Government confirms key climate change policies

The Government has confirmed a policy package on climate change that puts New Zealand in the best possible position to meet its international obligations and move towards a sustainable energy future, says the Convenor of the Ministerial Group on Climate Change, Pete Hodgson.

The confirmation by Cabinet of the policies means New Zealand will be ready to ratify the Kyoto Protocol to the United Nations Framework Convention on Climate Change once the Climate Change Response Bill is passed by Parliament. The Government expects to ratify later this year.

"The policies announced today will enable New Zealand to meet its greenhouse gas emission targets under the Kyoto Protocol while protecting the nation's economic interests," Mr Hodgson said. "We have substantially confirmed the preferred policy package that was released for consultation in April, with some refinement."

The foundation policies of the climate change package are the Growth and Innovation Framework, the National Energy Efficiency and Conservation Strategy, the New Zealand Transport Strategy (under development), the New Zealand Waste Strategy, climate change research, and a partnership with local government in addressing climate change at a local level.

The key policies completing the package have been confirmed as:
· An emissions charge applied to fossil fuels and industrial process emissions. The charge will approximate the international emissions price, but be capped at $NZ25 a tonne of carbon dioxide equivalent. It will apply in the Kyoto Protocol’s first commitment period 2008-2012 and not before 2007. Revenue will not be used to improve the Crown’s fiscal position but will be recycled, for example through the tax system and into funding climate change Projects and programmes. The Government retains the option of introducing emissions trading as an alternative to an emissions charge if the international carbon market is functional and the price is reliably below the $NZ25 cap.
· Provision of government incentives for Climate Change Projects that will deliver defined reductions in greenhouse gas emissions, in any sector of the economy. Incentives might include money or the pre-allocation of emission units. The government will invite bids from firms or groups via a contestable process. To qualify, Projects must be additional to business-as-usual. The provision of incentives will accelerate the uptake of emission reduction initiatives, including new technologies and practices, that would otherwise be uneconomic.
· Negotiated Greenhouse Agreements for firms and industries where there is significant risk to their international competitiveness and risk of “leaking’ production overseas as a result of climate change policies. Negotiated Greenhouse Agreements would comprise a contractual commitment by the firm or industry to achieve international best practice in managing emissions, in return for exemption from all or part of the emissions charge.
· Exemption for the agricultural sector from any price measure (emissions charge or trading regime) in the first commitment period, provided the sector invests in research to identify options for reducing agricultural emissions. The Government retains the option of imposing a research levy if the research effort falls below what is required.
· Government retention of the sink credits and associated liabilities allocated to New Zealand under the Protocol in recognition of the carbon sink value of post-1990 forest plantings. These credits will be retained and managed by the Government, at least for the first commitment period. The Government, rather than forest owners, will also assume the liability created by the Kyoto Protocol for deforestation, up to a specified cap. In recognition of the forest sector’s role in creating the sink credits, the Government and the sector have agreed to develop a "forestry framework" for further policy development. Two measures already agreed under the framework – raising the cap on deforestation liability and establishing a mechanism to encourage permanent forest sinks – are described below.

“This is a robust package of policies to achieve permanent reductions in greenhouse gas emissions over the long term," Mr Hodgson said. "It enables us to respond to the changing international context, it is consistent with a growing and sustainable economy and it will not disadvantage the vulnerable in our society.”

Mr Hodgson said the public and sector group consultation process in May and June this year had helped the government refine the policy package and identify areas needing clarification.

"The consultation process showed that although there is an increased level of understanding about the need to act in response to climate change, there remains no real consensus on what that nature of the response should be. In such circumstances government must accept the responsibility of leadership and that is what this policy package represents."

The key points of difference between the preferred and confirmed policies are:
· There will be incentives for the establishment of permanent forest sinks. The preferred option is for forest owners who establish permanent (non-harvest) forest sinks, for example by regenerating indigenous forests, to receive returns in proportion to the carbon sequestered in their forests. This was widely supported during consultation.
· The cap on the liability the Government will assume for deforestation has been raised from 5 percent to 10 percent of forests expected to be harvested during the Protocol's first commitment period (2008-2012). This equates to 21 million tonnes of carbon dioxide emissions. The change responds to concerns raised by the forestry sector that the lower cap might create an undesirable incentive for forest owners to deforest early, to avoid the risk of incurring liabilities should the cap be exceeded.
· The Resource Management Act will be amended to remove regional councils' ability to directly control greenhouse gas emissions through resource consents and regional plans. This is because emissions are to be dealt with through national policies. Further amendments are being considered relating to prioritising renewable energy and adaptation to the effects of climate change.
· The confirmation, as part of the foundation policies, of the National Energy Efficiency and Conservation Strategy target of 30 Petajoules (PJ) of additional energy use a year from renewable sources.

"In addition the Government has recognised concerns expressed during consultation that small to medium-sized businesses may not be able to take advantage of Negotiated Greenhouse Agreements or the Projects mechanism," Mr Hodgson said. "Accordingly we will investigate whether additional policies targeted at emission reduction opportunities for such businesses are needed.

"With the confirmation of this policy package New Zealand is now very well positioned for the entry into force of the Kyoto Protocol, which is likely to occur next year following ratification by Russia. New Zealand now has considerably more clarity in its domestic policy position than many other developed nations. While policy will continue to be refined within this framework, New Zealand business now has a level of certainty that will help it plan for the future and exploit the opportunities arising from the transition to a low-emission economy."

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