Recent weeks saw a hectic intellectual dynamism for carbon markets in the climate community. The 46th session of the Subsidiary Body for Scientific and Technological Advice convening in Bonn, Germany from May 8 to 18 featured intense discussions on the market provisions of the Paris Agreement, trying to build incremental blocks for the rulebook in 2018. Parties reflected on many thorny issues that highlighted the role of internationally transferred mitigation outcomes (ITMOs) in achieving nationally determined contributions (NDCs) and how to ensure environmental integrity, transparency, and the avoidance of double accounting (article 6.2); the type of governance for a sustainable development mechanism (article 6.4); and developing a work program for non-market approaches (article 6.8).

The Bonn conference was followed by “Innovate4Climate” – a new global dialogue concluded on May 25 in Barcelona, Spain, gathering markets leaders to explore prospective policy instruments. Innovate4Climate featured European stories of using market approaches to move climate action forward. It is true that the European Union, for example, as a pioneer in designing an emissions trading scheme (ETS), delivers rich experience and lessons to the rest of the world for constructing their own initiatives. What seemed missing or inadequately addressed in these discussions, however, is the elaboration on those parallel efforts happening outside Europe. To share some of the spotlight with emerging carbon markets in the Asia-Pacific is pressingly needed and would contribute geographical diversity to the discussion.

The evolution of China’s ETS is a vivid example. The world’s biggest greenhouse gas (GHG) emitter and a non-typical market economy is soon to open a national carbon market covering about 40 percent to 50 percent of its total GHG emissions and replacing the EU ETS as the “largest carbon pricing initiative.” The transition from the current eight pilot schemes to the national emissions trading scheme (NETS) not only shows China’s ascending climate ambitions but also sends out a strong signal to those jurisdictions seeking the linkage of domestic ETSs and encourages more players to participate. Numerous literature indicates that linking carbon markets across borders would produce environmental and economic benefits. Adding to those benefits, the linkage could enhance transparency on GHG emissions accounting and reporting and facilitate information sharing of climate action.

A closer look at article 6.2 of the Paris Agreement reveals its non-restriction on the type of cooperative approaches that may employ ITMOs toward NDCs. An enhanced and flexible transparency framework was enshrined in article 13, requiring all parties to regularly submit a national GHG inventory and inform of implementation progress (paragraph 7) and to undergo expert and peer review (paragraph 11). Developing domestic ETSs and linking them, different from the centralised market mechanism under the Kyoto Protocol, is a promising approach to holding parties accountable and giving carbon market a full play in realising transparency.

Again, the Chinese story is encouraging, at least for those without a mature system for measuring, reporting, and verifying GHG emissions. China has been often criticised for being too protective of its emissions data and not fully reporting emissions. China’s transition to the NETS creates a good opportunity for making such data more accessible and provides momentum for higher-level and more united legislation to track compliance and ensure accurate and credible data.

Prior to launching the pilot ETSs, China had neither a national nor regional GHG accounting and reporting system. At present, all the pilots have adopted local rules on GHG emissions, formulated methods and guidelines for accounting emissions from key enterprises, and established reporting platforms. The commitment on disclosing GHG emissions profile has been written into China’s GHG Control Plan during the 13th Five-Year Plan (2016-2020). The ministerial decree and policy prescriptions circulated by the National Development and Reform Commission (NDRC) defined who must report, what to report, and how to report, along with verification guidance and enforcement measures (e.g., liability, a credit management system, and a blacklist for non-compliance). The NDRC has also submitted the Draft NETS Regulations to the State Council for review and discussion.

Linking ETSs is a pathway for peer review of each Party’s GHG emissions and associated regulatory requirements. In the already linked California-Québec market, the two parties signed a Linkage Agreement that includes requirements for transparency. Article 1.2 (f) provides that, “The intended outcome of the harmonisation and integration is to enable each party under its own legislative or regulatory authority to… enable the sharing of information to support effective analysis, operation, enforcement, and supervision of the market for compliance instruments.” In the harmonisation and integration process, article 3.2 requires that the procedural requirements of each party be respected, “including appropriate and effective openness and transparency of each party’s public consultations.”

