Emissions Trading Scheme

New Zealand's Emissions Trading Scheme (ETS) is part of our response to climate change. The ETS puts a price on greenhouse gases to encourage environmentally sustainable behaviour.

Update – 17 December 2018

Decisions to improve the ETS

The government has made some decisions to improve how forestry is treated in the ETS, and the system's overall effectiveness.

This is the first set of decisions that will improve the ETS. A second set is expected in 2019. Both sets will result in a single bill amending the Climate Change Response Act 2002 (CCRA). We expect this will be introduced to Parliament in the second half of 2019. None of the changes will apply to participants with forests registered in the ETS or the Permanent Forest Sink Initiative (PFSI) until after the bill is passed. 

The forestry decisions introduce:

  • provisions for crediting carbon stored in permanent forests established post-1989 
  • 16 minor and technical improvements to how the scheme works for forestry owners
  • 4 significant operational changes. 

Introducing a new permanent post-1989 forest activity into the ETS and discontinuing the PFSI

16 minor and technical changes to the ETS for forestry participants

These changes will improve the general operation of the scheme, improve efficiency for the Crown, and make the scheme more accessible for forestry ETS participants.

They include, but are not limited to, changes to enable a simpler process for:

  • enacting existing exemptions from emissions liabilities
  • transfers of post-1989 forest land after legal ownership changes.

Significant operational changes to forestry in the ETS

These will be introduced after additional changes to the ETS and Climate Change Response Act 2002 are made in 2019.

They will remove barriers to participation and compliance. They will increase land-use flexibility, while ensuring the ETS supports afforestation and discourages deforestation. The changes include:

Improving rules around pre-1990 forest land offsetting for more flexible land use

This will provide pre-1990 landowners more flexibility over their land, while maintaining New Zealand's long term carbon stock. It is particularly important for Māori landowners and farm foresters. These groups hold large areas of pre-1990 forest land which may be suited to another land use.

Current offsetting provisions could be improved, and are rarely used. For example, if any part of an offsetting application fails, the entire application is revoked. If 0.2 hectare of offset forest fails in a 100 hectare application, the applicant becomes liable for all deforestation from their application (roughly $1.3 million for an average 100 hectare block).

The improvements will make offsetting more effective to:

  • allow flexible use of pre-1990 forest land
  • apply enforcement action only to the areas of forest land that fail to establish.

Simplifying process to access exemptions from deforestation liabilities for areas of tree weeds (including wilding conifers)

This decision introduces changes to the CCRA to enable better management of tree weed exemptions.

These changes are intended to support management and removal of tree weeds in compliance with regional pest management plans, without a cost to the landowner under the ETS. 

Limiting the spread of tree weed species, and eliminating the seed source, is important for New Zealand as most tree weeds species spread very fast and cause a range of economic and ecological problems. Wilding conifers are able to modify and rapidly invade New Zealand’s natural ecosystems so that native plants and animals are affected by loss of habitat.

Excluding post-1989 land with tree weeds from the ETS

This enables MPI to exclude all future post-1989 and permanent post-1989 forest land registrations for sites that contain predominantly tree weeds, regardless of who applies to register.

So forest land that is already registered in the ETS, and is in a tree weed species, can remain registered as forest land eligible for earning NZUs.

This is because a very small number of participants have registered tree weeds in the ETS and are using the income from their land to pay for management of the tree weeds.

Improving access to exemptions from deforestation liabilities for land with multiple owners

This will enable owners of land, that has multiple owners, to access the same provisions as land with single owners.

It allows an appointed or professional trustee to apply for the exemption (rather than each landowner from 1 September 2007).

Exemptions from all, or proportions of, the emission costs associated with deforesting pre-1990 land are available for landowners under the CCRA to allow some flexibility under unforeseen circumstances.

Currently, landowners with less than 50 hectares of pre-1990 forest land can apply for an exemption from deforestation liabilities. However, it has been difficult to apply this to multiply-owned land in trusts, and Māori freehold land under the Te Ture Whenua Māori Act 1993.

Other ETS improvements

The Government has also announced a number of improvements to the overall ETS, and will be considering additional improvements in 2019.

Information on these changes is available on the Ministry for the Environment (MfE) website.

Note, that the introduction of an emissions cap will not affect the availability of New Zealand Units for forestry participants with forests registered in the ETS.

How the ETS works

The ETS puts a price on greenhouse gas emissions. This provides an incentive for people to reduce emissions and plant forests to absorb carbon dioxide.

