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ZNR UUUUU ZZH
R 090211Z APR 09
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 5825
INFO RUEHNZ/AMCONSUL AUCKLAND 1948
RUEHBY/AMEMBASSY CANBERRA 5488
RUEHAP/AMEMBASSY APIA 0555
RUEHDN/AMCONSUL SYDNEY 0827
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 03 WELLINGTON 000092 
 
SIPDIS 
SENSITIVE 
 
STATE FOR STATE FOR EAP/ANP 
PACOM FOR J01E/J2/J233/J5/SJFHQ 
 
E.O. 12958: N/A 
TAGS: SENV PGOV KGHG NZ
SUBJECT: NZ EMISSIONS TRADING SCHEME UNDER REVIEW 
 
WELLINGTON 00000092  001.2 OF 003 
 
 
Reftel: 08 Wellington 695 
 
¶1. (SBU) Summary.  On December 9, 2008, the newly elected 
National-led Government announced its review of the country's 
Emissions Trading Scheme (ETS).  Established by the previous Labour 
government, the ETS attracted criticism from many quarters, 
including the National Party, for its lack of political consensus 
and its potentially adverse impact on economic growth.  Insiders 
predict that any new legislation will not repeal the existing ETS 
but rather amend it to give greater weight to its economic impact. 
A harmonized approach to emissions trading with Australia is seen as 
desirable by National and both governments have begun to jointly 
study this option.  End Summary. 
 
PM Key Favors Fiscally Prudent ETS 
---------------------------------- 
 
¶2. (SBU)  Prime Minister John Key believes that humans have 
contributed to global warming and that New Zealand should have an 
effective system to reduce the country's greenhouse gas emissions 
and enable the trading of emission reduction credits.  However, PM 
Key has stated that he will only support such a system if it does 
not punitively impact the New Zealand economy.  Before the 2008 
election, Key's opposition National Party was critical of the 
previous Labour Government's Climate Change Response Amendment Act 
2008, which established New Zealand's Emissions Trading Scheme (ETS) 
(reftel).  Key argued that Labour's ETS was established without the 
due diligence and political debate required to form the political 
consensus essential to address a significantly long-term issue, such 
as climate change.  Additionally, Key asserted that any ETS should 
have as a fundamental consideration its impact on domestic economic 
growth. 
 
ETS Still in Place, but Under Comprehensive Review 
--------------------------------------------- ----- 
 
¶3. (SBU)  Following the November 2008 election, the newly formed 
National-led government chose not to repeal ETS, but rather to 
initiate a parliamentary study of the program.  On December 9, 2008, 
Key announced the creation of a Select Committee of Inquiry (Review 
Committee) to review the ETS and consider alternative mechanisms for 
addressing climate change.  This announcement honored a commitment 
made to the hard-right ACT Party to secure its support in forming a 
government after the election.  While the Review Committee conducts 
its examination, the ETS program will remain in force despite 
pressure from ACT to suspend its operation.  However, the first 
stage of the ETS emissions reduction timetable does not commence 
until 2010, which leaves some time to review and amend the program. 
 
 
Scope of ETS Review Committee Inquiry 
------------------------------------- 
 
¶4. (U)  The Review Committee has announced that, during the course 
of its inquiry, it will: 
 
 - Hear views from trade and diplomatic experts on the international 
relations aspects of this issue; 
 
 - Consider the prospects for an international agreement on climate 
change post-Kyoto 1, and the form such an agreement might take; 
 
 - Require a high-quality, quantified regulatory impact analysis to 
identify the net benefits or costs to New Zealand of any policy 
action, including international relations and commercial benefits 
and costs; 
 
 - To identify the central/benchmark projections which are being 
used as the motivation for international agreements to combat 
climate change; and consider the uncertainties and risks surrounding 
these projections; 
 