It should be, however, observed that the California-Québec market is a subnational partnership. Article 6.3 of the Paris Agreement says the use of ITMOs to achieve NDCs shall be authorised by participating parties; neither California nor Québec is the party to the Agreement — and the United States, thanks to President Trump’s recent announcement, will in fact be withdrawing from the Agreement. The question remains how mitigation outcomes transferred between two subnational entities can be counted toward achieving NDCs, a question complicated by Trump’s decision to drop the Paris commitment.

On a more positive note, Canada has been at the forefront of pricing carbon pollution, which constitutes a core element of the Pan-Canadian Framework on Clean Growth and Climate Change announced on December 9, 2016. The new plan requires all Canadian jurisdictions to have carbon pricing in place by 2018. Canada, during its G7 presidency in 2018, will have a unique chance to seek and generate as much cooperation as possible, including with Asia-Pacific countries.

Meanwhile, South Korea launched the first nationwide ETS in Northeast Asia in 2015. Japan established a subnational ETS in Tokyo in 2010. There are evolving cooperative initiatives between South Korea, Japan, and China, which account for over a quarter of global GHG emissions, in researching, developing, and linking ETSs. For instance, the 2016 High-Level Roundtable on Carbon Market Cooperation in Northeast Asia gathered experts to exchange experience and seek future operation. Their discussions partially contributed to the enlightening report, “Roadmap to a Northeast Asian Carbon Market.”

New Zealand has a relatively mature ETS that has operated since 2008. Following Chinese Premier Li Keqiang’s recent visit to New Zealand in March, the two parties started exploring collaboration opportunities on carbon markets.

Current trends suggest the likelihood of more such partnerships in the Asia-Pacific region. Such agreements should provide inspiration for operationalising articles 6 and 13 of the Paris Agreement, which serve as a foundation for a future global carbon market as a pathway parties can follow to realise their NDCs in a transparent manner.

Ling Chen is a research associate with the International Law Research Program of the Centre for International Governance Innovation in Waterloo, Canada. He holds an LL.M. from the University of Toronto and an LL.B. and an LL.M. from Beihang University in China.

I don’t know about you, but my opinion is the NZ Fire Service executives get well paid for doing..??  and the fire crews have to do the hard work but get paid well for it and know this is what their job entails when they applied… its not as if they took the job expecting to just clean the fire trucks all day or climb the Sky Tower steps with their gear on. It’s the officials that get ‘up my goat’ as now they want to spread the net wider to capture a bigger revenue base, plus increase the cost for those already paying levies. If the merger of the urban and rural fire authorities is designed to deliver efficiencies and service, why do they need more money?

It hardly needs saying but collecting levies from your insurance policy is a ridiculous way to fund the NZ Fire Service. Its should clearly be a land based levy that all property owners pay....... this being who benefits from the guys in red trucks coming to put out a fire, help in a flood or vehicle accident.

In isolation, the following could be construed as the rantings of a frustrated ex-civil servant who is sitting at home and is bitterly seeking recognition of something he's been banging on about for 30yrs. 

Problem is, even for those of us without a Phd in Biochemistry, we all know something isn't right. When you look outside your window and you can see clear skies to the west, you can safely predict its ok to have that picnic. Down in NZ, we've lived with a large Ozone hole for some time. Now we can see smoke on the horizon to the far north, heading down from Asia, Europe and America. We need 1,000,000,000 more people like James Hansen to all take some big strides.

Geoff Manks

Acknowledgement for the following article – Rolling Stone Magazine December 2016, Jeff Goodell

"We have not hit the disastrous level," says leading climate scientist James Hansen. "But we are close."

"The energy system and the tax system have got to be simplified in a way that everybody understands and doesn’t allow the wealthy few to completely rig the system," says Hansen. 

