IN CONFIDENCE Climate Change Response (National Emissions Reduction) Amendment Bill Member s Bill Explanatory note General policy statement The purpose of this Bill is to ensure that the New Zealand emissions trading scheme (ETS) achieves the purpose specif ed in the Climate Change Response Act 2002 (the Act). In particular, it aims to enable New Zealand to respond positively to the requirement of all countries for national emission reductions suff cient to avert dangerous climate change. At present, the New Zealand Government has the following principal goals in its climate change policy: a legal obligation for meeting its responsibility target for 309.5 million assigned amount units (equivalent to 309.5 million tonnes of greenhouse gases) for the f rst Kyoto commitment period: a recent decision to stay outside the second Kyoto commitment period during the transition period (2013 19), and thus not be bound by any legal obligation for specif c quantitative reductions: a unilateral, and conditional, commitment to a 10% to 20% reduction in net emissions in the year 2020 off its 1990 level:
2 ClimateChangeResponse(National a unilateral commitment to a 50% reduction in net emissions in the year 2050 off its 1990 level. These targets are inadequate to ensure that New Zealand is doing its fair share in responding to the decision of the 16th Conference in Cancun of the Parties to the United Nations Framework Convention on Climate Change to increase the level of ambition in national mitigation commitments and achieve the goal of limiting global temperature increase to 2 C above the pre-industrial level, which is held to be the threshold of dangerous climate change. New Zealand s weak targets form a proportionate part of the global emissions gap the collective pledges that amount to only 50% of what is required to remain within the 2 C limit. Those current pledges are estimated to result in a temperature rise of 4 C by 2100, on the cusp of catastrophic climate change. This Bill will amend the Act to achieve the following: Targets 1 Commit New Zealand to an annual emissions level for 2020 and 2050 that is the mid-point of the range prescribed in each case [33% for 2020 (range = 25% to 40% below 1990); 88% for 2050 (range = 80% to 95%)]: 2 Commit New Zealand to time-bound carbon dioxide equivalent quantitative budgets from 2013 to 2050 designed to achieve the 2020 and 2050 targets, with a general straight-line phase-down in annual emissions over that period: Independent Commission 3 Establish an independent Climate Change Commission with responsibility to provide the Government with advice on carbon dioxide equivalent targets, budgets, and measures to achieve these goals: Measures 4 Provide for amendments to the ETS that introduce an effective pathway to the above goals, namely: introduction of a price f oor, and termination of the price cap: phase-out of the one-for-two surrender obligation: termination of the issuance of free allocations to participants: introduction of auctioning of New Zealand units, commencing in 2013:
3 restrictions on international units that can be traded and surrendered in New Zealand: introduction of agriculture into the scheme: obligation on the Minister to prohibit the entry of any international carbon credits that may, in his or her judgement, depress the price in New Zealand below the carbon f oor price: prohibiting participants engaging in futures trading of New Zealand units or any Kyoto units: requiring participants who claim that price increases in products or services are due to an increase in the carbon price to provide a report to the Climate Change Commission verifying that claim. Clause by clause analysis Clause 1 is the Title clause. Clause 2 is the commencement clause, and provides for the Bill to come into effect on the day after the date on which it receives the Royal assent. Clause 3 states that the Bill amends the Climate Change Response Act 2002 (the principal Act). Part 1 Amendments to principal Act Clause 4 amends section 4 by providing def nitions of terms used in the Bill. Clause 5 amends section 30G to ref ect constraints on the Minister s ability to recommend the making of certain regulations, in accordance with new section 222N. Clause 6 amends section 63, which relates to the liability to surrender units to cover emissions, by adding new subsections (3) to (6),sothat at least 2% of the units transferred under section 18C must be units issued to a forest sink under a forest sink covenant. Clause 7 amends section 63A, which modif es the liability of those to whom the section applies to surrender units, by replacing subsection (2). Clause 8 inserts new sections 69A to 69C. The new provisions relate to terminating the price cap and introducing a price f oor for certain
4 ClimateChangeResponse(National units, and restricting the allocation and auctioning of New Zealand units. Clause 9 amends section 219, which is a transitional provision with regard to mandatory reporting by certain participants. The amendment relates to Part 5 of Schedule 3, which concerns agricultural activities. Clause 10 inserts new Parts 5A and 5B, relating respectively to national responsibility targets and a new Crown entity, the Climate Change Commission. Clause 11 amends section 224, which relates to the Gazetting of targets. The amendment makes the section subject to new sections 222J and 222M, so that targets Gazetted under section 224 must conform to the national responsibility targets and to national carbon dioxide equivalent budgets. Clause 12 amends section 225, which provides for regulations relating to targets. The amendment makes the section subject to new sections 222J and 222M, so that regulations made under section 225 relating to targets must conform to the national responsibility targets and to national carbon dioxide equivalent budgets. Clause 13 inserts new section 225A, providing for a periodic review of the principal Act. Clause 14 inserts new Schedule 5, relating to national targets. Part 2 Consequential revocation Clause 15 revokes a Gazette notice made pursuant to section 224. The notice is inconsistent with the new national emissions targets provided for in the Bill, and with the amendment made by clause 11 to section 224, the empowering provision for such notices.
