Negotiated Greenhouse Agreements – Questions and Answers

Q Why are NGAs being provided?

A While the proposed greenhouse gas emissions charge will encourage firms and individuals to use lower greenhouse gas emitting fuels and technologies by making them relatively cheaper, some firms will not be able to change their fuels or processes prior to the introduction of the emissions charge in 2007. NGAs are designed to protect firms who as a result of an emissions charge would lose competitiveness relative to firms in countries subject to less stringent climate change policies.

Q Why are NGAs offered only to firms trading internationally?

A The policy is designed to prevent "carbon leakage", the prospect of firms or production moving from New Zealand to another country solely to take advantage of the less stringent climate change policies. If this occurred the New Zealand economy would lose and so would the environment, as global emissions would be higher. The policy is neutral between firms that compete in export markets and those competing against imports.

Q What are the eligibility criteria for an NGA?

A Firms are eligible to apply for an NGA if they are exposed to international competition from producers facing less rigorous climate change policies and:
b.
c. The firm will face a significant increase in costs (defined as firms for whom energy would represent more than 20% of their total expenses). OR
d.
I. The $25 per tonne of CO2 equivalent charge decreases a firm’s:
II.
III. profitability (earnings before interest and tax) by more than 10%; OR
IV.
return below the appropriate internationally accepted industry investment hurdle.

Q How long do firms have to prepare applications for NGAs?

A There is no cut-off date for applications.

Q Is there a size limit for NGAs?

A No. However, the Government realises that the cost of negotiating an NGA means it is unlikely to be suitable for smaller firms. A separate policy to address the needs of small and medium sized enterprises transition to a Kyoto environment is therefore currently being prepared and will be announced in the next few months.

Q What does an NGA exemption cover?

A NGAs will provide an exemption for significant and reasonably measurable direct and indirect impacts of the emissions charge. This can include any emissions charge directly paid by a firm, for example, on a firm’s process emissions, and could also involve a refund for any emissions charge passed on by others such as energy suppliers. An NGA will not cover second round impacts of the emissions charge. Second round impacts would include cost increases to firms such as any inflation changes or increases in the price of renewable fuels due to greater demand for non-emitting fuels.

Q How will NGA negotiations proceed?

A All applications will be considered for eligibility. The New Zealand Climate Change Office will invite a number of firms to proceed to negotiations for initial NGAs, beginning with those that have the greatest immediate need for an NGA.

Q Can firms who are deemed not at risk reapply for an NGA if their circumstances change?

A Yes.

Q Will all eligible firms be granted an NGA?

A No. Decisions on eligibility do not commit the Government to granting any exemption from the emissions charge. Whether a firm receives an NGA will depend on the outcome of the subsequent negotiations between the firm and the Government.

Q Why aren’t NGAs universally available?

A An emissions charge is more effective in encouraging firms to reduce greenhouse gas emissions across the economy. NGAs are expensive to negotiate and monitor, and therefore the Government has decided that they will be available in cases where issues of competitiveness arise.

Q Who chooses which of the three criteria a firm can apply under?

A Firms can apply under any of the three criteria. A final decision on which criteria is most applicable will be determined by the New Zealand Climate Change Office in consultation with the applicant.

Q Are new entrants eligible for an NGA?

A Yes. The criteria do not discriminate been new and existing applicants. New businesses will have to use forecast figures in their applications.

Q Can industries apply for either the entire industry to be deemed at risk or for a single industry NGA?

A Yes. See "Application process for Negotiated Greenhouse Agreements" on www.climatechange.govt.nz. Q If successful, will an NGA provide a full exemption from the charge?

A This is a possible outcome, but is a matter for negotiation based on the circumstances of the applicant. Exemptions may be in full or in part and may only be available for parts of firms. For example a firm operating in several industries may only receive an exemption for the those businesses deemed at risk.

Q Who will be responsible for negotiating NGAs?

A The New Zealand Climate Change Office will lead negotiations with support from outside advisers (including departments) as required.

Q Why is NGA policy proceeding ahead of some other climate change policies?

A For investment purposes, firms need certainty about their future exposure to the proposed emissions charge. NGAs will provide firms with this certainty.

Q What is world’s best practice in emissions management?

A Emissions intensity targets will be determined for individual industries and processes on a case by case basis. World’s best practice (WBP) should be the aspiration for all firms. Where feasible, targets will be based on forecast world’s best practice, adjusted to what is technically and economically feasible for New Zealand. However, the Government recognises that establishing a WBP benchmark for some firms or industries may not be possible or may be very expensive. In such cases, WBP will be established based on best advice on the options available locally for emissions management.

Q Will commercially sensitive information in NGA applications and negotiations be protected?

A Yes. The Official information Act provides for the protection of commercially sensitive information. The New Zealand Climate Change Office has also developed confidentiality and information security protocols to ensure that commercial information entrusted to the Office is securely held and access to information is restricted.

Q What will happen if the Kyoto Protocol doesn’t come into force?

A If the Kyoto protocol does not come into force then the Government will not proceed with the emissions charge.

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