In the late 1980s, James Hansen became the first scientist to offer unassailable evidence that burning fossil fuels is heating up the planet. In the decades since, as the world has warmed, the ice has melted and the wildfires have spread, he has published papers on everything from the risks of rapid sea-level rise to the role of soot in global temperature changes – all of it highlighting, methodically and verifiably, that our fossil-fuel-powered civilization is a suicide machine. And unlike some scientists, Hansen was never content to hide in his office at NASA, where he was head of the Goddard Institute for Space Studies in New York for nearly 35 years. He has testified before Congress, marched in rallies and participated in protests against the Keystone XL Pipeline and Big Coal (he went so far as to call coal trains "death trains"). When I ran into him at an anti-coal rally in Washington, D.C., in 2009, he was wearing a trench coat and a floppy boater hat. I asked him, "Are you ready to get arrested?" He looked a bit uneasy, but then smiled and said, "If that's what it takes."

The enormity of Hansen's insights, and the need to take immediate action, have never been clearer. In November, temperatures in the Arctic, where ice coverage is already at historic lows, hit 36 degrees above average – a spike that freaked out even the most jaded climate scientists. At the same time, alarming new evidence suggests the giant ice sheets of West Antarctica are growing increasingly unstable, elevating the risk of rapid sea-level rise that could have catastrophic consequences for cities around the world. Not to mention that in September, average measurements of carbon dioxide in the atmosphere hit a record 400 parts per million. And of course, at precisely this crucial moment – a moment when the leaders of the world's biggest economies had just signed a new treaty to cut carbon pollution in the coming decades – the second-largest emitter of greenhouse gases on the planet elected a president who thinks climate change is a hoax cooked up by the Chinese.

Hansen, 75, retired from NASA in 2013, but he remains as active and outspoken as ever. To avoid the worst impacts of climate change, he argues, sweeping changes in energy and politics are needed, including investments in new nuclear technology, a carbon tax on fossil fuels, and perhaps a new political party that is free of corporate interests.

He is also deeply involved in a lawsuit against the federal government, brought by 21 kids under the age of 21 (including Hansen's granddaughter), which argues that politicians knowingly allowed big polluters to wreck the Earth's atmosphere and imperil the future well-being of young people in America. A few weeks ago, a federal district judge in Oregon delivered an opinion that found a stable climate is indeed a fundamental right, clearing the way for the case to go to trial in 2017. Hansen, who believes that the American political system is too corrupt to deal with climate change through traditional legislation, was hopeful. "It could be as important for climate as the Civil Rights Act was for discrimination," he told me.

Last fall, I visited Hansen at his old stone farmhouse in Bucks County, Pennsylvania. It sits on 10 acres, with a tennis court and a row of carefully trimmed apple trees lining the walk to the front door. We talked in his office, a big room connected to a stone barn outfitted with solar panels. He had the cool, cerebral manner of a man whose mind is always processing complex algorithms. But at times he seemed downright cranky, as if he were losing patience with the world's collective failure to deal with the looming catastrophe that he has articulated for the past 30 years. "It's getting really more and more urgent," Hansen told me. "Our Founding Fathers believed you need a revolution every now and then to shake things up – we have certainly reached that time."

You've arguably done more than anyone to raise awareness of the risks of climate change – what does Trump's election say about the progress of the climate fight?
Well, this is not a whole lot different than it was during the second Bush administration, where we had basically two oil men running the country. And President Bush largely delegated the energy and climate issue to Vice President Cheney, who was particularly in favor of expanding by hundreds the number of coal-fired power plants. Over the course of that administration, the reaction to their proposals was so strong, and from so many different angles – even the vice president's own energy and climate task force – that the direction did not go as badly as it could have.

In fact, if you make a graph of emissions, including a graph of how the GDP has changed, there's really not much difference between Democratic and Republican administrations. The curve has stayed the same, and now under Obama it has started down modestly. In fact, if we can put pressure on this government via the courts and otherwise, it's plausible that Trump would be receptive to a rising carbon fee or carbon tax. In some ways it's more plausible under a conservative government [when Republicans might be less intent on obstructing legislation] than under a liberal government.

