Profile: Dr Nick Smith

New Zealand Minister for the Environment and Climate Change Issues Dr Nick Smith told the Climate Change and Business conference in Sydney that the emissions trading scheme which started 1 July this year is not a complete answer but an important first step on the path to reduce emissions. Also, since the passing of the NZ ETS into law, more than 80% of new consents lodged have been for renewable generation in hydro, wind, geothermal and marine, whereas the bulk of new electricity generation in the last ten years has been from coal, gas and diesel.    

Nick Smith       

Minister for the Environment

Minister for Climate Change Issues

Nick was born and educated in North Canterbury and first stood for public office at the age of 18 for the Rangiora District Council while still at High School. Nick attended Canterbury University where he completed a Civil Engineering degree followed by a PhD in Landslides.

Having joined the National Party as a teenager Nick has held governing positions through all levels of the organisation and has been involved in several campaigns.

Nick entered parliament in 1990 and was the first National MP in Tasman since 1932, then following the MMP reforms in 1996, was elected the first Nelson National MP since 1954. He continues to hold the seat with a comfortable majority. A Minister in the previous National Government he has held the portfolios of Education, Corrections, Conservation, Assoc Minister of Immigration, Treaty Negotiations and Social Welfare.

Nick is deeply involved in his local Nelson community, and particularly enjoys constituent work. Nick is married to Linley, and is the proud father of Hazel and Logan, and stepfather of Samantha and Alexander.

11 August, 2010

Here is an edited version of the speech by Dr Nick Smith to the Australia New Zealand Climate Change and Business Conference, Sydney

NZ’s moderated ETS

The legislation we passed last November gives New Zealand a workable and practical emissions trading scheme.

The economic analysis we commissioned on becoming Government in 2008 clearly concluded that an ETS was the most efficient way for New Zealand to curtail emissions at least cost to the economy.

However, we also identified some real issues with the approach by the previous Government that needed correcting.

The major policy changes we made were in respect to allocations for trade-exposed, emissions intensive industries.

The former rules discriminated against small and medium sized businesses and acted as a disincentive to growth.

It is our view the qualifying limit should be based, not on an absolute level of emissions, but in proportion to a business’ turnover.

These changes mean a far wider group of businesses have been eligible for support – albeit the total allocations to industry have changed little.

We also changed allocations to be production-based. If companies grow, their allocations will increase. If they cut their production, their allocations will drop.

This change reflects the Government’s ambition of wanting the ETS to encourage more efficient production and investment in new technology and not reduced economic activity or result in the exporting of industries offshore.

A further change was in making allocations on an industry average basis. We did not want to reward those with higher emissions and punish those who invested early in improving efficiencies.

The final major challenge to allocations was in slowing down the phase out of industry support. There was no phase out scheduled until 2018 but then at a very aggressive rate of 8% per year.

Our approach of 1.3% per year starting in 2012 generated much more debate than it deserved. The truth is these rates are subject to regular review and it is inevitable they will be altered in response to progress internationally.

The underlying principle for our Government will be to phase out such support in line with our major trading partners.

Other significant changes to the ETS included deferring agriculture’s entry by two years to 2015. The technical difficulties on including agriculture emissions cannot be understated.

We also took a pragmatic view that in the wake of the global recession imposing the full cost of the ETS on households and businesses was not realistic.

However, we did not wish to detract from the full price incentives on the forestry sector that is so important in the New Zealand context.

That is why the scheme provides for only a half obligation during its transitional phase meaning a de facto price for emitters of $12.50 per tonne, while foresters enjoy the full benefit of $25 a tonne price for new plantings.

We also passed a considerable number of amendments to deal with issues such as tree weeds, providing equitable support for the fishing industry and resolving Treaty of Waitangi matters.  

Our final ETS design did not by any means achieve universal acceptance.

I have received strident opposition from both extremes of the political spectrum. Some say the ETS doesn’t do enough; others say it goes too far.

This confirms my view that we have the balance broadly right. It is not a complete answer by any means but is an important first step on the path for New Zealand to reduce emissions.

It is often said that on any journey, however far, the most important and difficult step is the first. We made that step on 1 July and it is a significant achievement.     

It is interesting to reflect today on the implementation. Despite a great deal of pre-introduction hype, 1 July passed with only modest price changes.

Variations in fuel and electricity prices were consistent with Government estimates and small compared to the many other factors that influenced energy prices.

The allocation process is well underway for the fishing, industrial and forestry sectors.

We expect to allocated 11.7 million units worth $290 million to the industrial sector between now and the end of 2012

For the industrial sector the Government is deciding on and issuing allocations in three tranches or groups.

The first group of these will be a number of large, energy intensive companies, performing activities such as aluminium smelting, and the production of paper and packaging.

We have already received a number of applications from these companies and when fully allocated this group will represent more than 80% of the total units expected to be allocated.

Applications for Group two and three, which includes many smaller enterprises, are progressing well – albeit a number of industries have sought a slowing of the timetable to enable accurate data to be collected.

This year there will also be a one off allocation of 700,000 New Zealand Units to fishing quota owners. This is to compensate for the effect of increased fuel costs from the ETS on the value of their quota and is a transitional measure.

The Government received more than 760 applications and I’m pleased to announce that this week, successful applicants will be receiving notice of their provisional allowances of units. 

Some allocations have already occurred in the forestry sector and the New Zealand government estimates that approximately 75 million units will be allocated to this sector in the period to 2012.

This massive allocation reflects the huge importance of forestry to New Zealand in the context of climate change.

It is only through the substantial plantings of the new forestry since 1990 that New Zealand has been able to offset its significant 25% increase in gross emissions.

Without these plantings New Zealand would face a substantial Kyoto deficit.

It is also important to note that quite modest new plantings into the future could play a very important role in reducing New Zealand’s net emissions in coming decades, and the incentives provided by the ETS will play a crucial role in securing these long-term investments.

Now the ETS is implemented there is evidence that the scheme has presented new business opportunities and started to motivate businesses to take positive action against climate change.

Forestry is critical to New Zealand’s long term emissions profile and there are signs the ETS has already started to have a positive impact in this area.

Up until 2009, deforestation was on the increase – with 30,000 hectares lost from 2005 to 2008. However with the positive signals sent by the ETS, this has turned around and in 2009 planted forest area switched from a loss to a gain.  The indications we have received from foresters is that this trend is set to continue.

Some companies have already entered into significant afforestation projects since the legislation for the revised NZ ETS was passed.

For example in February this year, Taupo company Puketapu 3A Incorporation, electricity generator Mighty River Power and the Lake Taupo Protection Trust have made a 2400-hectare forest deal in Taupo that will reduce carbon emissions and nitrate run-off. This deal involves a farm-to-forestry conversion and the subsequent sale of carbon credits from the forests to Mighty River Power.

And it’s not just major players realising these benefits – more than half of the almost 400 voluntary forestry participants in the ETS are for forests of less than 50 hectares.

In response to the ETS, some farmers have started to plant forests on their properties. For farmers who have steep, erosion-prone and largely unproductive land, forestry offers them a chance to boost their returns – both economically and environmentally.

Apart from creating incentives for afforestation, the NZ ETS has also encouraged renewable energy.

The bulk of new electricity generation in the last ten years has been from coal, gas and diesel.  However, since the passing of the NZ ETS into law, more than 80 percent of new consents lodged have been for renewable generation in hydro, wind, geothermal and marine.  

We know that people respond to incentives and the early evidence is indeed encouraging.

For the complete speech and more information on the New Zealand ETS go to the website:

Source: www.beehive.govt.nz