How to create an Emissions Trading Scheme
1 Decide which greenhouse gases to take into account The ‘Greenhouse effect’ drives climate change when some of the infrared radiation radiating from the planet is absorbed by ‘greenhouse gases’ and emitted back into the Earth’s atmosphere instead of passing back out into space. The key ‘greenhouse gases’ are Carbon Dioxide (CO2) and Methane (CH4). CO2 is the most commonly generated by industrial processes and has the greatest overall contribution to the greenhouse effect, while methane is the major emission from the agricultural sector, and has a much more powerful effect on climate change tonne for tonne. Other gases also taken into account are hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6) 2 Identify the business sectors that are the major emitters in the economy In New Zealand this means agriculture (47%), energy – which includes transport (43.4%), industrial processes (6.7%) and waste (2.8%) as of the latest figures in 2010. 3 Choose the sectors in which to make reporting emissions compulsory In New Zealand the agricultural sector, energy sector and industries engaged in the production of iron, steel, aluminium, clinker, glass and large amounts of gold must now report their greenhouse gas emissions. 4 Choose which sectors in which to make emissions trading compulsory Currently this covers the energy sector, and some of the industrial sector. The agricultural sector had been due to begin trading in 2015, but that has now been postponed indefinitely. New Zealand’s emissions trading currency, the New Zealand Unit or NZU is created and distributed by the Government. Emitting businesses within the scheme can buy units direct from the government at a fixed price of $25 a tonne, or buy them from businesses that receive units for ‘approved emissions removal activities’ including forestry, as well as some tomato, cucumber, capsicum and rose growers. Also, some internationally recognised units can be used instead of NZUs. Currently most of the firms targeted hand over one credit or emission unit to the government for every two tonnes of emissions. The situation in New Zealand is further complicated by the free allocation of NZUs to industries considered by the government to be “emissions intensive” and “trade exposed”. In other words, those where the government believes the cost of complying would make the businesses unacceptably uncompetitive in overseas markets. There are currently at least 26 of these, which receive free allocations of either 60% or 90%. They include, controversially, many of the major emitters in the country. This means that so far they have only had to pay for either 40% or 10% of their greenhouse gas emissions. The group paying only 10% at the moment, for example, includes aluminium smelting, iron and steel from iron sand, burnt lime and urea production, and cement production.
CO2 ABSORBED Government gives NZUs to greenhouse gas absorbers
CO2 EMITTED Emitters surrender credits