Hansen devoted his career at NASA to researching climate change. 

Trump's Cabinet nominees are virtually all climate deniers, including the new head of the Environmental Protection Agency, Scott Pruitt. Are Trump's appointments a sign that climate denialism has gone mainstream?
Climate denialism never died. My climate program at NASA was zeroed out in 1981 when the administration appointed a hatchet man to manage the program at Department of Energy. Denialism was still very strong in 2005-2006 when the White House ordered NASA to curtail my speaking. When I objected to this censorship, using the first line of the NASA Mission Statement ["to understand and protect our home planet"], the NASA administrator, who was an adamant climate denier, eliminated that line from the NASA Mission Statement. Denialism is no more mainstream today than it was in those years.

How much damage can a guy like Pruitt do to our chances of solving the climate crisis?
The EPA is not the issue. They have been attacked several times by an incoming administration since I got into this business – but they always survive without much damage. EPA cannot solve the climate problem, which is a political issue.

If President-elect Trump called you and asked for advice on climate policy, what would you tell him?
What we need is a policy that honestly addresses the fundamentals. We must make the price of fossil fuels honest by including a carbon fee – that is, a straightforward tax on fossil fuels when they come out of the ground, and which is returned directly to people as a kind of yearly dividend or payment. Perhaps someone will explain to President-elect Trump that a carbon fee brings back jobs to the U.S. much more effectively than jawboning manufacturers – it will also drive the U.S. to become a leader in clean-energy technology, which also helps our exports. The rest of the world believes in climate change, even if the Trump administration doesn't.

You know, he said exactly what was necessary to get the support of the people that he needed to win the election. But that doesn't mean he necessarily will adopt the implied policies. So he wants to save the jobs of coal miners and fossil-fuel workers and make the U.S. energy-independent, but he also wants to invest in infrastructure, which will make the U.S. economically strong in the long run, and you can easily prove that investing in coal and tar-sands pipelines is exactly the wrong thing to do.

I would also tell him to think of what the energy sources of the future are going to be and to consider nuclear power. China and India, most of their energy is coming from coal-burning. And you're not going to replace that with solar panels. As you can see from the panels on my barn, I'm all for solar power. Here on the farm, we generate more energy than we use. Because we have a lot of solar panels. It cost me $75,000. That's good, but it's not enough. The world needs energy. We've got to develop a new generation of nuclear-power plants, which use thorium-fueled molten salt reactors [an alternative nuclear technology] that fundamentally cannot have a meltdown. These types of reactors also reduce nuclear waste to a very small fraction of what it is now. If we don't think about nuclear power, then we will leave a more dangerous world for young people.

If the Trump administration pushes fossil fuels for the next four years, what are the climate implications?
Well, it has enormous implications, especially if it results in the building of infrastructure like the Keystone Pipeline, which then opens up more unconventional fossil fuels, which are particularly heavy in their carbon footprint because of the energy that it takes to get them out of the ground and process them. But I don't think that could happen quickly, and there's going to be tremendous resistance by environmentalists, both on the ground and through the courts. Also, the fossil-fuel industry has made a huge investment in fracking over the past 20 years or so, and they now have created enough of a bubble in gas that it really makes no economic sense to reopen coal-fired power plants when gas is so much cheaper. So I don't think Trump can easily reverse the trend away from coal on the time scale of four years.

How would you judge President Obama's legacy on climate change?
I would give him a D. You know, he's saying the right words, but he had a golden opportunity. When he had control of both houses of Congress and a 70 percent approval rating, he could have done something strong on climate in the first term – but he would have had to be a different personality than he is. He would have to have taken the FDR approach of explaining things to the American public with his "fireside chats," and he would have had to work with Congress, which he didn't do.

You know, the liberal approach of subsidizing solar panels and windmills gets you a few percent of the energy, but it doesn't phase you off fossil fuels, and it never will. No matter how much you subsidize them, intermittent renewables are not sufficient to replace fossil fuels. So he did a few things that were useful, but it's not the fundamental approach that's needed.

