Climate Change Response (Moderated Emissions Trading) Amendment Bill

38 New sections 160 to 161C substituted

• Sections 160 and 161 are repealed and the following sections are substituted:

  “160 Reviews of operation of emissions trading scheme

  • “(1) The Minister responsible for the administration of this Act must initiate a review of the operation and effectiveness of the emissions trading scheme established by this Act in each of the following periods:

    • “(a) the first commitment period and each subsequent commitment period (if any); and

    • “(b) if there is no subsequent commitment period,—

      • “(i) the 5-year period commencing on 1 January 2013; and

      • “(ii) each subsequent 5-year period after the period specified in subparagraph (i).

    “(2) Each review initiated under subsection (1) must be completed no later than 12 months before the end of the period in which the review is initiated.

    “(3) Despite anything in subsections (1) and (2),—

    • “(a) the Minister responsible for the administration of this Act must ensure that a review of the matters listed in subsection (5)(j) is initiated and completed at least once in each of the following periods:

      • “(i) the 5-year period commencing on 1 January 2011; and

      • “(ii) each subsequent 5-year period after the period specified in subparagraph (i); and

    • “(b) subsections (4) to (9) and section 161A apply to each review (an allocation review) with all necessary modifications as if the allocation review had been initiated under subsection (1); and

    • “(c) each allocation review may—

      • “(i) consider any other matter, including (but not limited to) the matters listed in subsection (5); and

      • “(ii) if the allocation review considers all the matters listed in subsection (5), satisfy the Minister responsible for the administration of the Act’s obligation under subsection (1) to initiate a review in the period in which the allocation review was completed.

    “(4) For the avoidance of doubt, if the reviews initiated under subsection (1) result in the matters listed in subsection (5)(j) being reviewed at least once in each of the periods listed in subsection (3)(a), then the Minister responsible for the administration of this Act is not obliged under subsection (3) to ensure any further review of those matters is initiated.

    “(5) Without limiting the scope of the review, a review under subsection (1) must consider—

    • “(a) whether an amendment to this Act in relation to the emissions trading scheme is necessary or desirable; and

    • “(b) whether New Zealand has undertaken, or is expected to undertake, any international obligations with respect to its emissions and removals that are different from or additional to any international obligations that New Zealand had undertaken when this section came into force, or since the last review under this section; and

    • “(c) the stringency of any of the international obligations specified in paragraph (b); and

    • “(d) the contribution of the emissions trading scheme established under this Act towards any targets that are in effect in accordance with section 224 or 225 at the time the review is initiated; and

    • “(e) the types of Kyoto units and overseas units that may be surrendered for compliance with the emissions trading scheme established by this Act; and

    • “(f) the operation of the commitment period reserve (if any); and

    • “(g) the potential for linkage of the emissions trading scheme established under this Act to other greenhouse gas emissions trading schemes, including (but not limited to) Australia's carbon pollution reduction scheme; and

    • “(h) the appropriateness of any methodologies that are prescribed for calculating emissions and removals; and

    • “(i) whether it is necessary or desirable to—

      • “(i) omit any of the activities from Schedule 3 or 4; and

      • “(ii) add any additional removal activities to Part 2 of Schedule 4; and

      • “(iii) amend the level of participant opt-in thresholds in Schedule 4; and

    • “(j) what changes to the following aspects of allocation (as applicable) to industry and agriculture under section 82 or 86 are necessary or desirable:

      • “(i) the phase-out rate:

      • “(ii) the level of assistance prescribed for eligible activities:

      • “(iii) the emissions intensity thresholds:

      • “(iv) the determination of trade-exposed activities:

      • “(v) the determination of eligible industrial activities; and

    • “(k) the appropriateness of the penalties in subpart 4 of this Part; and

    • “(l) the implications (if any) of the following matters for the notification of intention under section 70:

      • “(i) New Zealand's annual emissions for the 5 years before notification; and

      • “(ii) the average price of units for the 2 years before notification; and

    • “(m) the impacts of the forestry sector elements of the emissions trading scheme established under this Act on biodiversity within New Zealand; and

    • “(n) the costs and benefits of establishing an independent or quasi-independent government body to carry out the allocation process, or part of the allocation process, contained in subpart 2 of Part 4 of this Act; and

    • “(o) the social, economic, and environmental effects of the emissions trading scheme established by this Act (other than those considered under paragraphs (a) to (l)); and

    • “(p) any other matter that the Minister responsible for the administration of this Act considers relevant.