 - Consider the impact on the New Zealand economy and New Zealand 
households of any climate change policies, having regard to the weak 
state of the economy, the need to safeguard New Zealand's 
international competitiveness, the position of trade-exposed 
industries, and the actions of competing countries; 
 
 - Examine the relative merits of a mitigation or adaptation 
approach to climate change for New Zealand; 
 
 - Consider the case for increasing resources devoted to New 
Zealand-specific climate change research; 
 
WELLINGTON 00000092  002.2 OF 003 
 
 
 
 - Examine the relative merits of an emissions trading scheme versus 
a tax on carbon or energy as a New Zealand response to climate 
change; 
 
 - Consider the need for any additional regulatory interventions to 
combat climate change, whether through an ETS or a new form of 
taxation, such as a carbon tax; and 
 
 - Consider the timing of the introduction of any New Zealand 
measures, with particular reference to the outcome of the December 
2009 Copenhagen meeting, the position of the United States, and 
actions by the Australian government. 
 
Committee Composition and Timeline 
---------------------------------- 
 
¶5. (SBU)  The Review Committee is comprised of members from many of 
the political parties sitting in Parliament with a view to obtaining 
a balanced consideration of and consensus on other alternatives. 
National, as Parliament's biggest party, has four seats; Labour 
three seats; the Green Party, Maori Party, ACT and United Future all 
have one seat. 
 
¶6. (SBU)  In an unusual move, Key appointed a minister outside of 
Cabinet, United Future leader Peter Dunne, to chair Review 
Committee.  Dunne is Revenue Minister and Associate Health Minister. 
 It is an unusual appointment because ministers do not usually sit 
on committees involving legislation.  Key justified the appointment 
on the grounds that Dunne is an experienced member of Parliament and 
generally considered neutral on this issue.  Although the Green 
Party questioned how neutral a government minister could be in the 
position of chair, Dunne's appointment was generally well-received 
inside and outside of parliament.  Dunne is pro-ETS and soon after 
his appointment stated that "New Zealand needs a robust emissions 
trading scheme in place as quickly as possible to reassure 
businesses and shore-up our international credibility". 
 
¶7. (U)  The Committee held its first meeting on December 18, 2008 
and has met several times since.  It plans to report back to 
Parliament in April/May 2009.  The Government intends to pass any 
proposed legislation by September 30, 2009, before the scheduled 
implementation of the existing ETS program that begins in 2010. 
 
Three Possible Outcomes of the ETS Review 
----------------------------------------- 
 
¶8. (SBU)  Rob Eaddy, Chief of Staff to Committee Chair Dunne, 
offered post three possible scenarios at the conclusion of the 
Review Committee process.  The most likely outcome, according to 
Eaddy, is a proposal to revise the existing ETS in a manner that 
earns broad political support and which gives more consideration to 
the impact on the domestic economy.  Another scenario posited by 
Eaddy involves the Committee recommending the imposition of a carbon 
tax in lieu of the carbon market feature within an ETS.  However, 
Eaddy believed this to be the least likely scenario. 
 
¶9. (SBU)  Eaddy's third scenario is one in which Australia and New 
Zealand create a tandem scheme that recognizes the strengths and 
weaknesses of their respective economies.  Eaddy added that this 
outcome has long been Key's most favored solution and revealed that 
Key canvassed this concept with Australian PM Kevin Rudd when they 
met on March 2 in Sydney. 
 
GNZ and GOA Announce Talks to Harmonize Plans 
--------------------------------------------- 
 
¶10. (SBU)  Meanwhile, as the Review Committee works toward a 
proposed solution, the GNZ and GOA are looking seriously at the 
harmonization option.  On March 20, NZ Climate Change Minister Nick 
Smith and Australia Minister for Climate Change and Water Penny Wong 
announced the establishment of a trans-Tasman working group to 
explore harmonization of their countries' respective emissions 
reduction and carbon trading regimes.  According to Smith and Wong, 
options include everything from common adoption of key design 
elements to a full harmonization.  No timelines were set by Smith 
and Wong. 
 