President Obama delivers remarks on energy after a tour of a Boulder City, Nevada, solar panel field in March 2012.

Climate change hardly came up during the election, except when Al Gore campaigned with Hillary Clinton. Do you think Gore has been an effective climate advocate?
I'm sorely distressed by his most recent TED talk [which was optimistic in outlook], where Gore made it sound like we solved the climate problem. Bullshit. We are at the point now where if you want to stabilize the Earth's energy balance, which is nominally what you would need to do to stabilize climate, you would need to reduce emissions several percent a year, and you would need to suck 150 gigatons of carbon out of the atmosphere, which is more than you could get from reforestation and improved agricultural practices. So either you have to suck CO2 out of the air with some method that is more effective than the quasi-natural improved forestry and agricultural practices, or you leave the planet out of balance, which increases the threat that some things will go unstable, like ice sheets.

You've described the impacts of climate change as "young people's burden." What do you mean by that?
Well, we know from the Earth's history that the climate system's response to today's CO2 levels will include changes that are really unacceptable. Several meters of sea-level rise would mean most coastal cities – including Miami and Norfolk and Boston – would be dysfunctional, even if parts of them were still sticking out of the water. It's just an issue of how long that would take.

Right now, the Earth's temperature is already well into the range that existed during the Eemian period, 120,000 years ago, which was the last time the Earth was warmer than it is now. And that was a time when sea level was 20 to 30 feet higher than it is now. So that's what we could expect if we just leave things the way they are. And we've got more warming in the pipeline, so we're going to the top of and even outside of the Eemian range if we don't do something. And that something is that we have to move to clean energy as quickly as possible. If we burn all the fossil fuels, then we will melt all the ice on the planet eventually, and that would raise the seas by about 250 feet. So we can't do that. But if we just stay on this path, then it's the CO2 that we're putting up there that is a burden for young people because they're going to have to figure out how to get it out of the atmosphere. Or figure out how to live on a radically different planet.

Trump has talked about pulling out of the Paris Agreement. How do you feel about what was achieved in Paris?
You know, the fundamental idea that we have a climate problem and we're gonna need to limit global warming to avoid dangerous changes was agreed in 1992 [at the United Nations Framework Convention on Climate Change]. This new agreement doesn't really change anything. It just reaffirms that. That's not to say there's nothing useful accomplished in Paris. The most useful thing is probably the encouragement of investment into carbon-free energies. But it's not really there yet. I mean, the U.S. should double or triple its investment in energy. The investment in research and development on clean energies is actually very small. There are these big, undefined subsidies, like renewable portfolio standards, that states place on their electricity generation, which can help them get 20 or 30 percent of their power from renewables. But we're not actually making the investments in advanced energy systems, which we should be doing. There were agreements to do that in Paris. They have to be implemented – somebody's gotta actually provide the money.

I think that our government has become sufficiently cumbersome in its support of R&D that I'd place more hope in the private sector. But in order to spur the private sector, you've got to provide the incentive. And that's why I'm a big supporter of a carbon fee.

Is the target of limiting warming to two degrees Celsius, which is the centerpiece of the Paris Agreement, still achievable?
It's possible, but barely. If global emissions rates fell at a rate of even two or three percent a year, you could achieve the two-degree target. People say we're already past that, because they're just assuming we won't be able to reduce missions that quickly. What I argue, however, is that two degrees is dangerous. Two degrees is a little warmer than the period when sea levels were 20 to 30 feet higher. So it's not a good target. It never had a good scientific basis.

In Paris, negotiators settled in an "aspirational" target of 1.5C.
Yes. But that would require a six-percent-a-year reduction in emissions, which may be implausible without a large amount of negative emissions – that is, developing some technology to suck CO2 out of the atmosphere.

