Part 7: ETS administration

7.1 Administering agencies

Responsibility for implementing and operating the ETS is split between three government departments: the Ministry for the Environment (MfE), the Ministry of Agriculture and Forestry (MAF), and the Ministry of Economic Development (MED).

These three departments, together with the Treasury, have signed a memorandum of understanding setting out their roles and responsibilities under the Act, and how they will co-operate to achieve these responsibilities.

Because of the devolved responsibilities, the governance and management arrangements in place between the agencies are crucial to ensure effective administration of the ETS. Major aspects of these arrangements are:

• the Memorandum of Understanding;
• the ETS Operational Executive Group, with senior representatives from MfE, MAF, and MED;
• the ETS Co-ordinators Group of key ETS operational managers from MfE, MAF, and MED; and
• a detailed ETS Operations Manual setting out agreed responsibilities and setting expectations about how relationships between the agencies will operate.

The following paragraphs outline the main responsibilities of the three departments and the Environmental Protection Authority (EPA).

Ministry for the Environment

• Administers the Climate Change Response Act 2002 (the Act).
• Responsible for climate change policy development, including developing the regulations and emission unit allocation plans under the Act, except for those relating to the forestry and agriculture sectors.
• Processes allocations of NZUs to emissions-intensive and trade-exposed entities, fisheries, and (at a later date) agriculture.
• Administers Vote Climate Change, which for 2011/12 includes departmental appropriations for “domestic climate change programme” ($7.5 million) and “administration of the emissions trading scheme” ($0.5 million), as well as non-departmental appropriations for the issue of AAUs to participants in the Permanent Forest Sink Initiative ($10.0 million) and allocating NZUs to all ETS sectors ($909.0 million).
• Responsible for financial forecasting and reporting of ETS transactions in Vote Climate Change, including management of expenditure appropriations. These ETS transactions include expenditure from issuing NZUs (all sectors) and revenue from surrender of NZUs to the Crown (all sectors). Vote Climate Change transactions and balances are reported in MfE’s annual report.

Ministry of Agriculture and Forestry

• Responsible for developing regulations and emission unit allocation plans for the forestry and agriculture sectors.
• Responsible for processing participant applications and emissions returns for the forestry sector, as well as applications for NZUs under the forestry allocation plan.
• Administers the Permanent Forest Sink Initiative and the Afforestation Grant Scheme.
• Compliance and enforcement agency for the forestry sector.
• Administers Vote Agriculture and Forestry, which for 2011/12 includes departmental appropriations for “implementation of the emissions trading scheme and indigenous forestry” ($12.5 million) and “climate change policy advice” ($10.7 million). This Vote also includes non-departmental appropriations for “climate change research” ($9.2 million), and “afforestation grant scheme” ($7.0 million).

Ministry of Economic Development

• Maintains the New Zealand Emission Unit Register (NZEUR).
• Responsible for processing participant applications and emissions returns for all sectors other than forestry.
• Compliance and enforcement agency for sectors other than forestry.
• Administers Vote Energy, which for 2011/12 includes departmental appropriations for “emissions trading implementation” ($4.8 million) and “provision of climate change unit register and information” ($1.6 million).

Environmental Protection Authority

The Environmental Protection Authority (EPA) was established in May 2011 by the Environmental Protection Authority Act 2011. The EPA is a Crown entity with board members appointed by the Minister for the Environment. From 1 July 2011, the EPA took over environmental regulation functions from MfE, MED, the Ministry of Foreign Affairs and Trade, and the Environmental Risk Management Authority.

From 1 January 2012, among its other responsibilities, the EPA will manage the ETS, except for the forestry sector. The EPA will:

• administer the NZEUR;
• administer applications for allocations;
• issue NZUs in keeping with Ministerial directions;
• transfer NZUs in keeping with chief executive or Ministerial directions;
• process emissions returns;
• carry out compliance and enforcement activities; and
• make emissions rulings.

Therefore, the EPA will carry out functions that are currently carried out by MED and MfE, while continuing to work with MAF in the forestry sector.

7.2 New Zealand Emission Unit Register

Until January 2012, MED administers the NZEUR.

As a party to the United Nations Framework Convention on Climate Change (UNFCCC), New Zealand is required to have a national registry to track its holdings of, and transactions of, Kyoto Protocol units and to exchange information with overseas registries and the international transaction log maintained by the Secretariat to the UNFCCC. The NZEUR is our national registry.

Under the Act, a further purpose of the NZEUR is to track holdings of, and transactions of, NZUs, including the conversion of NZUs to AAUs.

The Act provides for the Registrar to allocate unique account numbers to each account holder, unique serial numbers to each AAU and NZU, unique transaction numbers for transfers, and electronic notification of transactions to the transacting parties.

The NZEUR is like an online banking system because it contains multiple accounts and allows the transfer of units between those accounts. It also links to other registry systems of other parties to the UNFCCC and allows transfer between New Zealand accounts and accounts in those other registries. Each registered participant has their own account within the NZEUR and is able to log in to manage their units.

Registering with the NZEUR as a participant has several stages. A prospective participant is first required to become a registered user, which allocates a user name and password. A holding account (for emissions units) can then be applied for. This allows the participant to trade units.

MED verifies the identity of the person or entity applying to open a holding account. The applicant is then assigned a unique account number that is to be used for all further transactions.

To become a participant under one of the sectors, the administering agencies carry out checks to validate the participant’s application. These checks differ for the different sectors, and in some cases are not yet in place because the sectors are not yet active.