ETS changes inevitable as scheme matures, Groser says

BUSINESSDESK: Incremental change to the emissions trading scheme is inevitable, especially as global consensus on climate change action emerges and New Zealand's carbon-pricing system is tweaked to adapt, climate change minister Tim Groser says.

"We can't give complete stability. We have to make incremental political adjustments," he said at a blessing and ribbon-cutting ceremony in New Zealand Carbon Farming's Kiernan Creek carbon sink pine forest south of Blenheim today.

His comments coincide with today's deadline for submissions on proposed changes to the ETS, which were promulgated by the previous environment minister, Nick Smith, who resigned from cabinet because of a privacy scandal in his Accident Compensation portfolio.

Already minister for international climate change negotiations, Mr Groser took responsibility for domestic climate change policy after Mr Smith's resignation, along with a new associate minister, Simon Bridges.

"Mistakes have been made," Mr Groser said, referring to the global climate change negotiations process such as the slow acceptance of plantation forests and so-called "harvested wood products" to store carbon for decades, if not centuries.

Rules in that area were not only "fiendishly complex" but they didn't exist yet, said Mr Groser, who spearheaded a major concession for forestry farming countries like New Zealand at the global climate change talks in Durban, South Africa, in December.

"The whole world is trying to feel its way through this revolutionary policy shift," he said.

He will be out of the country for almost a month from next week for global climate change meetings and to advance issues in his international trade portfolio.

But he acknowledged: "Compared to many countries, we are not in a bad space."

More broadly, the government was still trying to find the "sweet spot in transition for this small country in terms of making a commitment" to whatever global climate change treaty follows the Kyoto Protocol, which expires this year without a clear replacement.

Mr Groser would not be drawn on domestic ETS issues, such as the imposition of a cap on New Zealand carbon emitters' ability to buy foreign carbon credits, whose value has plunged this year and also sunk the value of higher integrity New Zealand Units (NZUs) to historic lows this week.

Westpac was offering to trade NZUs at $6.35 a tonne early this week, well below the $12.50 a tonne liability faced by major industrial consumers, and the $25 per tonne price underpinning the government's broader climate change policy.

Capping the proportion of international Carbon Emissions Reduction units (CERs) used when offsetting New Zealand carbon emissions would be expected to underpin the NZU price, but the lobby group Business New Zealand fears such a change signals unwanted regulatory uncertainty into the future.

"It won't be a decision taken by Simon and me," Groser told BusinessDesk. "It will be the subject of immense cabinet-level discussion after a genuine consultation.

"We will allways come down to the same central question whatever mechanisms you want to put in place, is 'how fast do you want to move?'"

However, Mr Groser indicated the government is likely to go ahead with all the compensation promised to so-called "pre-1990" forest owners, since it was only there to protect forest owners from costs which no longer existed.

Thanks to the win in Durban allowing forests to be felled in one place and replaced in another - instead of the previous Kyoto rules requiring unchanged land use - landowners were no longer locked into forestry in perpetuity.

"The money was there because of the existing rules in the first place. People weren't allowed to offset," he said, acknowledging that with any policy change "always creates winners and losers".

The 415ha Kiernan Park Forest is one part of NZ Carbon Farming's plans for up to 20,000ha of company-owned and leased land around New Zealand, where pine forests will be left to grow permanently, sequestering carbon throughout their lives and cutting New Zealand's greenhouse gas emissions liabilities, which explode in about eight years.