17 July 2008 Media Statement

Australian ETS similar to New Zealand’s

The New Zealand government welcomes the Australian government’s proposal for a Carbon Pollution Reduction scheme, Finance Minister Michael Cullen said today.

“It is a very positive sign that the Australians are introducing an emissions trading scheme on a similar timeframe to New Zealand. It reflects the importance of climate change as a global issue.

“There is no easy time to introduce pricing for carbon pollution, but responsible governments don’t put their heads in the sand and hope climate change will go away.”

Dr Cullen and Climate Change Minister David Parker discussed climate change and emissions trading with Australian Treasurer Wayne Swan in Wellington today.

“Australia recognises that the ETS is a key mechanism to reduce greenhouse gas emissions,” David Parker said. “The two schemes share many fundamental principles – most importantly, that carbon polluters pay for increases in emissions while reductions are rewarded.” (See attached for longer list of similarities and differences.)

The Ministers welcomed the Australian government’s intention to include agriculture in the future.

“Since agriculture makes up only 16 percent of Australia’s emissions, but 50 percent of New Zealand’s, it is less of a priority for them. Their challenge will be reducing
emissions from their coal-dominated energy sector,” David Parker said.

“The proposed Australian scheme has some different design features from the New Zealand scheme, reflecting our different economies and emissions profiles. However there is no barrier to the two schemes linking up, if that is what the two countries decide is best,” Dr Cullen concluded.

Similarities:

- The two schemes share the most important fundamental principle – carbon polluters face the full marginal cost for increases in emissions while reductions are rewarded in the same way.
- Broad sectoral coverage, all greenhouse gases
- Free allocation to affected industries, which is phased out over time

- Price effects for superannuitants and beneficiaries are compensated via adjustment to superannuation and benefits
- The preferred allocation model for Australia effectively has allocation of emission permits based on ‘intensity within a cap’. This is possible under the New Zealand scheme, but it is not prescribed
- The Australian scheme adopts the New Zealand approach of allowing voluntary opt-in for carbon stored in post-1989 forests.

Differences:

- Free allocation proposed for industry in New Zealand is more generous than currently proposed in Australia. In Australia, 30 percent of carbon emission permits will be allocated for free to their emitters in trade exposed sectors (assuming agriculture is in the scheme). In New Zealand an estimated 63 percent of New Zealand’s projected gross emissions in 2013 would be covered by free allocation to trade-exposed industry and agriculture. The proposed transitional rebates on fuel excise duty in Australia substantially equalises the overall effect.

- The Australian system has a more complex system for free allocation. In Australia some industries are proposed to receive 90 percent free allocation (eg aluminium and steel production) while others have 60 percent free allocation (eg pulp and paper). In New Zealand free allocation to the industrial sector is proposed to be 90 percent of 2005 emissions.

- Agriculture is not included as early in Australia. This is because agriculture accounts for 50 percent of New Zealand’s emissions but only 16 percent of Australia’s.
- Australian firms cannot buy units from overseas without restriction, whereas New Zealand companies can. This acts as a de facto price cap in New Zealand and is seen by many New Zealand emitters as an important protection. Australia has a larger internal market.

ENDS

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