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It is has become increasingly apparent that many firms just have no idea if the New Zealand Emissions Trading Scheme (NZ ETS) applies to them or not, writes Bryan Gundersen. Unless a firm is a major emitter with an impressive team of in-house lawyers, potential obligations or concessions under the ETS generally remain a mystery. This may be the result of endless political flip-flopping and amendments to the scheme, and one sector which helpfully highlights this confusion and uncertainty is the fisheries industry. This article will look at the uncertainty faced by this industry and will attempt to shed some light on how members may be able to benefit.
Uncertainty reignsOne thing that is certain is that many (if not most) smaller firms and entities do not understand their position under the Climate Change Response Act 2002 (the ‘Act’) which implements the NZ ETS. A recent survey carried out by the Employers and Manufacturers Association found that 90 percent of businesses had no idea whether or not they were eligible for free allocation of New Zealand Units (NZUs) to offset the costs or risks associated with the NZ ETS. For example, some companies do not know if they meet the ‘trade exposed’ threshold under the Act, or if so, if they are trade exposed enough. Others are confused about whether or not firms who are eligible under the now-scrapped Australian Carbon Pollution Reduction Scheme are still eligible under the ETS or indeed whether or not they even carry out an ‘activity’ under the scheme. Then there are the people who may not be trade exposed or emissions intensive, and are not even legal ‘participants’ under the ETS – yet have been told to expect NZUs. The fisheries industry sits in this rather confusing category.
Fisheries and emissions tradingThe decision to make NZUs available to members of the fisheries industry was largely a result of Government negotiations with the Maori Party (whose support the Government needed to pass the legislation which modified the NZ ETS). As Maori are key industry players (and large holders of quota), the Maori Party were concerned that iwi quota holders would be disproportionately disadvantaged by the estimated three percent increase in the cost of fuel. It was (and still is) expected that this increase in fuel price (expected in July 2010 when transport fuels enter the scheme) will have a correspondingly negative effect on the commercial value of fishing quotas. Therefore, although quota owners are not ‘participants’ under the ETS (i.e. they are not required to account for their greenhouse gas emissions), it was decided that they would be given a one-off allocation of NZUs free of charge. The amount of NZUs each quota holder receives would depend on the amount of quota (expressed in quota weight equivalent) each person held on 24 September 2009. However, the majority of members of this sector are still unsure if they qualify for free NZUs or not. Firstly, who receives the NZUs – registered fishing boat owners, or quota owners? Originally, the Government indicated that NZUs would go to fishing boat owners/operators as it would be these people who would bear the short-term costs of the scheme (increase in fuel prices) and because it is operators who would be able to change their behaviour leading to reductions in greenhouse gas emissions within the sector. However, the Government eventually settled on allocating NZUs to quota owners (and more specifically, those who owned quota on 24 September 2009). This is a reflection of the negotiations that took place between the Government and the Maori Party. One result of this is that in some cases, the people receiving the NZUs will not be the same people facing the upfront costs of increased fuel prices which will be the boat operators. Secondly, how much allocation do quota holders receive? The Act provides that 700,000 NZUs will be available for allocation to the fishing industry – which is 90 percent of the industry’s 2005 greenhouse gas emissions. How this number of NZUs will be allocated between quota holders is currently set out in section 74 of the Act, and allocation will be made via the Draft Climate Change (Fishing Allocation Plan) Order 2010 which was set to become law on 15 June 2010. The formula for allocation is the number of NZUs available multiplied by the Quota Weight Equivalent (QWE) of quota shares for each quota stock (species) divided by the sum of the Total Allowable Commercial Catch (TACC) of each quota stock. The QWE of quota shares for each species can be determined by dividing the TACC for that species at 24 September 2009 by 100,000,000 (i.e. TACC/100,000,000 = QWE). Therefore, each eligible person’s allocation entitlement is 700,000 multiplied by the QWE divided by the TACC (i.e. 700,000 x QWE/TACC = entitlement to NZUs).
The Ministry of Fisheries will provide the TACC for each species, and any other required information, to quota holders free of charge. Thirdly, if quota holders wish to apply for free NZUs, how do they go about it? This is probably the most straight forward aspect of emissions trading for quota holders. Basically, applying for NZUs requires the following three steps be taken – register as a user of the New Zealand Emission Unit Register (at www.nzeur.govt.nz), apply online to open a unit holding account within the Register, and finally sign and submit the declaration form which is mailed to applicants once the online application is submitted. Once this process is completed, the quota holder will then becomes an ‘account holder’ on the Register whereby they can receive NZUs as well as sell them. Currently, the Ministry of Fisheries expects that the Minister in charge of the NZ ETS (currently the Ministry for the Environment) will make preliminary determinations regarding whether or not particular quota holders are eligible for an allocation of NZUs (and give quota holders an opportunity to provide further information) in July 2010, with final determinations expected about August. It is expected that NZUs will be transferred into holders’ accounts in September. All applications for NZUs need to be completed by July of this year.
Will free allocation assist the fisheries sector?It is intended that quota holders who receive free NZUs will be able to sell their units to participants of the NZ ETS (i.e. to industrial companies and to transport fuel companies who are required to offset their emissions) either directly or through a broker. NZUs currently trade around the $20 mark but may increase to around $25 until the end of 2012. Therefore, depending on the number of NZUs a quota holder has, they may be able to make enough revenue from NZU sales to compensate them for the increase in the cost of fuel or loss in value of their quota. However, according to government papers, a significant proportion of quota owners are likely to only receive one NZU – meaning it would not be worthwhile selling the NZU once brokerage and other costs are taken into account. Further, fishing boat operators who are not quota holders will not benefit under the scheme as they will face higher fuel costs but will not be awarded any NZUs as compensation. Therefore, allocation of free NZUs will only be of benefit to quota holders who own a large quota – and they may very well find the revenue from NZU sales very helpful. In such cases, these people would be well advised to open an account on the Registry and apply for their entitlement as soon as possible.
Energy NZ Vol.4 No.4 July-August 2010 |