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        1. Climate change - Is New Zealand on target?

Emissions Trading Scheme

Want details? Read our summary of the new ETS

On 25th November, New Zealand passed an amended Emissions Trading Scheme into law. The controversial legislation was passed after the National government agreed a deal with the Maori Party.

This is the latest chapter in years of political debate on how to reduce greenhouse gas emissions in New Zealand. Sadly however, the scheme falls well short of what is needed to stimulate emissions reductions and will in fact end up allowing big polluters to pollute even more.

Reacting to the news, Peter Hardstaff, WWF-NZ climate change campaigner, said:

“The New Zealand Emissions Trading Scheme is a complete shambles. The process for creating such an important and complex piece of legislation has been truly appalling and the outcome is not worth the paper it is written on. The objective of reducing emissions has been completely lost in a flurry of industry pressure and back-room deal-making. In fact, under the new legislation, New Zealand’s emissions are more likely to increase, as big polluters are let off the hook.”

“If the New Zealand delegation think that waving around the ETS in Copenhagen will enhance the country’s credibility they should think again. Negotiators know loopholes when they see them and will see ones in our ETS big enough to drive a truck through. Few if any negotiators in Copenhagen will be naïve enough to think that this is a telling contribution to the fight against dangerous climate change.”


The New Zealand Emissions Trading Scheme is a complete shambles. The outcome is not worth the paper it is written on. The objective of reducing emissions has been completely lost in a flurry of industry pressure and back-room deal-making.

Peter Hardstaff, Climate Change campaigner

Emissions Trading in theory

The whole point of an emissions trading scheme is to reduce emissions by a set amount but let ‘the market’ decide exactly how the emissions reductions are achieved. This, it is argued, will achieve emissions reductions at least cost.

A limit, or ‘cap’ on emissions is set and pollution permits up to that limit are either allocated or auctioned to those operating within the system (these permits are usually allocated to energy , manufacturing and oil/gas companies). If a company wants to pollute more than its allocation, it must buy more permits from those companies that have reduced emissions so have an excess. The costs of pollution or the benefits of reducing pollution are passed on to consumers through higher or lower prices.

The higher the market price, the more incentive there will be for companies to keep emissions down.


Emissions trading – the New Zealand way

The New Zealand emissions trading scheme is deeply flawed.

WWF-New Zealand believes the new ETS is not fit for purpose. Why? Because the scheme includes:

•    Placing no limit on total pollution.
•    Allowing polluters to keep on polluting more as long as their emissions per unit of production are below the industry average.
•    Placing a cap on the price of carbon in the early years of the scheme, weakening the price signal sent to polluters and to consumers.
•    Giving polluters a ‘2 for 1’ deal in the early years of the scheme (i.e. allowing 2 tonnes of pollution for every 1 tonne pollution permit), further weakening the price signal sent to polluters and consumers.
•    Transferring the cost of emissions from polluters to the taxpayer. The exact amount will depend on international carbon prices and New Zealand’s international emissions reduction commitments but the government’s conservative estimate puts the figure at NZ$400 million by 2013.
•    Not including agriculture in the scheme until 2015. Agriculture is responsible for half of New Zealand’s greenhouse gas pollution.

The overall affect will be that much-needed emissions reductions are not stimulated. It will not send an effective signal to businesses,  nor convince other countries that NZ is serious about tackling climate change.

Certainty – for now

Many businesses have been clamouring for certainty on climate change policy in order to better facilitate their long-term investment decisions. Cross-party consensus on the Emissions Trading Scheme would have been ideal.

However, some business lobbyists have been arguing to water down the scheme that the previous Government introduced in late 2008. We now have a weakened scheme that will probably be changed if the government changes again so businesses have not been delivered the certainty they crave.


Emissions Trading and the Kyoto Protocol

The Kyoto Protocol created a global system for emissions trading, which takes place between countries. Each industrialised country took on an obligation to limit its greenhouse gas emissions relative to its emissions in 1990. For example, countries in Europe committed to an 8% emissions reduction below 1990 levels, Canada and Japan committed to a 6% reduction while New Zealand committed to reducing emissions to 1990 levels (a 0% reduction below 1990). Australia committed to an 8% increase above 1990 levels.

These emission limitations are to be achieved in the “first commitment period” from 2008 – 2012. Each country (or group of countries) is allocated a set number of “allowed amount units” (AAUs) equivalent to its target. The AAUs specify the amount of pollution (tonnes of carbon dioxide equivalent) a country is allowed to emit during this period. If a country pollutes more than its target, the government is obliged to ensure that AAUs are purchased from other countries. If a country has polluted less than its target, it can sell AAUs to other countries, or ‘bank’ them for the future.

The New Zealand ETS has been created, in theory, to help the country meet its 2008 – 2012 obligations under the Kyoto Protocol and any obligations the country may undertake as part of a successor agreement. However, in its current form it is highly unlikely to stimulate domestic emissions reductions, which could well mean New Zealand will have to buy AAUs on the international market. The tax payer, not big polluters, will foot the bill.

International Links

The New Zealand scheme is domestic rather than between countries like the European Emissions Trading Scheme. There is no direct link between the two and pollution permit trading can’t take place between European and New Zealand companies.

Both schemes are however linked to the international carbon trading market so both European and New Zealand companies can buy what are called Certified Emissions Reductions (CERs) that result from pollution reduction schemes in developing countries.

Unlike European governments that have limited the amount of CERs companies can buy, the New Zealand government has placed no limit on buying CERs for New Zealand companies. Theoretically, this means all of New Zealand’s emissions reduction commitment could be met by purchasing ‘credits’ from overseas, delaying action to help cut domestic reductions that are ultimately needed. 

The government has indicated that it would like to link the New Zealand ETS with the proposed Australian ETS if the two schemes are similar enough to make trading fair, but this is not yet finalised.

What kind of ETS does WWF want to see?

WWF calls on the government to create an Emissions Trading Scheme or set a carbon tax that will send a strong price signal to polluters and set New Zealand on the road to becoming a low-carbon economy. Whatever policy mechanism is used, the most important aspect is to ensure that all polluters are facing a significant cost for their pollution as soon as possible and those who reduce pollution receive a significant benefit. The sooner this price signal starts to change the behaviour of producers and consumers and starts to drive technological change, the sooner the New Zealand economy can start adapting.

Sounds deceptively simple? Creating an Emissions Trading Scheme certainly involves some complexity but too much of the detail in the New Zealand ETS concerns creating loopholes and caveats that are designed to ensure that not all polluters are included and that the price signal is so weak it will make no difference to behaviour.

Beyond the ETS

WWF recognises that a price on carbon, whether through an ETS or carbon tax, will not on its own achieve the emissions reductions needed to meet the international promises we have already made, and those we will need to make in future. A range of complementary policies will be required, such as:
•    greater investment in public transport while cutting spending on roads
•    vehicle fuel economy standards to improve the efficiency of cars and trucks in New Zealand,
•    adequate incentives to ensure more trees are planted in an environmentally responsible way
•    regulations and greater incentives to improve energy efficiency and encourage more renewable energy generation.

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