Climate Change Response Amendment Bill introduced: significant changes proposed for New Zealand's climate framework

Last week, the Government introduced the Climate Change Response Amendment Bill (Bill) to Parliament, with the stated objective of improving the efficiency and effectiveness of the Climate Change Response Act 2002 (CCRA). The Bill follows a number of reviews of aspects of New Zealand's climate change framework since the passage of the "Zero Carbon Act" in 2019 and the recent introduction of the Climate Change Response (Tort Liability) Amendment Bill (which was itself premised on the policy position that responsibility for developing, setting, and implementing regulatory policy on greenhouse gas emissions sits with the Executive and the Legislature).

The Bill proposes targeted yet wide-ranging reforms across three areas:

• the New Zealand Emissions Trading Scheme (NZ ETS), including a new market reporting and conduct regime for unit trading (for NZUs and NZU derivatives), a new role for the Financial Markets Authority, and potential significant civil and criminal penalties for unit market participants;
• climate adaptation planning, including new obligations on local councils to prepare adaptation plans; and
• the governance and administration settings of New Zealand's climate change framework within the CCRA.

These proposed changes will have practical implications for businesses, financial institutions, local authorities, homeowners, carbon market participants and other stakeholders.

The Bill is expected to be referred to a select committee for public submissions before the November general election. However, with Parliament due to rise on 24 September, it is not expected to be passed until after the election.

We will continue to monitor the Bill's progress, including any timeline for submissions. If you would like to discuss how the Bill may apply to your organisation, please get in touch with one of our experts.

Changes to the NZ ETS

The Bill proposes a range of changes to the operation and regulation of the NZ ETS, New Zealand's primary tool for managing emissions over time. Key changes include:

• Market reporting changes: The Bill would introduce a market reporting framework for certain secondary markets for NZUs and NZU derivatives (referred to as "unit product markets"). Broadly, the regime would apply to trading facilities that facilitate price discovery and multilateral trading, but not to purely bilateral off-market transactions. This would require trading platforms to report prescribed daily trading data and keep detailed trading records for seven years. Unit market participants, including NZ ETS participants, traders and brokers, would also need to ensure trading information specified in regulations is recorded in the New Zealand Emissions Trading Register. The Bill would establish penalties for non-compliance. The chief executive responsible for the Act, currently the chief executive of the Ministry for Cities, Environment, Regions and Transport, would initially act as market monitor, with powers to request and assess trading information from unit market participants.
• Market conduct obligations: The Bill would introduce new prohibitions on price manipulation and false, unsubstantiated or misleading conduct for unit market participants. Unit market participants would become subject to the fair dealing provisions in Part 2 of the Financial Markets Conduct Act 2013 (FMC Act), and the FMC Act is proposed to be amended to treat units as a "financial product" for that purpose. The Financial Markets Authority would be responsible for monitoring and enforcement of these requirements. Breaches could result in significant civil and/or criminal penalties, including pecuniary penalties, criminal fines and (in the case of individuals) imprisonment.   
• Recognition of additional activities: The Bill would create a new category of eligible "carbon removal activities", enabling new forms of carbon storage to be recognised under the NZ ETS in future through secondary legislation. Importing carbon dioxide would become a mandatory NZ ETS activity, and a general power would be introduced to add further mandatory activities, other than agriculture, by Order in Council.
• Time extensions following significant disruption: The Bill would enable the Environmental Protection Authority (EPA) to extend certain timeframes following significant disruption events, such as declared emergencies and adverse weather events. This includes timeframes such as filing deadlines and for forestry participants to re-establish forests or meet NZ ETS obligations.
• Review cycle changes: Reviews of NZ ETS unit limits and price control settings would move from an annual to a biennial cycle.
• Industrial allocation settings: The Bill would make technical changes to the industrial allocation regime, under which emissions-intensive and trade-exposed businesses receive free allocations of NZUs to protect their international competitiveness. The proposed changes are intended to reduce disincentives to decarbonise by removing two review processes that could currently reduce an organisation's allocation after it invests in decarbonisation. Minor changes are also proposed to phase-out rate reviews, which relate to the legislated phase-down of industrial allocation over time.

Introduction of localised climate adaptation plans

Legislation addressing climate adaptation, in particular managed retreat, has been long-awaited, following previous work by both an independent working group and the Finance and Expenditure Committee.

The Bill's approach is to retain, with minor amendments, the CCRA's provisions regarding national adaptation plans. It then proposes to add to that a requirement on city and district councils to prepare adaptation plans for priority locations identified in regional spatial plans made under the proposed Planning Bill.

The plans would need to consider at least a 30-year planning horizon and address matters including climate-related natural hazard risks, response options, estimated costs and how costs are intended to be met. Councils would generally have five or 10 years after adoption of the relevant regional spatial plan to adopt adaptation plans, depending on the "priority group" of the location, with reviews required every 10 years thereafter. Consequential amendments would require adaptation plans to be taken into account in specified decisions under local government, infrastructure and emergency management legislation. Councils may also develop adaptation plans in relation to locations that are not priority locations.

The Bill's localised approach to climate adaptation is consistent with other recent reforms, including the water services regime, which have emphasised local decision-making within a national framework. The Government's position is that this approach reflects the fact that adaptation responses, funding priorities and community preferences are likely to differ between regions.

The Bill does not address how adaptation initiatives will be funded, which leaves continuing uncertainty of potential relevance to local government, businesses, homeowners and financial institutions, each of which has a financial interest in New Zealand adapting effectively to the impacts of climate change. While adaptation plans will need to address "how costs are intended to be met", in practice there is likely to be detailed coordination required between central government, local government, financial institutions and asset owners to determine how those adaptation costs should be funded and allocated.

Changes to the climate governance framework

The Bill also proposes changes to the current governance and administration settings of New Zealand's climate change framework within the CCRA, including several previously announced reforms. Key changes include:

• amending the purpose of the CCRA to provide that New Zealand's climate change policy framework should be efficient and effective, as well as clear and stable;
• removing the reference to contributing to the global effort under the Paris Agreement to limit warming to 1.5°C from the purpose of setting five-yearly emissions budgets in section 5W of the CCRA. The 1.5°C temperature goal would remain in section 3, which sets out the overarching purpose of the CCRA;
• reducing certain consultation and reporting requirements, including repealing the Climate Change Commission's statutory function of advising on emissions reduction plans and removing the requirement for the Commission to publicly consult on its proposed emissions budget advice. The Commission would still advise the Government on emissions budgets, and the Government will still consult the public on draft emissions reduction plans;
• removing the requirement for emissions reduction plans to contain sector specific and multi-sector policies and strategies for emissions reduction, instead requiring the plan to include only a strategy in relation to the impact of emissions reduction on iwi and Māori and "any other policies or strategies that the Minister considers necessary";
• expanding Ministerial powers and discretion in relation to climate policy, including by allowing the Minister to amend emissions reduction plans and national adaptation plans without repeating the full statutory preparation and consultation process; and
• amending the sequencing and timing of certain advice, reports and decisions to reduce duplication.

These changes are intended to improve the efficiency of the CCRA framework. While changes that remove duplication and improve the sequencing of reporting appear sensible, some proposed changes would reduce formal opportunities for organisations and other stakeholders to contribute directly to climate policy development (for example, through submissions on the Climate Change Commission's advice to Government).

This content is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter, please contact a Russell McVeagh partner/solicitor.