The Emissions Trading Scheme (ETS) came into force on 1 July 2010. Are you ready for it and do you understand how it will affect you?
What is the ETS?
Emissions trading schemes are designed to operate within a cap on emissions, such as those agreed to by countries, like New Zealand, who have signed the Kyoto Protocol and made obligations under the Copenhagen Accord. The ETS is intended to place a price on greenhouse gas emissions and, as a result, encourage a move to less carbon intensive activities. It is a market based approach where emission units (or carbon credits) are traded between participants in the scheme. An emission unit is required for every tonne of greenhouse gas emitted. During the transition phase (July 2010 to December 2012), participants will also be able to buy emission units from the Government for NZ$25 each.
Who will participate in the ETS?
Energy, industrial processing, liquid fossil fuels, waste, forestry, synthetic gases and agricultural sectors are likely to be participants in the ETS. The ETS specifies a number of activities and requires organisations or individuals undertaking these activities to participate in the scheme as Mandatory Participants. Voluntary Participants, being organisations or individuals carrying out a number of other specified activities, may also opt into the ETS. In general, the threshold for Mandatory Participation in the ETS has been set at a high level in the supply chain, for example fuel supply rather than fuel use.
Only a small number of organisations will be directly affected by the ETS, but as it takes effect it will place an additional price on all carbon intensive activities and will alter the economics of many activities and businesses.
Visit the Climate Change Information New Zeland website http://www.climatechange.govt.nz/emissions-trading-scheme/about/ets-diagram.html to view a diagram that illustrates how emissions trading will work using three different industries as examples.
Under the scheme an oil company will need to buy units to cover the emissions that will result when the oil they sell is used. During the year the oil company sells oil that, when used, will result in 3 units worth of emissions. The oil company needs to buy 3 units to cover the emissions that it is responsible for. It does this by buying 2 forester units and 1 unit from an industrial firm.
A forester plants some trees. During the year these trees grow, earning the forester 2 units. The forester can now sell these 2 units. In this diagram the forester sells the 2 units to the oil company.
An industrial firm is given 4 units by the government to cover some of its emissions. During the year the firm installs a new plant that reduces its emissions to 2 units. Therefore it only uses 2 units and can sell the surplus 2 units. The industrial firm sells a unit to the oil company and sells the other unit on the Global Emissions Markets.
The ETS does not directly involve the majority of New Zealand’s SME businesses and does not require most SMEs to report on their emissions or to trade emission units. However, business owners can save money and make a difference in reducing greenhouse gas emissions by using energy more efficiently, reducing waste and, where economic, using renewable energy alternatives, such as solar power.
The main impact of the ETS for most SMEs and households will be a rise in transport fuel and electricity prices and, from 2013, a rise in the cost of disposing of waste at landfills. From 1 July 2010, fuel prices are likely to rise by about 3.5c/L and electricity costs are likely to increase by about 1c/kWh. There will also be a range of secondary effects, such as increases in the prices of some consumer goods as a result of increased freight charges and, from 2013, increased costs of disposing of waste at landfills. It has been estimated that the price impact on the average household of the ETS will be an increase of $165 a year.
So what can you do to save money?
SMEs and householders can make choices and take action to lessen the impact of increased electricity and fuel costs caused by the Emissions Trading Scheme. These actions will reduce greenhouse gas emissions and also give health benefits. Some of these choices can be made now and take little effort or investment; others take more investment and effort but have larger potential benefits.
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| Inflate your tyres correctly and you’ll use up to five per cent less fuel.
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| • | Walking and cycling are ideally suited to short trips. It is good exercise and can save you money on fuel.
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| • | When buying appliances, look for the energy rating label and the ENERGY STAR mark to help you save money and electricity – the more stars on the energy label, the better the energy efficiency.
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| • | Switch off appliances at the wall – the average household could save about 10 per cent on its power bill if appliances on standby were switched off.
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| • | A well-insulated home takes less energy to heat – ceiling insulation can save you up to $400 a year.
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| • | Consumer has developed a free tool called Powerswitch. It enables consumers to enter in their data and see which supplier can offer the cheapest plan. It helps to complete this assessment with a recent power invoice in front of you. http://www.consumer.org.nz/powerswitch
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| • | Fuel$aver is a useful website that provides information to compare the fuel consumption of different vehicle models. The website enables drivers to calculate vehicle fuel costs by considering their vehicle model, the distance travelled, the kind of fuel that is used, and their driving habits. Visit www.fuelsaver.govt.nz
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| The Right Car website offers advice on choosing cars that use less fuel, produce lower emissions and have improved safety features |
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| The Government introduced the Warm Up New Zealand: Heat Smart scheme on 1 July 2009, which contributes 33% of the cost of insulation in homes built before 2000, up to a maximum of $1,300. Funding may also be available for installing clean heat devices. This scheme can benefit small business owners who use their homes as offices. |
| • | Funding is available from the Energy Efficiency and Conservation Authority for installing a solar water-heating system. This is either in the form of a contribution of up to $1,000 towards the cost of a loan to pay for the system, or a one-off payment of $1,000 towards the cost of installing a new system. To find out more about the criteria, visit www.energywise.govt.nz or call 0800 762 7837. |