Julie Anne Genter Climate Change Response (National Emissions Reduction) Amendment Bill Member s Bill Contents Page 1 Title 2 2 Commencement 2 3 Principal Act 3 Part 1 Amendments to principal Act 4 Section 4 amended (Interpretation) 3 5 Section 30G amended (Regulations relating to Part 2) 3 6 Section 63 amended(liabilitytosurrenderunitstocover 3 emissions) 7 Section 63A amended (Modif cation of liability to 4 surrender units to cover certain emissions) 8 New sections 69A to 69C inserted 4 69A Termination of price cap and introduction of price 4 f oor 69B Allocation of free units 5 69C Auctioning of New Zealand units 5 9 Section 219 amended (Transitional provision for 5 mandatoryreportingbycertain participants) 10 New Parts 5A and 5B inserted 5 Part 5A National responsibility targets 222I Meaning of national responsibility target 6 1
222J National responsibility targets 6 222K Prime Minister to report to House 6 222L Domestic share of national responsibility targets 6 222M National carbon dioxide equivalent budget 7 222N Minister to regulate trading in international 7 carbon credits 222O Participants not to engage in futures trading of 7 New Zealand units or Kyoto units 222P Participants to supply information verifying claims that price increases due to increased carbon price 7 Part 5B Climate Change Commission 222Q Establishment of Climate Change Commission 8 222R Functions of Commission 8 222S Commission is Crown entity 8 222T Membership of Commission 8 11 Section 224 amended (Gazetting of targets) 9 12 Section225amended(Regulationsrelatingtotargets) 9 13 New section 225A inserted (Review of Act) 9 225A Review of Act 9 14 New Schedule 5 inserted 9 Part 2 Consequential revocation 15 Notice pursuant to section 224 revoked 9 Schedule 10 New Schedule 5 inserted The Parliament of New Zealand enacts as follows: 1 Title This Act is the Climate Change Response (National Emissions Reduction) Amendment Act 2013. 2 Commencement This Act comes into force on the day after the date on which it receives the Royal assent. 2
3 Principal Act This Act amends the Climate Change Response Act 2002 (the principal Act). Part 1 Amendments to principal Act 4 Section 4 amended (Interpretation) In section 4(1), insert in their appropriate alphabetical order: carbon dioxide equivalent budget means the maximum total volume of greenhouse gas emissions (including land, land-use change, and forestry) to be emitted by New Zealand in any time-period specif ed in this Act carbon floor price means (a) the price (which must be greater than $30 per unit), set by Order in Council; or (b) if no price is set by Order in Council under paragraph (a), $30 per unit Commission means the Climate Change Commission established by section 222Q national responsibility target has the meaning given to it in section 222I 5 Section 30G amended (Regulations relating to Part 2) After section 30G(3A), insert: (3B) The Minister must not recommend that regulations be made under subsection (1)(j) or (k) if he or she considers that would be (a) in the contravention of a notice made under section (b) 222N; or depressing the price of carbon credits in New Zealand to below the carbon f oor price. 6 Section 63 amended (Liability to surrender units to cover emissions) After section 63(2), insert: 3
(3) If a participant is liable to surrender units under this Act, at least 2% of the units transferred under section 18C must be units issued to a forest sink under a forest sink covenant. (4) The Governor-General may, by Order in Council made on the recommendation of the Minister, increase the percentage specif ed in subsection (3). (5) In this section, forest sink and forest sink covenant have the same meanings as in section 67X of the Forests Act 1949. (6) Subsection (3) prevails over any provision to the contrary in this Act. 7 Section 63A amended (Modification of liability to surrender units to cover certain emissions) Replace section 63A(2) with: (2) Despite anything in this Act, a person to whom this section applies is only liable to surrender, and may only surrender, the following amounts: (a) from 1 January 2013 to 31 December 2013, 2 units for every 3 tonnes of emission: (b) from 1 January 2014 to 31 December 2014, 4 units for every 5 tonnes of emission: (c) from 1 January 2015 onwards, 1 unit for every tonne of emission. 8 New sections 69A to 69C inserted After section 69, insert: 69A Termination of price cap and introduction of price floor (1) From the day after the date on which this section comes into force, the carbon f oorpriceappliestothetradinginnew Zealand of New Zealand units and Kyoto-compliant units for surrender of carbon and carbon dioxide equivalent emissions. (2) From the day after the date on which this section comes into force, no price cap applies to the trading in New Zealand of New Zealand units and Kyoto-compliant units for surrender of carbon dioxide equivalent emissions. 4
