year
• Methodology litres of obligation fuel X emission
  factor tonnes of emissions (CO2e)
• Emission factor accounts for CO2, CH4, N2O and
  oxidation.
• Obligation fuels include petrol, diesel, jet
  fuel, av gas, light and heavy fuel oils AND any
  other liquid fossil fuel
• Exemptions fuel used for an international trip
  biofuels

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Reporting and Surrender dates

• Voluntary reporting 1 January 2009 to
• 31 December 2009
• First report due 31 March 2010
• Mandatory reporting 1 January 2010
• First compliance period 1 January 2011
• First surrender date 30 April 2012
• Reporting/surrendering Annual

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Impacts on Transport Fuels?
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Point Carbon EU ETS and CER

• EU ETS
• 10 Oct 08 EUAs for DEC 2008
• 22.25
• Graph represents last 30 days
•                                                 

• Secondary CER (OTC)
• 30 Sept 08 CER for DEC 2008
• 19.05

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Issues and opportunities for transport sector?

• Cost of greenhouse gases emissions will be
  internalised into economic system
• Changing investment incentives taking price of
  carbon into account
• Need to understand differences between
• corporate greenhouse gas emission reporting
• ETS obligations (especially with upstream points
  of obligation)
• concept of and aspiration to be carbon neutral
• voluntary greenhouse gas markets

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Issues and opportunities for transport sector?

• Modal shift to less carbon intensive modes
  (potentially out of cars/trucks and onto PT,
  trains and ships) and implications for planning
  and design of road network in long-term
• Image for New Zealand and individual firms
• Bring forward green technology

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Implications for highway construction

• Increased cost of fuel and transport services
• Emissions intensive materials
• Manufactures of Cement, steel and bitumen are all
  trade-exposed industries
• Sectoral approaches to international agreement
  (to sit along-side a Kyoto-like agreement)
• Asset and land managers (NZTA and local
  authorities)
• Understanding forestry implications of ETS
• removal of trees (forests),
• land management

27
Questions?
Domestic aviation 3.5