Let's talk more about policy. You're a big believer in a revenue-neutral carbon fee. Explain how that would work, and why you're such a big supporter of it.
It's very simple. You collect it at the small number of sources, the domestic mines and the ports of entry, from fossil-fuel companies. And you can distribute it back to people. The simplest way to distribute it and encourage the actions that are needed to move us to clean energy is to just give an equal amount to all legal residents. So the person who does better than average in limiting his carbon footprint will make money. And it doesn't really require you to calculate carbon footprint – for instance, the price of food will change as sources that use more fossil fuel, like food imported from New Zealand, become more expensive. And so you are encouraged to buy something from the nearby farm.

So this would provide the incentive for entrepreneurs and businesses to develop carbon-free products and carbon-free energies. And those countries that are early adopters would benefit because they would tend to develop the products that the rest of the world would need also, so it makes sense to do it. But it's just not the way our politics tend to work; they tend to favor special interests. And even the environmentalists will decide what they want to favor and say, "Oh, we should subsidize this." I don't think we should subsidize anything. We should let the market decide.

Hansen being arrested at a White House protest in 2011. "We have to move to clean energy," he says. "If we burn all the fossil fuels, then we will melt all the ice on the planet, and that would raise the seas by about 250 feet."

Of course, the problem with getting carbon-fee legislation passed is that Congress is run by people who don't even acknowledge that climate change is a problem.
Yeah, although behind the scenes a lot of them do. And many of them would support a revenue-neutral carbon fee. And, you know, I am equally critical of the liberals and the conservatives, because the liberals are using climate policy as a basis for getting some support from people who are concerned about the environment and recognize the reality of the climate threat. But they're not addressing the fundamental problem. The public understands that, and that leads to all the other things that people are concerned about, like the fact that you're answering to lobbyists while you're in Congress, then you become a lobbyist when you retire. [Former House Democratic Majority Leader] Dick Gephardt retired after he couldn't get the nomination for president, and in the first year out of office he got $120,000 per quarter from Peabody Coal, almost half a million dollars a year from a single source. It's like when Hillary Clinton is asked, "Why did you take $250,000 from the banks to give a talk?" and she said, "Well, that's what they offered." That's the way it works.

We need a revolutionary third party that takes no money from lobbyists. Look at Obama and Bernie Sanders: Their campaigns initially were funded by small donors. They didn't have to take lobbyist money. The public is not into the details of what's going on, but it knows that it's become a rotten system.

I agree that a carbon fee could be an effective tool to cut emissions, but how do you get the politics right to get it done? I mean, it's one thing to...
Well, you have to make it simple. You can't do this 3,000-page crap, like they did with cap-and-trade in 2009. You gotta simplify it down to the absolute basics, and you do it in a way that the public will not let you change it. If the public is getting this dividend, they won't let you change it.

That's the same argument people use for a flat tax, which will never happen because all the loopholes in the tax system are deliberate. And political.
That's why we need a new party, which is gonna be based on these principles. These are the most fundamental things. The energy system and the tax system have got to be simplified in a way that everybody understands and doesn't allow the wealthy few to completely rig the system.

Sounds like you think we need a Boston Carbon Party.
[Laughs] Something like that.

A lot of people say you are a great scientist, but when it comes to policy, that's a whole other thing – and something you should leave to politicians.
Bullshit. What scientists do is analyze problems, including energy aspects of the problem. I got started thinking about energy way back in 1981, when I published a paper that concluded that you can't burn all the coal, otherwise you end up with a different planet. There's nothing wrong with scientists thinking about energy policy, in my opinion. In fact, if you have some scientific insights into the implications of different policies, you should say them. It's the politicians who try to stop you. And that includes people who ran NASA's Goddard Space Flight Center, where I worked for 33 years. Before I would go to Washington to testify, I'd sometimes get a call from the director of the center – somebody who I respect a lot and is a very good scientist and engineer. But he would tell me, "Just be sure to only talk about science, not policy."

