New Zealand Plans to Limit Emissions Credits It Will Recognize

By Gavin Evans

Aug. 28 (Bloomberg) -- New Zealand's government plans to limit the international carbon credits it will recognize in order to get support for laws introducing mandatory emissions trading, a move that may drive up costs for the nation's industries.

The New Zealand First and Green parties this week agreed to support the ruling Labour Party's proposal in return for amendments to the plan announced in June. Among changes was a requirement that any assigned amount units brought into the system from Europe must show registered environmental benefits.

``If that's the case, then it's a really bad development,'' said Catherine Beard, executive director of the Greenhouse Policy Coalition, a lobby group for major industry. ``If only greened AAU's are allowed, you're basically putting yourself in the NZ$40 ($28) to NZ$50 price range'' for abatement costs, she said.

New Zealand's plan to apply pollution caps to all industry and agriculture by 2013 is the broadest of any emission trading program to date. Critics say the plan doesn't provide sufficient protection for exporters and assumes carbon credits will be available at costs far lower than current prices.

Policy makers assumed industry will be able to reduce emissions or buy credits from other emitters or environmental projects at an effective carbon price of NZ$15 to NZ$25 a ton. The plan doesn't cap prices, and in June, lawmakers opted not to restrict access to assigned amount units in order to keep compliance costs as low as possible.

European Emission units for 2010 rose to 27.27 euros ($40) a ton yesterday. March 2010 Certified Emission Reduction units, another Kyoto-compliant security, rose to 21.85 euros yesterday.

Surplus Credits

Assigned amount units were issued to countries based on their emission reduction targets set under the 1997 Kyoto climate change accord.

Many eastern European states have surplus AAU's after the collapse of the Soviet Union shut heavy industry, artificially slashing emissions. Russia and Latvia have previously said they will only sell units providing genuine environmental benefits.

As much as a quarter of the 7.3 billion tons of surplus assigned amount units may come to market through 2012, the World Bank said in a May report.

Among other changes agreed to the New Zealand plan, 150,000 units a year will be reserved for companies in trade-exposed industry wanting to introduce new technologies to reduce emissions.

Those credits account for about 1 percent of a proposed pool of units, set at 90 percent of the nation's 2005 emissions, the government will allocate to protect trade-exposed industries. The new innovation pool won't be available for companies receiving other free allocations, a spokeswoman for Energy Minister David Parker said today.

Separately, the government agreed to establish a NZ$1 billion fund to insulate the nation's homes over 15 years starting in 2009, and will also make a one-off payment to all households in 2010 toward the increased cost of fuel and electricity.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net