    “(6) The Minister responsible for the administration of this Act must appoint a panel to conduct any review under subsection (1) and report in accordance with terms of reference set by the Minister and the matters set out in this section.

    “(7) Following the completion of each review under subsection (1), the Minister responsible for the administration of this Act must—

    • “(a) publish the report of the panel on the review; and

    • “(b) present a copy of the report to the House of Representatives.

    “(8) If the review recommends any legislative change in relation to allocation to industry or agriculture that involves amending any Act or making or amending regulations under section 161A, the Minister must—

    • “(a) prepare a report that contains a response to the panel's recommendations for legislative change; and

    • “(b) present a copy of his or her report to the House of Representatives.

    “(9) The Minister responsible for the administration of this Act may initiate reviews of the operation and effectiveness of the emissions trading scheme established by this Act at any time and may use any method of review (including, but not limited to, the method specified in this section).

  “161 Appointment and conduct of review panel

  • “(1) When appointing members to a review panel under section 160, the Minister responsible for the administration of the Act must—

    • “(a) ensure that there are a minimum of 3 and a maximum of 7 members; and

    • “(b) ensure that the majority of members are not employees under the State Sector Act 1988; and

    • “(c) consider whether the members have, in the Minister's opinion, the appropriate knowledge, skill, and experience to conduct the review, including knowledge, skill, and experience of—

      • “(i) this Act; and

      • “(ii) New Zealand's international obligations under the Protocol and the Convention and any other relevant international agreement; and

      • “(iii) the operation of the emissions trading scheme established under this Act, including its environmental, social, and economic effects; and

    • “(d) appoint 1 member as the chairperson of the panel.

    “(2) The Minister must, by written notice to the panel, specify the terms of reference for the review to be conducted by the panel.

    “(3) A review panel must complete a draft report on the review and provide the report to the Minister responsible for the administration of this Act at least 1 month prior to completion of the final report.

    “(4) The review panel must—

    • “(a) allow the Minister at least 10 working days within which to respond to and comment on the contents of the draft report; and

    • “(b) after considering the Minister's response and comments (if any), prepare a final report and provide it to the Minister within the time allowed by subsection (3).

    “(5) In conducting a review, the panel—

    • “(a) must establish a procedure that is appropriate, fair in the circumstances, and in accordance with the terms of reference for the review; and

    • “(b) may call for submissions.

  “161A Regulation-making powers in relation to allocation of New Zealand units

  • “(1) The Governor-General may, by Order in Council made on the recommendation of the Minister, make regulations for 1 or more of the following purposes:

    • “(a) prescribing, for the purposes of subpart 2, the activities that are eligible industrial activities:

    • “(b) prescribing in respect of each eligible industrial activity or eligible agricultural activity, as appropriate,—

      • “(i) the allocative baseline; and

      • “(ii) the input and outputs, and biological, physical, or chemical transformation taking place; and

      • “(iii) whether the activity is, for the purposes of subpart 2, to be treated as—

        • “(A) highly emissions-intensive; or

        • “(B) moderately emissions-intensive; and

      • “(iv) the unit (or units) of production for the purposes of the variable OSY in the allocation formula in sections 82, 84, 85A, or 86; and

      • “(v) the methodology or methodologies for calculating the volume of a unit (or units) of production for the purposes of section 82, 84, 85A, or 86.