Environmental accounting

Certain businesses are required to acquire and surrender emission units to account for their direct greenhouse gas emissions or the emissions associated with their products.

An emission unit represents one metric tonne of carbon dioxide or the equivalent of any other greenhouse gas (carbon dioxide equivalent). There are lots of unit types and a variety of emission units are traded throughout the world.

It's about sustainability

The primary aim of the ETS is to encourage environmentally sustainable behaviour.

In New Zealand, sustainability is defined as:

  • good governance that supports and maintains profitable enterprises
  • encouraging and protecting the environmental integrity of both our ecosystems and the social wellbeing of our communities.

New Zealand ETS review 2015/2016

December 2018 update

July 2017 update

As a result of stage II of the New Zealand Emission Trading Scheme (NZ ETS) review, the Government has made in-principle decisions on a package of 4 proposals to improve the operation of the NZ ETS in the 2020s.

The decisions (announced on 26 July 2017 ) set the direction of how the NZ ETS will operate in the 2020s for all sectors, including forestry. They will need further work and consultation before they're implemented. There are no immediate changes to how the NZ ETS operates.

The in-principle decisions are to:

  • introduce sale of units by auction, to align the NZ ETS to our climate change targets
  • limit the number of international units that NZ ETS participants can use when the NZ ETS reopens to international carbon markets
  • develop an alternative price ceiling to replace the current $25 fixed price option
  • coordinate decisions on the supply settings in the NZ ETS over a rolling 5-year period.

Other changes considered

Options to solve other issues with the NZ ETS were also considered. For forests and the NZ ETS, the Government decided to consider:

  • options for potentially changing the post-1989 accounting approach
  • potential operational improvements in 2018 as part of a forestry package.

During the stage II review, 2 possible post-1989 accounting approaches were looked at:

  1. accounting for carbon stored in harvested wood products (HWPs).
  2. applying an averaging accounting approach

Linking potential NZ ETS operational improvements and accounting decisions will allow a full consideration of these interrelated issues. MPI and the Ministry for the Environment (MfE) will continue to develop advice on options for these forest-related issues. 

Aligning the administration of the PFSI (Permanent Forest Sink Initiative) with the Climate Change Response Act was a strong recommendation of the ongoing PFSI review. It makes sense to align the legislative changes needed to do this, with work that is following the NZ ETS review.

The ETS and MPI

MPI's main role is to administer the ETS for the forestry sector. We do this in partnership with the Ministry for the Environment (MfE) and the Environmental Protection Authority. We also work with MfE on climate change policy for the agriculture and forestry sectors.

Farming and the ETS

Agricultural processors must report the on-farm biological emissions associated with the production of the milk and meat they process to the Environmental Protection Authority.

The term "agricultural processors" includes:

  • meat processors
  • dairy processors
  • nitrogen fertiliser manufacturers and importers
  • live animal exporters.

There are some exemptions to these categories, including:

  • wool and velvet processors
  • egg producers.

Farmers and producers are not currently required to surrender ETS units for the biological emissions produced by agricultural activities. This is consistent with global practice – no country in the world imposes a cost on biological emissions from agriculture.

The Government has indicated surrender obligations would not begin unless:

1. there are economically viable and practical technologies available to reduce emissions

2. our trading partners make more progress on tackling their emissions in general.

The Paris Agreement

The Government ratified the Paris Agreement in October 2016. The Agreement commits New Zealand to an ambitious target – to reduce emissions to 30% below 2005 levels by 2030. To meet our commitments under the Agreement, changes may need to be made to the ETS and our other climate change policies and programmes.

The Climate Change Forestry Reference Group

  • The purpose of the Group is to explore and test evidence, analysis, and policy options with experts in order to inform and support officials.
  • The Group will not write policy or make recommendations.
  • It is chaired by Stuart Anderson (MPI).
  • Members have signed a Terms of Reference and have been supporting officials on a number of key issues as part of the current review of the New Zealand Emission Trading Scheme.
  • If you'd like the Climate Change Forestry Reference Group to consider an issue or topic, email climate.change@mpi.govt.nz
  • Agendas to date:

Download the Climate Change Forestry Reference Group Terms of Reference [PDF, 2.5 MB]

Find out more

Who to contact

If you have questions about MPI's role in the ETS or what you can do to reduce your emissions by planting forests, email climate.change@mpi.govt.nz

Update – 17 December 2018

 

Ministry for the Environment website . 

 

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