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The New Zealand Emissions Trading Scheme – information for householders

How you can lower your energy costs and reduce greenhouse gas emissions.

“The ETS gives incentives to plant trees, replace thermal with renewable energy and invest in energy efficiency so we can do our share to cut emissions.”

Hon Dr Nick Smith – Minister for Climate Change Issues

What is the problem?

The burning of fossil fuels and clearing of forests is changing the chemical composition of the atmosphere. CO₂ levels are 35 per cent higher than they were before industrialisation. If the current rate of increase continues, we could see a doubling by 2050. Other gases like methane and nitrous oxide from agriculture are also increasing in concentration.

Source: UK Department of Energy and Climate Change

Scientists’ concern is that these greenhouse gases will raise global temperatures, increase sea levels and lead to more extreme weather events. The risk to future generations justifies action now to curb our growth in emissions.

Why should New Zealand curb its emissions?

Eighty per cent of the increased concentration in these gases has come from 20 per cent of the world’s population in developed countries like New Zealand. Our emissions are small globally (0.2 per cent) but are the 12th highest per capita at 18 tonnes of CO₂ equivalent.

The Kyoto Protocol is a United Nations agreement aimed at reducing global emissions. It requires that the 38 developed countries like us take the first steps to reduce our emissions for the period 2008 to 2012. While most countries have to cut emissions, our target requires us to stabilise our emissions at 1990 levels. New Zealand’s emissions today are 23 per cent above our 1990 levels, mainly due to growth in transport and electricity emissions. This is one of the highest increases in the developed world.

Why is acting now in New Zealand’s interests?

New Zealand brands itself as clean and green. We put this reputation and our market access at risk if we do not do our share. The world is on a path to reduce emissions and at some point we are going to have to adapt. The sooner we start, the easier the transition.

Why an ETS?

The ETS encourages the planting of trees, building renewable rather than thermal power stations, and investing in energy efficient technology. It is the smartest way to curb emissions with the least cost to the economy.

How does an ETS work?

The scheme requires businesses who emit (like fuel and power companies) to buy units from businesses which have cut emissions or can store carbon (like foresters). The cost is passed on to consumers who buy the fuel or electricity.

Forestry has been in the scheme since 2008. Transport, electricity and industry come into the scheme on 1 July 2010. Amendments were made to the scheme last year to reduce the costs to businesses and consumers by requiring that emitters only have to pay for half their emissions from 1 July 2010 to 31 December 2012.

How much will the ETS cost?

The ETS will add 3.1 cents per litre to the cost of petrol, 3.3 cents per litre to diesel and 1 cent per kWh or 5 per cent to the cost of electricity. This equates to $165 per year or $3.17 per week for the average household. Superannuation and benefits are inflation indexed which will include the impact of ETS on prices.

Who gets the money?

Foresters who have planted trees since 1990. This is fair because New Zealand would face a large Kyoto bill for our 23 per cent increase in emissions that is being offset by growing these trees. Some businesses which have invested in renewable technology and energy efficiency to reduce emissions will also benefit.

Does the Government make money from the ETS?

No. For the Kyoto period to 2012, the Government will receive $955 million from business emitting, but pay out $1775 million, mainly to foresters, leaving an $820 million shortfall for the taxpayer.

Will the ETS reduce emissions?

Yes. It will reduce emissions by an estimated 19 million tonnes by 2012 and, with forest plantings, will enable New Zealand to meet its Kyoto target. Without the ETS New Zealand may exceed its Kyoto target by 11 million tonnes.

Are there signs the ETS is working?

Yes. Planted forest area switched from a loss to a gain in 2009.

Source: Ministry of Agriculture and Forestry and Ministry for the Environment

Investment in renewable power is increasing.

Source: Ministry of Economic Development and Electricity Commission

Investment in forestry and electricity is long term. Businesses need certainty to make that investment and the ETS will provide this.

Is New Zealand’s ETS leading the world?

No. Twenty-nine developed countries have introduced an ETS before us. Most started in 2005 and their schemes cover more of their emissions than New Zealand’s will in 2010. The only area in which New Zealand is seeking to lead the world is in its work with the Global Research Alliance on agricultural greenhouse gases.

New Zealand launched this initiative and committed NZ$45 million to it. We gained the support of the United States (US$90 million over five years) and Canada (CAD$27 million over four years). Many more countries have now joined and more are likely to do so.

Are changes to the ETS planned in future?

The legislation requires a review in 2011 and regularly thereafter, to enable the scheme to be refined in response to progress internationally, and the latest science. The Government has said that moving from a half to full obligation and adding additional sectors like agriculture is conditional on our major trading partners making progress.

Home is where the heat is

Case study

“Solar is not just for alternative lifestylers or high-end homes; it’s now mainstream and many people are asking for it.”

Nelson builder Lou Perkins installed solar water heating in his home for environmental reasons but that’s when he really became aware of the benefits to his pocket.

“With two teenagers at home, we really notice the savings. In summer, hot water bills are virtually zero but there are excellent savings in other seasons too. Even in winter, we are saving 10 to 30 per cent.”

Now solar water heating systems are a selling point for the houses Lou builds. He says solar is not just for alternative lifestylers or high-end homes; it’s now mainstream and many people are asking for it.

“I’m building energy-efficient houses for first home buyers. In Nelson we’re lucky enough to have a council scheme that allows home owners to get the benefits of solar straight away by paying it off on their rates without having to put the extra $5000 on their mortgage.”

Lou’s enthusiasm for energy efficiency is reflected in all aspects of his own home. “It’s fully insulated in the floors, walls and ceiling, and is double glazed. I also built it facing north to get the full benefit of the sun.”

Not everyone can start from scratch when planning an energy-efficient home but there are several ways of making improvements to what you already have. Your local council may have information or schemes in your area. The Government can also help – go to www.energywise.govt.nz

Find out how to measure your household’s emissions at www.carbonzero.co.nz or www.carbon4good.org.nz

How can I save money?

There are a number of easy ways to reduce costs and emissions. These can more than offset the expected fuel and electricity price rises. For most people the key actions are reducing electricity and transport use, for example:

Improving home insulation makes your house easier to heat and can save around $400 a year. A government grant of up to $1800 is available to assist you. www.energywise.govt.nz
Heating water is a significant household cost.
Solar water heating can save around $400 a year. A government grant may be available to help. www.energywise.govt.nz
Driving smoothly, keeping your car well-tuned and tyres pumped to the right level can save $400 off the average household fuel bill.
Choosing a fuel-efficient vehicle can save up to $500 per year. Find out how to cut your fuel consumption at www.fuelsaver.govt.nz
Switch off lights and appliances when not in use and choose energy-efficient lights. Switching the four most commonly used lights in your house to CFLs could save you $85 a year. www.energywise.govt.nz
Choose Energy Star appliances and use cold rather than warm water for laundry, and a clothes line instead of a dryer. www.eeca.govt.nz
Use public transport or walk or bike where possible.

For more information go to www.climatechange.govt.nz/ets