69B Allocation of free units (1) From the day after the date on which this section comes into force, no New Zealand units may be allocated to any participant in respect of the New Zealand emissions trading scheme. (2) Subsection (1) is subject to any transitional arrangements leading to the full auctioning of New Zealand units under section 69C. 69C Auctioning of New Zealand units (1) From 1 January 2013, the EPA must conduct an auction on 2 occasions every year for the purchase of New Zealand units for surrender by participants in respect of the emissions trading scheme. (2) The EPA must conduct the auction under the overall direction of the Minister. (3) In conducting the auction, the EPA must have regard to the quantitative cap on the gross emissions of New Zealand s greenhouse gases in each year within New Zealand s 5-yearly national greenhouse gas emissions budgets, and the 3-year transition period, identif ed in Part 2 of Schedule 5. (4) No New Zealand units for surrender may be purchased in an auctionheldundersubsection (1) for less than the carbon f oor price. (5) This section prevails over any other provision to the contrary in this Act. 9 Section 219 amended (Transitional provision for mandatory reporting by certain participants) (1) Replace section 219(1)(a)(ii) with: (ii) Part 5 of Schedule 3 in the period 1 January 2012 to 31 December 2013: (2) In section 219(1)(a)(iii), replace 2012: with 2012; or. (3) In section 219(1)(a), repeal subparagraph (iv). 10 New Parts 5A and 5B inserted After section 222H, insert: 5
Part 5A National responsibility targets 222I Meaning of national responsibility target In this Part, national responsibility target means the maximum level of greenhouse gas emissions that New Zealand may emit, in respect of any period specif ed in Schedule 5. 222J National responsibility targets The national responsibility targets for annual emissions of greenhouse gases for 2020 and 2050 must be within the ranges set out in Part 1 of Schedule 5. 222K Prime Minister to report to House (1) The Prime Minister must present a report to the House of Representatives on the extent to which the national responsibility target has been achieved (a) in 2021, in regard to the national responsibility target 2020 specif ed in Part 1 of Schedule 5; and (b) in 2051, in regard to the national responsibility target 2050 specif ed in Part 1 of Schedule 5; and (c) in 2016, in regard to the transition period specif ed in Part 2 of Schedule 5; and (d) in the year following the f nal year of each 5-year CP period specif ed in Part 2 of Schedule 5. (2) If the report identif es a shortfall in achieving the target, the report must include an explanation setting out the circumstances and the reasons for the shortfall. (3) The report must be set down for consideration by the House as general business. 222L Domestic share of national responsibility targets (1) To achieve the quantitative reduction in each carbon dioxide equivalent budget for the 3-year transition period and each of the combined 5-year periods CP-1 to CP-6 specif ed in Part 2 of Schedule 5, (a) at least 70% of the total quantitative volume of reductions must consist of reductions in domestic greenhouse gas emissions; and 6
(b) no more than 30% of the total quantitative volume of reductions may consist of offsets through credits from the international carbon market. (2) To achieve the national responsibility target for the combined 5-year period CP-7 specif ed in Part 2 of Schedule 5,100% of the total quantitative volume of reductions must consist of reductions in domestic greenhouse gas emissions. 222M National carbon dioxide equivalent budget (1) The national carbon dioxide equivalent budget for greenhouse gas emissions for the 3-year transitional period and each 5-year period specif ed in Part 2 of Schedule 5 must be within 10% of the budget (either greater or less than) set out in Part2ofSchedule5. (2) The national carbon dioxide equivalent greenhouse gas emissions for the combined 5-year periods from 2016 to 2050 specif ed in Part 2 of Schedule 5 must not exceed the 35-year budget specif ed in Part 2 of Schedule 5. 222N Minister to regulate trading in international carbon credits The Minister must, by notice in the Gazette, prohibit the entry into New Zealand of any international carbon credits that he or she considers may depress the price of carbon credits in New Zealand to below the carbon f oor price. 222O Participants not to engage in futures trading of New Zealand units or Kyoto units No participant may engage in futures trading of New Zealand units or Kyoto units. 222P Participants to supply information verifying claims that price increases due to increased carbon price A participant who increases the price of a product or service and states that the increase is due, directly or indirectly, and in part or fully, to an increase in the price of carbon must 7
