Summary

The Climate Change Response Act 2002 (CCRA) was amended in June 2020. This insight focuses on the new enforcement provisions introduced by the amendment in relation to breaches of obligations for participants in the emissions trading scheme (ETS). The amendment introduces new enforcement tools (infringement offences). It also expands the applicability of excess emissions penalties and, in some cases, increases the amount of the penalties, strengthening the enforcement regime under the ETS.

Background to the enforcement amendments

A core element of a system such as the ETS is making sure that participants comply with their obligations, so that the system can work as intended. To achieve this, it is important to identify non-compliances and penalise them in a way that deters participants from breaching their ETS obligations in the future.

Historically, the CCRA contained a small range of tools that could be used to penalise non-compliance: penalties for a few less serious breaches, and court proceedings for criminal offences arising from more serious breaches.

In terms of ensuring the integrity of the ETS, these tools offered a limited range of options.

The penalties had low deterrence value. Both penalties and criminal fine maximum limits were quite low. Also, in the case of penalties, they could be reduced to NZ$0 by the regulator if the non-compliant participant took steps to acknowledge the breach.

Enforcement agencies did not prosecute criminal offences for the more serious offences, deterred by the resources required to bring a matter to court and the stringent legal requirements to prove a criminal case.

More enforcement tools and increased penalties

The CCRA amendments introduce more enforcement tools, and increase the deterrence effect of some existing ones. Amendments with respect to infringement offences  have nominally come into effect on 23 June 2020. However, regulations must be drafted to give them full effect. While there is no specific timeframe in the CCRA, draft regulations were expected in the next few months so as to coincide with the entry into force of the new penalties regime.

The new excess emissions penalties regime will come into effect on 1 January 2021.

Infringement offences

Already in force, but not yet defined

While infringement offences are nominally already in force, the details of what these are will be included in regulations. While there is no indication as to their timing, it is likely that the regulations will come into force in January 2021.

Examples of infringement offences

The CCRA does not offer certainty as to the future infringement offences, but indicates that some contraventions of duties, restrictions or prohibitions that amount to offences may be listed in the regulations as infringement offences. The existing offences that may give rise to lower-level infringement offences include:

• Signing false declaration with respect to regulations relating to Part 2 (Institutional arrangements) or to auctions to sell New Zealand units (section 30J CCRA);

• Providing false or misleading information to the Registrar (section 30K CCRA);

• Failing to provide required information to inventory agency (section 46 CCRA);

• Obstructing, hindering, resisting, or deceiving person exercising power under Part 3 (Inventory agency) (section 47 CCRA);

• Signing false declaration in respect of regulations made under section 50 (section 48 CCRA);

• Failure to comply with a requirement to collect data or other information, calculate emissions and removals, and keep records (section 129 CCRA).

Consequences

If an ETS participant commits an infringement offence, enforcement can take the form of a criminal charge or of an infringement notice . An infringement notice would be issued to the person, attracting a fine (NZ$3000-NZ$6000) and an infringement fee (NZ$1000-NZ$2000). The infringement fee consists of different amounts for the first, second or subsequent infringement offence.

Excess emissions penalties

Background

Excess emissions penalties were originally applied in limited circumstances, such as failure to surrender or repay units by the due date or when required under a s134(3) notice. The EPA had the power to reduce excess emissions penalties to NZ$0, under certain circumstances, for example if the person disclosed the failure to surrender or repay units voluntarily.

Expanded application of excess penalties

The amendments expand the circumstances in which excess penalties apply, and limit the discretion of the EPA to reduce their amount. In addition to excess penalties arising if a person fails to surrender or repay units by the due date (section 134 CCRA), from 1 January 2021 penalties apply for:

• failing to submit emissions return by due date (section 134A CCRA);

• failing to submit annual or closing allocation adjustment by due date (section 134B CCRA);

• submitting incorrect emissions return (section 134C CCRA);

• providing incorrect information in an allocation application or adjustment (section 134D CCRA).

Calculating penalty amounts

The amendments introduce a new system to calculate the excess emissions penalty amount.

If a person fails to surrender or repay units (section 134 CCRA), the excess emissions penalty is calculated as:

3 x units not surrendered or repaid (in tonnes) x price per unit (in tonnes).

For all the other offences, the excess emissions penalty is calculated as:

units due (in tonnes) x price per unit (in tonnes) x culpability factor.

The culpability factor ranges between 0.1 and 1, depending on the level of culpability of the person (not taking reasonable care) and whether the person voluntarily disclosed the failure or error to the EPA.

The EPA has no discretion in choosing the culpability factor. The CRRA provides that the culpability factor that applies to an excess penalty calculation is the greatest culpability factor that the EPA is satisfied applies in the circumstances.

Other amendments

Given the increase in amount and scope of excess penalties, the amendments allow a person to request to enter into a deferred payment arrangement with the EPA, either in a single payment or in instalments (section 135A CCRA).

In order to strengthen the enforcement regime, the EPA will also report certain information on the penalties imposed under sections 134-134D, such as the names of the persons on whom the penalty was imposed and if any amounts remain outstanding (section 89 CCRA).

The amendment will also tighten of rules around interest remission. Remission of interest is now limited to cases where the EPA is satisfied that it would be manifestly unfair or unjust to impose all, or that part, of the amount (section 137 CCRA).

Should you need further advice in relation to any of these issues, please contact us.