Well, I don't agree with that. Here's another example – at NASA headquarters, we would have a trial run on press conferences. And at one of them, which was about declining sea ice in the Arctic, one of the trial questions was, "What can we do about it?" The scientist who responded said, "Well, we can reduce emissions of greenhouse gases." And some of the more political types in the agency said, "No, you can't say that. That's policy!" [Laughs]

When I was working at NASA, I always felt I was working for the taxpayer. I was not working for the administration. When a new administration comes in, they think they can control public-information offices and science agencies and influence what they're saying so they become, in effect, offices of propaganda. But that's just wrong. When we have knowledge about something, we should not be prohibited from saying it as clearly as we can.

You were among the first to alert the world to the dangers of climate change back in the 1980s. Since that time, carbon pollution has just gone up. What does that tell you about humanity?
Well, that's always been the way we do things. In the U.S., we didn't face up to the dangers of World War II until we were forced to. And then we did a lot. But in this case, it's particularly difficult and crucial because of the inertia of the climate system and the fact that the climate system gains momentum, and you've gotta stop that. It is a very powerful system. We're close to that point of no return. Whether we've passed it or not, I don't know.... We've passed it in the sense that some climate impacts are going to occur and some sea-level rise is going to occur, but we have not necessarily hit the disastrous level, which would knock down global economies and leave us with an ungovernable planet. But we are close. So this is why it's really crucial what happens in the near term. But it will take a strong leader who is willing to take on special interests. Whether that can be done without a new party that's founded on just that principle, I'm not sure. So we'll have to see.

Do you ever feel a sense of futility about the situation we're in – the essential insanity of continuing to emit carbon pollution, given what we know about the future consequences
It's not at all surprising, because it's related to the desire of people to raise their standard of living out of poverty levels. That's what we did in the West. We discovered fossil fuels, which allowed us to replace slavery with fossil fuels. That's what China and India and other countries want to do now. But if they do it the way we did, then we're all going down together. If we go over there and say, "You guys do it differently. Use solar panels" [laughs], that's stupid. We have to work together in a way that will actually work. And they understand the risks, too.

There is a lot of talk about the rise of China as a military power. Well, they're not gonna bomb their customers. The bigger threat is this climate threat. That's what could destroy civilization as we know it

The NZ Govt has acted up provide some teeth to the ETS. Following is a summary of the announced changes made.

Following consultation held between December 2015 and February 2016, the Government has passed the Climate Change Response (Removal of Transitional Measure) Amendment Act which will phase out the one-for-two transitional measure in the NZ ETS. This change will take effect from 1 January 2017.

The one-for-two measure allows non-forestry participants to surrender only one emissions unit for every two tonnes of carbon dioxide equivalent (CO2-e) of greenhouse gas emissions.

The one-for-two measure applies to the following:

Surrender obligations for non-forestry participants in the liquid fossil fuels, stationary energy, industrial processes and waste sectors. Currently the surrender obligation for these sectors is halved [actually the Govt subsides these industries…but lets not split hairs.],so they are required to surrender only one emissions unit for every two tonnes of CO2-e emissions.

Free allocations of units for emissions-intensive and trade-exposed industrial activities. Currently the allocation is halved [..spin..]in proportion with the surrender obligation faced by non-forestry participants.

Entitlements of units for non-forestry removal activities (e.g. embedding greenhouse gases in produces, or exporting products containing certain greenhouse gases). Currently these entitlements are halved [..more spin..] in proportion with the surrender obligation faced by non-forestry participants.

Importers of goods and vehicles containing synthetic greenhouse gases (SGG). Importers of goods containing SGG are required to pay the SGG levy on importation. Vehicles containing SGG also pay the SGG levy when the vehicle is first registered in New Zealand. Currently the SGG levy is halved [..spin, spin, spin..] in proportion with the surrender obligation faced by non-forestry participants.

The one-for-two measure will be phased out evenly from 1 January 2017, for all of the above groups, until full obligations are reached (i.e. participants surrender one unit for every tonne of CO2-e emissions) from 1 January 2019.

