New Zealand Emissions Trading Scheme Lights Up Renewables

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Researched by Industrial Info Resources (Sugar Land, Texas)--Despite constant debate regarding the need for action by governments to deal with climate change, New Zealand's renewable energy sector can see a brighter future thanks to the July 1 introduction of the country's Emission Trading Scheme (ETS).

Representatives from the renewable energy sector showed a positive reaction to the scheme. Mighty River Power (Auckland, New Zealand), which is one of New Zealand's largest geothermal and hydro operators, and Meridian Energy (Wellington. New Zealand), a major player in windfarms in New Zealand and Australia, see several benefits to the renewable energy sector resulting from new taxes on carbon emissions.

New Zealand is certainly not the first country to introduce an ETS. In January 2005, the European Union imposed an ETS covering more than 10,000 installations in the energy and industrial sectors. The United States and Japan are both actively considering ETS, and Australians are well aware of the wrangling over the possible introduction of an ETS, which has now been postponed until at least 2012.

In New Zealand, negotiations between the members of the coalition government resulted in a two-stage ETS. For the first two years of the scheme, the fixed price will be NZ$12.50 (US$8.88) per tonne of emissions, after which it will rise to NZ$25 (US$17.76) per tonne. The scheme is based on the trading of New Zealand Units (NZUs); one NZU carries the right to emit 1 tonne of carbon dioxide, or an equivalent amount of certain other greenhouse gases. The forestry industry has been covered by a form of this scheme since 2008; the transportation fuels, electricity production and industrial processes sectors are covered from July 2010. The synthetic gases and waste sectors will be included from January 2013, and New Zealand's powerful agricultural sector will be subject to the ETS from January 2015.

The good news for the renewable energy sectors comes in the expected rise in domestic electricity prices (estimated to amount to about NZ$165 (US$117) per year for the average household). Contacts at Mighty River Power said that this will significantly close the gap between the prices charged by established thermal power companies and the prices renewable energy companies need to charge to be profitable. Projects previously regarded as marginal from a commercial perspective are now seen as eminently practical.

Projects almost certain to benefit from the new scheme include Mighty River's Turitea Windfarm and Meridian's Project Central Wind. No doubt other smaller renewable energy investors will benefit from the improved economics derived from the ETS in the coming years.

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