¶11. (SBU)  Leading NZ business journalist Brian Fallow has, however, 
expressed doubt that NZ and Australia can easily reconcile 
differences in their respective approaches towards emissions 
trading.  Fallow asserted that beyond the political rhetoric lays 
the reality of various stumbling blocks that may make harmonization 
 
WELLINGTON 00000092  003.2 OF 003 
 
 
very difficult or perhaps unfeasible under policies.  Fallow cited 
differences between the two countries in how they each plan to meet 
Kyoto targets and how emission units would be traded. 
 
Political Parties on ETS Review 
------------------------------- 
 
¶12. (SBU)  National's support partner, the ACT Party, opposes any 
form of an ETS.  ACT believes carbon trading is prone to fraud and 
that no case has yet been made to prove that the benefits of an ETS 
would exceed the costs.  The Labour Party and the Green Party have 
both offered to work with the Government on an amended ETS. 
Labour's Climate Change spokesman Charles Chauvel acknowledges that 
the governing National Party is firmly in the driver's seat on the 
ETS review.  [Note.  Even Labour and the Greens, who have 
historically advanced strong pro-environment policies, now realize 
that their positions must take into account the realities of the 
present global economic situation and its impact on achievable 
environmental goals.  End Note].  Minister Smith welcomed the Labour 
and the Greens respective offers and reaffirmed the Government's 
desire to build political consensus on how best to tackle climate 
change.  Jim Anderton, the solitary Progressive Party MP, supports 
an ETS, as does the Review Committee Chair Peter Dunne, United 
Future's only MP.  The Maori Party has yet to articulate a position 
on the ETS. 
 
Insights on NZ's Post-Kyoto Negotiations 
---------------------------------------- 
 
¶13. (SBU)  Tim Groser, New Zealand's Minister for International 
Climate Change Negotiations, expressed his disappointment in a March 
23 media interview that the December 2008 Posnan talks yielded 
little progress toward negotiation of a post-Kyoto agreement. 
According to Groser, the best that can be achieved in the Copenhagen 
talks planned for December 2009 will be some kind of framework 
agreement. 
 
¶14. (SBU)  Groser also discussed New Zealand's perspective as it 
enters into post-Kyoto negotiations.  NZ's greenhouse gas emissions 
are "massively in excess of our Kyoto obligations", according to 
Groser, "and taking on even more ambitious targets is a tough ask." 
In addition, he commented that NZ is uniquely and badly placed among 
Kyoto signatories because "there is no technical fix for methane 
emitted from livestock."  NZ must, stated Groser, take into account 
the large percentage of NZ greenhouse gas emissions that are 
generated by agriculture (49 percent), and the unavailability of 
technology that would allow NZ to reduce those emissions. 
 
¶15. (SBU)  Another issue for New Zealand in future negotiations is 
forestry, said Groser.  He explained that the Kyoto rules assume 
that all carbon from trees is released as soon as the trees are cut 
down, but that is not true.  Consequently, Kyoto imposes a penalty 
when trees are cut down, even though they are replanted in another 
place.  That result penalizes New Zealand, which wants to transfer 
more of its forests to marginal hill country. 
 
Comment 
------- 
 
¶16. (SBU)  Given the current economic situation and the GNZ's desire 
to avoid any measures that could negatively affect NZ's export 
earnings (which are predominately agriculturally based), we 
anticipate the GNZ will study this issue carefully and delay as long 
as politically possible the implementation of ETS measures for the 
ag sector.  The public and much of the political clamor for New 
Zealand to meet its Kyoto obligations have quieted since the global 
financial crisis.  New Zealand environmentalists and the small band 
of dogmatic pro-environment politicians are likely to press the 
Government towards committing to firm targets in the lead up to 
Copenhagen, while NZ and Australia officials examine what is 
realistic for both their economies.  End Comment. 
 
Keegan