    “(2) Before recommending the making of a regulation under subsection (1)(b) that prescribes the allocative baseline for an eligible industrial activity (but not before recommending the making of any other regulation under this section), the Minister must have regard to the following paragraphs (a) and (b) or paragraph (c) or paragraphs (c) and (d):

    • “(a) the average emissions from the direct use of natural gas, geothermal fluid, used or waste oil, coal, and (if relevant) any emissions for which the person carrying out the activity is liable under Part 4 of Schedule 3, per unit of production across all entities conducting the eligible industrial activity in New Zealand, for which data has been provided, during the 2006/07, 2007/08, and 2008/09 financial years:

    • “(b) the average electricity use per unit of production across all entities conducting the specified activity in the 2006/07, 2007/08, and 2008/09 financial years, and an electricity allocation factor set to represent the cost increases from the use of electricity (with enough flexibility to enable protection from pass through of costs provided by large electricity contracts to be considered):

    • “(c) evidence of the equivalent emissions and electricity use per unit of production from Australia (also with flexibility to take into account large electricity contracts in New Zealand and the difference in electricity generation mixes in Australia and New Zealand):

    • “(d) evidence about liquid fossil fuel use per unit of production from Australia, if the eligible industrial activity has been prescribed in reliance on subsection (6).

    “(3) Subject to subsection (6), the Minister may not recommend that a regulation be made under subsection (1)(a) prescribing an activity as an eligible industrial activity unless the Minister is satisfied that the activity—

    • “(a) is moderately emissions-intensive or highly emissions-intensive; and

    • “(b) is trade-exposed.

    “(4) For the purposes of this section, an eligible industrial activity—

    • “(a) is moderately emissions-intensive if the weighted average emissions-intensity from those carrying out the activity in the years for which data has been provided under section 161B were equal to or greater than 800 whole tonnes of emissions per $1 million of revenue from the activity, but less than 1600 whole tonnes of emissions per $1 million of revenue:

    • “(b) is highly emissions-intensive if the weighted average emissions-intensity from those carrying out the activity in the years for which data has been provided under section 161B were equal to or greater than 1600 whole tonnes of emissions per $1 million of revenue from the activity:

    • “(c) is, subject to subsection (6), trade-exposed unless, at the time the Minister considers the eligibility of the relevant activity, in the Minister's opinion—

      • “(i) there was no international trade of the output of the activity across oceans; or

      • “(ii) it was not economically viable to export or import the output of the activity.

    “(5) Despite anything in this section, the generation of electricity is not to be treated as trade-exposed.

    “(6) The Minister may recommend that regulations be made under subsection (1)(a) and (b)(iii) prescribing an activity as an eligible activity that is moderately emissions-intensive or highly emissions-intensive if emissions from the activity would enable, or is likely to enable, those carrying out the same activity in the Commonwealth of Australia to receive a free allocation of units in that jurisdiction.

    “(7) In determining whether to recommend that an activity be prescribed as an eligible industrial activity, the Minister must have regard to the following:

    • “(a) principle 1: each eligible industrial activity should be an activity by which a chemical or physical transformation of inputs produces a given set of outputs:

    • “(b) principle 2: activities should not be defined by reference to the technology employed, the fuel used, the age of the plant, or the quality and types of feedstock used:

    • “(c) principle 3: despite principle 2, activities may be defined by reference to their emissions or electricity use, provided that those references are integral and essential to the defined physical and chemical transformation that transforms the inputs into outputs:

    • “(d) principle 4: that definition of activities should—

      • “(i) be consistent and equitable across industries; and

      • “(ii) take into consideration the impact that the definition may have on business investment, location, and the structure of activities; and

      • “(iii) take into consideration the potential for intermediate inputs produced within the activity to be substituted for bought-in inputs:

    • “(e) principle 5: there should be no overlap between different activity definitions:

    • “(f) principle 6: definitions of activities should reflect activity definitions in the Commonwealth of Australia unless the relevant New Zealand activity's inputs, outputs, physical or chemical transformation is materially different:

    • “(g) any other matters that the Minister considers relevant.

    “(8) To avoid doubt, the Minister may, in determining whether an activity meets a threshold in subsections (4)(a) and (b), take into account the emissions intensity from electricity use used for the purposes of determining the eligibility of the activity for an allocation of units in the Commonwealth of Australia.

