New Zealand introduces amendments to climate change act

New Zealand has amended its Climate Change Response Act, which would expand the scope of its emissions trading scheme to recognize additional carbon removal activities beyond forestry and remove some industrial allocation review requirements, the Ministry for Cities, Environment, Regions and Transport said July 15.

The Climate Change Response Amendment Bill, or CCRA, introduced to Parliament on July 15, proposes adding "carbon removal activities" as a category that can be recognized under the New Zealand ETS, while removing allocative baseline and eligibility reviews for industrial allocation.

"Forestry is already a critical part of New Zealand's approach to removing greenhouse gases from the atmosphere. However, the government also wants to ensure businesses and organizations can explore other ways to reduce the impact of their emissions," the ministry said in a statement.

The changes would not immediately include new carbon removal activities in the ETS, but would establish the regulatory pathway for future additions, simplifying and accelerating the approval process, according to the ministry.

Carbon removal pathway

The bill proposes changes that would establish a framework for evaluating and approving new removal methods without requiring primary legislation for each addition.

The ministry said it has been exploring opportunities to recognize and reward non-forestry removals in carbon markets as part of efforts to diversify New Zealand's emissions-reduction toolkit.

The bill also creates a pathway for new emissions sources, excluding agriculture, to be added to the ETS in the future through the same streamlined process.

"The CCRA and the NZ ETS are our key tools to transition New Zealand to a low-emissions, resilient future," Climate Change Minister Simon Watts said in a separate statement July 15. "It is critical that they are working smoothly to deliver emissions reductions and help us meet our climate targets. That is why we are making changes like strengthening oversight of the NZ ETS market."

Industrial allocation changes

The legislation removes two components of current industrial allocation settings that the ministry said risk disincentivizing decarbonization investments.

Allocative baseline reviews and eligibility reviews would be eliminated, except for limited technical exceptions, addressing concerns that allocations could be reviewed and reduced after investments have been made.

"Currently, these two processes mean it is possible for an allocation to be reviewed and reduced after investments are made, which then impacts the financial viability of making that investment," the ministry said.

The changes would retain phaseout rate reviews as the primary tool for managing industrial allocation volumes, while making their timing more flexible by allowing reviews once every five years, rather than linking them to emissions budget periods, according to the ministry.

The minister would be required to consider firms' decarbonization investments, including reductions in emissions intensity or gross emissions, when reviewing phaseout rates, the ministry said.

Annual updates to allocative baselines related to electricity costs would continue, and any reviews currently in process would be completed, the ministry said.

The adjustments aim to balance the cost of industrial allocation against the environmental, social and economic effects of New Zealand companies potentially relocating overseas, according to the ministry.

Market governance

The bill proposes establishing market governance for the trading of New Zealand units in the ETS secondary market, including provisions to support market transparency and enable government monitoring of trading activity.

The Financial Markets Authority would be designated as the enforcement agency for two discrete market conduct standards, with penalties applying to breaches of new market governance requirements, according to the ministry.

The market oversight changes aim to improve transparency and enhance the availability of market information to the government, the ministry said. The provisions would also support market confidence and stability as the ETS expands to include new types of carbon removal activities.

The legislation proposes moving ETS settings to a biennial process from the current annual cycle, with decisions made every two years after the bill passes into law, the ministry said. The 2026 and 2027 ETS settings processes would proceed as usual to provide market clarity while the amendment bill moves through parliament, it said.

The bill includes provisions to allow flexibility for reestablishing forests after significant disruptions, such as severe weather events, helping foresters avoid deforestation liabilities when clearance occurs due to events beyond their control.

The legislation would also bring CO2 imports into the ETS to ensure that international suppliers of liquid CO2 face the same costs as domestic producers, according to the ministry.

The bill will be referred to a select committee for public submissions, with information on the submission process to be made available through Parliament, the ministry said.