1. Introduction
Emissions Trading Scheme
1.1 To meet New Zealand's obligations under the Kyoto Protocol, the Government has recently introduced the Climate Change (Emissions Trading and Renewable Preference) Bill into Parliament ("ETS Bill"). The ETS Bill's principal purpose is to amend the Climate Change Response Act 2002 to introduce a greenhouse gas Emissions Trading Scheme in New Zealand ("NZ ETS"). More information on the ETS Bill and other useful background material on the NZ ETS is available at the New Zealand Parliament website and the NZ Climate Change website.
Amendments to Financial Regulation Required
1.2 The trading of emissions units (including those arising from the mandatory/regulatory and voluntary markets) is expected to grow rapidly as the international actions to combat climate change increase. The trading of emissions units is an important aspect of the proper functioning of the NZ ETS, as it is the mechanism through which markets will allocate responsibility for reducing greenhouse gas emissions to those for whom the cost of reducing greenhouse gas emissions is least. To ensure that New Zealand's trading of emissions units (both mandatory and voluntary) is properly integrated with international carbon markets, it is also important that New Zealand's emissions trading platforms are able to have credibility in international markets.
1.3 For these reasons, it has become timely to undertake policy development to ensure that New Zealand's regulatory environment will enable the development of robust trading and clearing and settlement infrastructure in relation to emissions units, which meet standards of international best practice.
1.4 That said, although the original impetus for the changes in this Bill were with respect to emissions units, the proposed changes are intended to improve the operation of financial markets generally, not just in the emissions trading sphere. A number of the changes are designed to facilitate trade in a wider range of commodities than emissions units (and derivative products relating to emissions units). For example, the changes that improve the regulatory regime for clearing and settling financial products will benefit trading in equities, debt instruments, currencies and other commodities.
1.5 The diagram below illustrates the relationship between the reforms, outcomes sought in this policy process, and relevant players.
Figure 1: Relationship between reforms and outcomes sought in this policy process
The top row comprises the main amendments set out in the Draft Bill. The next row describes the type of regulatory framework that is likely to result from the amendments. The bottom row describes the ultimate objectives of the amendments.
→ Full size version of Figure 1 [92 kB JPG]
Policy Process Thus Far
1.6 The Ministry of Economic Development ("Ministry"), in consultation with other agencies, including the Reserve Bank and the Securities Commission, has led the policy development that has resulted in the drafting of the Draft Emissions Units, Settlement Systems and Futures Bill Bill ("Draft Bill"), which is attached to this consultation document.
1.7 As part of this policy process, two papers were presented to Cabinet in late 2007:
- The first paper, Reform of the Law Relating to Futures Exchanges and Clearing and Settlement Systems (POL (07) 382), made a number of proposals for amendments to the law regulating futures exchanges and clearing and settlement systems so as to facilitate a more robust legislative framework that meets the expectations of potential international participants.
- The second paper, Designated Settlement Systems and the Primacy of Clearing Houses' Interest in Collateral (CAB (07) 632), reported back to Cabinet on the policy tradeoffs resulting from providing clearing houses, which are to be part of a designated settlement system, with certainty of their interest in collateral provided in the settlement system. It also sought Cabinet agreement to a number of changes, including rescission of decisions previously taken by Cabinet, to the regulation of clearing and settlement systems.
1.8 The Draft Bill is intended to implement the recommendations in these Cabinet papers, which Cabinet has agreed to. To view the Cabinet papers, and the attached Regulatory Impact Statements, which include a list of the recommendations that were made to Cabinet, see Futures Exchanges and Clearing and Settlement Systems.
Consultation Details
1.9 The purpose of this consultation is to test with stakeholders and other interested parties how well the Draft Bill implements the recommendations agreed to by Cabinet, including whether there are better ways of implementing these proposals in legislation.
1.10 Submissions should primarily relate to the text of the Draft Bill. However, to facilitate the writing of submissions, we have set out in this covering note the main changes in the Draft Bill. We have also included a number of guiding questions. These highlight the sorts of information we have identified as being crucial in evaluating policy options to facilitate efficient and effective financial markets, including the trading of emissions units.
1.11 This policy process has operated within the guidelines required for legislative design and regulatory impact assessments. In keeping with this approach the Ministry seeks comments from submitters on how affectively the Bill achieves the policy objectives and how well the Bill takes account of the costs and benefits of these proposed amendments (see questions in paragraph 1.14). The responses to all of the questions will assist in concluding a Regulatory Impact Statement that will be included with the Bill.
1.12 Please send submissions to:
Caroline Ramsey
Manager Financial Sector
Competition, Trade & Investment Branch
Ministry of Economic Development
33 Bowen St, PO Box 1473,
Wellington 6011, New Zealand
(04) 474 2887
Caroline.Ramsey@med.govt.nz
1.13 The closing date for submissions is Monday 10 March 2008.
Questions
1.14 As set out above, we welcome comments on the Draft Bill. However, to provide an indication of the sort of information we are seeking, it may be useful to focus your response, in relation to each area covered in the Draft Bill, on the following questions:
- Does the Draft Bill reflect the intent of the Cabinet decisions in the most cost-effective way. Are there any changes that would improve the cost-benefit ratio?
- Do you agree with the impacts identified in this consultation paper? Do you think there are any other impacts, including the risk of unintended consequences?
1.15 In addition to these questions (which apply to all areas covered in the Draft Bill), we have included, where appropriate, further specific questions.
1.16 Please provide as much detail as possible in your response.
Official Information Act 1982
1.17 In providing your submission, please advise us if you have any objection to your submission being released. If you object to your submission (or a part of your submission) being released, please indicate which parts of your submission you would like to be withheld, and the grounds for withholding. The Ministry will carefully review any representations you make in this regard in preparing and releasing any summary of submissions, and in considering any formal Official Information Act requests that may be received in the future. Because the Ministry is subject to the Official Information Act, we must base any decisions about whether to withhold any submissions (or parts of submissions) on the grounds for withholding under the Official Information Act. This means that any requests for information to be withheld will not be determinative.
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