    “(9) A regulation that amends the regulations made under subsection (1) and has the effect of removing or substantially redefining an eligible activity comes into force on the day 5 years after the date of their notification in the Gazette or any later date that may be set by the regulations.

  “161B Power to require information for allocation to industry

  • “(1) For the purposes of determining matters relating to the recommendation of regulations under section 161A in relation to an eligible industrial activity, including whether an activity satisfies the tests in section 161A(4) and is an eligible industrial activity, and for the purpose of considering its allocative baseline, and to inform the review under section 160, the Minister may, by notice in the Gazette, require any person carrying out any activity specified in the notice at the date of the notice to provide any or all of the following information to the Minister:

    • “(a) financial statements for the financial years 2006/07, 2007/08 and 2008/09 that show the total revenue of the person from carrying out the activity:

    • “(b) the emissions from the activity carried out by the person in the financial years 2006/07, 2007/08, and 2008/09:

    • “(c) any other information that in the Minister’s opinion would assist in deciding whether or not to recommend that the activity be prescribed as an eligible industrial activity or deciding what allocative baseline to recommend for an activity for the purposes of this subpart.

    “(2) A Gazette notice under subsection (1) including any information necessary to inform the decision under section 161A(3)—

    • “(a) must state the date by which the information specified in the notice must be provided to the Minister, which date must not be less than 30 working days from the date of the notice; and

    • “(b) must specify—

      • “(i) how revenue is to be calculated for the purposes of subsection (1)(a); and

      • “(ii) how emissions from the activity are to be calculated for the purposes of subsection (1)(b); and

    • “(c) may contain guidelines or standards with which any data or other information to be provided under the notice must comply.

    “(3) Any guidelines or standards included in a notice under subsection (1) may incorporate any of the material referred to in section 169(1) by reference, and if they do incorporate such material, sections 169(2) and (3), and 170 to 177 apply with any necessary modifications.

    “(4) A Gazette notice under subsection (1) is a regulation for the purposes of the Regulations (Disallowance) Act 1989, but not for the purposes of the Acts and Regulations Publication Act 1989.

    “(5) A Gazette notice under subsection (1) must take a consistent approach as to how emissions are to be calculated for the purposes of subsection (1)(b) (for example, the emissions associated with auxiliary activities, such as head office and administrative operations, must either be included in respect of all activities for which a notice is issued or be excluded in respect of all of those activities).

    “(6) If a person who is required to comply with a Gazette notice under subsection (1)(a) fails to provide the required information by the date specified in the notice, the Minister must give a notice to the person requiring the information to be provided within 10 working days and advising the person of the consequences of subsection (7) if the person does not respond within the time allowed.

    “(7) Despite anything in this Act, if an activity referred to in a Gazette notice under subsection (1)(a) is subsequently prescribed as an eligible industrial activity, any person who carried out the activity at the date of the notice and who without reasonable excuse failed to supply the data and information required by the date in the notice under subsection (6) is not eligible to apply for an allocation of units in respect of carrying out the eligible industrial activity.

  “161C Procedure for regulations relating to allocation to industry

  • “(1) Before recommending the making of regulations under section 161A, the Minister must consult, or be satisfied that the chief executive has consulted, the persons (or representatives of those persons) that appear to the Minister or the chief executive likely to be substantially affected by definitions of potentially eligible industrial activities in any regulations made in accordance with the recommendation.

    “(2) The process for consultation must include—

    • “(a) giving adequate and appropriate notice of the proposed terms of the recommendation, and of the reasons for it; and

    • “(b) making copies of the draft regulations available on the Internet site of the chief executive of the department responsible for the administration of this Act and in hard copy; and

    • “(c) the provision of a reasonable opportunity for interested persons to consider the recommendation and make submissions; and

    • “(d) adequate and appropriate consideration of submissions.

    “(3) A failure to comply with this section does not affect the validity of the regulations made under section 161A.”