(a) (b) provide a report showing how the carbon price has caused the increase in the price of the product or service; and deliver a copy of that report to the Commission. Part 5B Climate Change Commission 222Q Establishment of Climate Change Commission The Climate Change Commission is established. 222R Functions of Commission (1) The Commission must advise the Minister on ways in which the provisions of this Act are being effectively implemented with a view to attaining the national responsibility targets specif ed in Part 1 of Schedule 5. (2) Without limiting subsection (1), the Commission must also (a) (b) (c) examine any report received under section 222P;and decide whether the report conf rms to the Commission s satisfaction that the increased price is due, as stated, to an increase in the price of carbon; and publish the report, and the Commission s conclusions on whether the report is accurate, on the Commission s Internet site, or any other publicly available Internet site that the Commission considers appropriate. 222S Commission is Crown entity (1) The Commission is a Crown entity for the purposes of section 7 of the Crown Entities Act 2004. (2) The Crown Entities Act 2004 applies to the Commission except to the extent that this Act expressly provides otherwise. 222T Membership of Commission (1) The Commission consists of 3 members, appointed by the Governor-General, on advice from the Minister. (2) The Minister must, before advising on the appointment of a member, consider whether he or she has suitable experience and expertise. 8
11 Section 224 amended (Gazetting of targets) After section 224(5), insert: (6) This section is subject to sections 222J and 222M. 12 Section 225 amended (Regulations relating to targets) After section 225(4), insert: (5) This section is subject to sections 222J and 222M. 13 New section 225A inserted (Review of Act) After section 225, insert: 225A Review of Act (1) The chief executive must, every 3 years or at least once in each session of Parliament, (a) (b) review the operation of this Act; and prepare for the Minister a report of the review that includes recommendations on whether any amendments to this Act are necessary or desirable to implement the purpose of the Act. (2) In preparing the report, the chief executive must include consideration of the data in the Schedules. (3) As soon as practicable after receiving the report, the Minister must present a copy of it to the House of Representatives. 14 New Schedule 5 inserted After Schedule 4, insert the Schedule 5 set out in the Schedule of this Act. Part 2 Consequential revocation 15 Notice pursuant to section 224 revoked Revoke the Climate Change Response (2050 Emissions Target) Notice 2011, Gazette notice 2067, 31 March 2011, page 987. 9
Climate Change Response (National Schedule s14 New Schedule 5 inserted Schedule 5 ss 69C, 222I 222M, 222R National targets Part 1 National responsibility targets for New Zealand emissions in 2020 and 2050 (Mt CO 2 e) Baseline 1990 Current 2010 National responsibility target 2020 National responsibility target 2050 Target (25% to 40% off 1990 excl LULUCF) Reduction off 2010 level incl LULUCF Target (80% to 95% off 1990 excl LULUCF) Reduction off 2010 level incl LULUCF Excl LULUCF 61.9 71.6 Incl LULUCF 51.6 37.1 46.4 3.1 12.4 Reduction required 5.2 14.4 39.2 48.5 10
Part 2 National budgets for New Zealand greenhouse gas emissions, 2013 to 2050 1 (Mt CO 2 e) GHGs Reference years Trans ition CP-1 CP-2 CP-3 CP-4 CP-5 CP-6 CP-7 Total budget 1990 2010 2008 12 2013 15 2016 20 2021 25 2026 30 2031 35 2036 40 2041 45 2046 50 2016 50 CO 2 CH 4 N 2 O HFC 1 The basis of calculation is the UN-IPCC prescription for emission reductions in 2020 and 2050 by Kyoto Protocol Annex I parties (25% to 40% for 2020 and 80% to 95% for 2050). The New Zealand commitment is taken as a mid-point within those ranges (33% for 2020 and 88% for 2050). These equate to 42 Mt for 2020 and 7 Mt for 2050. Subsequent budgets ref ect a straight-line reduction of an annual amount of 1.125 Mt per year, from 2010 (52 Mt) to 2050 (7 Mt), rounding to be calculated in the f fth year of each budget period. 11
Climate Change Response (National Part 2 continued GHGs Reference years PFC SF 6 Total CO 2 e 62 52 310 135 161 159 134 108 83 57 32 763 12