Emission Trading in New Zealand
Emission trading is a market-based approach for achieving environmental objectives. A cap and trade emission trading scheme provides a limit on the greenhouse gas emitted, which will be greatly helpful to emission reduction. Since the climate change became a global problem, it brings numerous environmental problems, like global warming, melt of sea ice, rise of sea level，droughts and longer heat waves. Meanwhile, it results in a negative impact on all economic and society. Hence，an increasing number of countries implemented the emission trade policy to reduce the greenhouse gas emissions. New Zealand has obligations under the Kyoto Protocol, so the government began to implement an emissions trading policy in 2008 to meet the obligation.
1. The coverage of the carbon policy
1.1 What sectors are covered？
Based on the Kyoto Protocol, the scheme firstly covered forestry , and was then expanded in 2010 to cover stationary energy, transport, liquid chemistry fuels and industrial processes. And six greenhouse gases are covered in this emission trading scheme: CO2, CH4, N2O, HFCs (hydrofluorocarbons), PFCs (perfluoro carbons) and SF6.
1.2 How does the policy implement over time？
The New Zealand Emission Unit Register was established in the end of 2007. The NZEUR plays an significant role in record Kyoto emission units assigned to firms enrolled in the Ministry for the Environment’s Projects to cut down Emissions and Negotiated Greenhouse Agreements programmes.
The NZEUR not only can trade the emissions units in the domestic carbon market, but also allows to import the units from the international carbon market . There are some specifics carbon trade units called New Zealand Unit in the domestic market, which allows free allocate and no auctions in the short period. But there are some differences between different sectors in the free allocation of New Zealand Units. For example, the commercial fishery sector will receive the units in a free allocation on a historic basis. The forests sectors will receive a fixed free allocation of units. In terms of emission-intensive industry, it will be allowed on an output-intensity basis. It does not provide a limit on the quantity of units that to be allocated. The quantities that can be allocated to participants depend on the average level of output within a certain business transcation.
In 2010, forestry contributed approximately 20.5 metric tonnes of abatement in CO2, which equals to almost 21% of total emission in 2008. For the individual business, the dates for they to comply with their duty to report emissions are vary. The stationary energy and industrial processes enrolled the NZEUR in July 2010, while the landfill operators entered in February 2013. The emissions emitted by agriculture will enter the NZEUR until January 2015.
1.3 Which sectors /carbon-equivalent emission are exempted?
According to the New Zealand Trading Scheme , government implemented a carbon policy that Negotiated Greenhouse Agreement(NGA) were available to eligible firms whose international competitiveness would be impaired by the carbon tax. However, the government decided not press ahead with the carbon tax regime in recent year. In this situation, NGA companies were to get a portion of exemption from the carbon tax and pay less in their direct produced emissions of greenhouse gases.
1.4 The cost-effectiveness of the policy
The carbon trade policy is provided to lower the cost in the emission reduction. The cost-effectiveness of the policy can be proved in several ways. Firstly, Carbon Trade Scheme not only provides the private industries with more flexibility required to cut down emissions of greenhouse gases, but also stimulate the companies to develop the innovation in technology , both ways will beneficial to economic growth. Secondly, the carbon trading policy requires flexible trade between different eligible firms in the domestic market and international market. Thirdly, the Carbon trade Scheme will meet its environmental objective at lowest cost to the economy. For the sake of biggest profit, companies will consider to pay a most reasonable price for emitting CO2, cap-and-trade seeks out the most efficient reduction projects within the market, delivering a lowest cost outcome.
2. Distributional effects of the policy
According to an environmental report, the key factor in carbon trading system is the quota allocation. In prior to the quota allocation, first must carry on the total set. Total carbon trading system not only influence its environmental effect, but also strongly associated with the carbon price . Hence, it plays a significant role in passing the signal to the low carbon technology investors. Therefore, carbon emissions should be setted lower than ‘usual emissions ‘ level.”
The trading scheme has several advantages compared to the tax scheme. Firstly, the trading scheme is more flexible, it allows the adjustment in price, while the tax is in the fixed level. The reduction in the emissions are much cheaper in some sector of economy, which will give a more profitable opportunities to those participants. Secondly, the trade scheme allows to trade in a cap-and-trade system between countries under the Kyoto. Thirdly, more methods are developed to support the carbon trading on the climate change policy.
However, It also has its negative sides. New Zealand would set up a market price for emissions under the carbon trade scheme, and that price would flow through the economy. In this situation, Producers would intend to reduce their emissions, and meanwhile, consumers would cut down their demand for emissions-intensive products, which would result in the product in a more expensive price. For example, New Zealand is a vast agricultural country, the prominence of agriculture occupied to almost 45% in the economy, the CH4 from the ruminant animals and CO from the fertilizer are leading the emission profile. Since the livestock farming accounts for 50% of emissions, the emission would be reduced if cut down the quantities of livestock feeding. In this situation, it would earn a profit in the reduction of emission, however, the prices of livestock will be increased. Compared to other sectors, there are fewer choices for reducing biological agricultural emissions, but about 50% of emission derived from agriculture in New Zealand. Scientific research reveals that the New Zealand Emission Scheme has contributed to a decade years high in generating renewable energy. Compare to the years before 2010, it was witnessed a five-fold increase in the capacity of renewable energy. New Zealand have already produced a large percentage of its energy from renewable sources, therefore, it has less abatement alternatives in the energy sector than other countries.