Submission made on the Emissions Trading Scheme (ETS) review

In February, Horticulture New Zealand, TomatoesNZ, and Vegetables NZ made a joint submission on the New Zealand Emissions Trading Scheme Review 2015/16.

The Ministry for the Environment (MfE) announced the review in the lead-up to the 2015 United Nations Climate Change Conference in Paris, in December last year.

That conference established a new international climate change agreement, the “Paris Agreement”, which will apply after 2020. The New Zealand government had already announced in July that it was strengthening its target, to reduce greenhouse gas emissions to 30 per cent below 2005 levels by 2030.

The MfE 2015/16 review discussion document admitted that; “New Zealand’s new 2030 target is more ambitious than previous obligations. There will be costs achieving it, and as far as possible, these costs should fall on those responsible for the emissions rather than the general taxpayer. A key role of the NZ ETS is to transfer these costs to emitters.”*.

This round of submissions commented on the government’s “priority issues:

1. Moving to full surrender obligations
2. Managing the costs of moving to full surrender obligations.

All fruit and vegetable growers pay some “carbon cost” through the imposition of tradable “New Zealand Units” (NZU’s), on transport fuels, stationary energy and industrial processes, which add to the costs of producing, packaging, and transporting produce.

However, covered crops face the greatest carbon costs of the sector, when they pay for greenhouse heating via fuels including coal and natural gas. For the greenhouse vegetable industry including fresh tomatoes, capsicums and cucumbers, energy is the second highest single input cost in greenhouse expenses following closely behind wages. In climate controlled greenhouses (excluding those houses that either do not heat or only have frost control) energy costs are around 20% of expenses, or between 15% to 18% of revenue, making them highly vulnerable to rising energy costs and additional energy related taxes. Because the vast majority of fruit and vegetable growers sell in a global commodity market, additional costs due to the ETS cannot be passed on to the consumers of the produce, instead incurring a direct net loss to the business. In most cases there is no commercially viable alternative fuel source available to reduce emissions and ETS obligations.

Moving to full surrender obligations

A ”one for two” surrender obligation (one emission unit required to be surrendered per two tonnes of emissions) was introduced in 2010 as part of a “transitional phase” to moderate the impact of the NZ ETS during the worldwide economic downturn. This was designed to halve the carbon cost impact.

As New Zealand currently has a closed carbon market, moving to “full surrender” would increase the cost of carbon in a way that bore no relation to the carbon prices of our key trading partners, at the expense of our horticultural producers and export competitiveness.
HortNZ, TNZ and VNZ Inc. position is that removing the transition measures while there is still a lack of international action would place an unreasonable burden on growers who are unable to pass on or reduce the costs, and the measures should be retained until there is more evidence of international alignment.

Managing the costs of moving to full surrender obligations

One way that the costs of the ETS on covered crops producers has been mitigated by the government, is through “free allocations” of NZU’s under the Emissions Intensive Trade Exposed (EITE) scheme. All fresh tomato, capsicum and cucumber growers can apply for the allocation, and in 2014 fifty growers did so (down from 83 in 2011 when covered crops were first included). The scheme is supposed to compensate growers for most, but not all of their expected ETS costs. Fresh tomato growers can apply for 73 units per 100 tonnes per year, fresh capsicums 106 units and cucumbers 99 units.

The “free allocation” was extended indefinitely as part of the 2009 “transitional phase”. The Government has said that it supports keeping the free allocation regime in place until at least 2020, to retain those businesses’ international competitiveness while carbon pricing is still not widely applied internationally.

Growers who have taken part in this scheme have told me that it can be a bit of an administrative headache. Many are ”banking” their NZU’s, and have not attempted to trade them, especially given the low current price.

There is also some frustration among growers that the “free allocation” is based not on actual carbon costs to a business but on production.
MfE are asking for feedback on the “free allocations” scheme and other ETS issues in April, and we will be making a submission.
I would be interested to hear about your experiences with the scheme and thoughts on the above issues. Please get in touch with me at helen.barnes@hortnz.co.nz or 04 470 5666.

To download the review discussion document, go to the Ministry for the Environment website, www.mfe.govt.nz and look at their list of “publications” on the topic “climate change”.

Download our submission

*Source: Ministry for the Environment. 2015. New Zealand Emissions Trading Scheme Review 2015/16: Discussion document and call for written submissions. Wellington: Ministry for the Environment.

Still time to get your submissions in

There is still time to get your submissions in for the following:

FSANZ Irradiated food labelling review – closes 29th March
Application to the EPA to import Tamarixia – a new biocontrol agent for Psyllid – closes 24 March