The change to non-forestry surrender obligations will be accompanied by proportionate increases to non-forestry allocations and entitlements, and to the synthetic greenhouse gas levy. The increases to non-forestry surrenders, allocations and entitlements are shown below – how the phase out will work..:

2017 2/3 (67%) 1 unit for every 1.5 whole tonnes of CO2-e emissions

(Surrender due 31 May 2018)

2018 5/6 (87%) 1 unit for every 1.2 whole tonnes of CO2-e emissions

(Surrender due 31 May 2019)

2019 100% 1 unit for every whole tonne of CO2-e emissions

(Surrender due 31 May 2020)

The changes to one-for-two do not apply to forestry participants, as they already surrender one unit for every tonne of CO2-e emissions.

Should you require further information on how this change will affect you please review the fact sheet available here or contact 0800 CLIMATE (0800 254 628). Information about the ETS Review can be found here.

D&O insurance is provides indemnity for the complex legal liabilities that may be encountered by Company directors and for employees who may be deemed to be a director.

To add to the complexity, most insurers divide the insurance policy is divided into two parts:

The first part covers the Insured Persons (the directors) for their legal liability arising from Wrongful Acts in the course of their duties as a director.

The second part covers the Insured Organisation (the Company) for its liability, if any, to indemnify the Insured Person for costs and damages arising from a Wrongful Act.

To all intents and purposes the insurance is to indemnify for the Wrongful Acts of directors. The only insurance protection for the Company, per se, is for its liability to indemnify a director. If the company has no liability to so indemnify a director then the director still has the direct protection of the insurance.

A company may only indemnify its directors and employees or arrange D&O insurance if expressly authorised to do so by its constitution, and with the prior approval of its board.

Responsibilities of Directors [including but not limited to]

A.The responsibilities of Directors are set out in the Companies Act 1993. These responsibilities are wide ranging. They include:

B.Acting in the best interests of the Company and its employees

C.Exercising a level of care that would be expected of a director.

D.Acting in good faith.

E.Making proper enquiries.

F.Disclosing any conflict of, or related party, interest.

G.Not entering into obligations that cannot be met.

H.Not trading recklessly.

I.Not breaching the Companies Act.

Wrongful Act

Wrongful Act in the policy means any error, misstatement, act or omission neglect or breach of duty committed by a director in the course of his/her duties for the Company. Defence costs may be advanced in a criminal proceeding for a Wrongful Act but must be repaid if there is no acquittal.

Sum Insured

The sum insured under the policy must be sufficient to cover all directors for claims arising from the one event, i.e. it does not apply individually to each director. The sum insured must also be adequate to cover the defence costs for all directors. Defence costs are not necessarily in addition to the sum insured. 

Excess

Each claim is subject to an excess which must be paid by an insured person. The excess applies to Defence Costs. 

Claims Made Basis

A claim notification must be made in the period of insurance that you first become aware it. There is no guarantee of cover if you notify the potential claim after the insurance period has expired.

If the event giving rise to the claim preceded the period of the insurance it will only be covered if the retroactive date of the insurance extends back sufficiently to pick it up.

Extensions to Cover  [available to be included]

•Continuous cover (A late reported claim may be accepted if you were with the same insurer)

•Outside non-profit directorships

•Employment practices. Unjustified dismissal, harassment and demotion 

•Your Estate (in the event of your death)

•Extended reporting period (if the cover is not continuing)

•Insured vs. Insured (If claims are brought by joint insured’s)

•Official Investigations (Costs only)

•Joint ventures

•New subsidiaries (prompt advice required)

•Old previous directorships (Run off cover)

•Prospectus liability (but not for IPOs)

•Preservation of Indemnity (if the Insured company is in liquidation)

•Spousal liability (Protects your spouse as well)

•Automatic reinstatement of the sum insured following a claim (usually one only)

•Current outside directorships (only if held at the request of the insured company)

Exclusions  (mainly those pertinent to D&O insurance)

•Injury or illness

•Pollution

•Refund of overpayments or profits

•Insider trading

•Dishonesty

•Fines or penalties

•Failure to insure

•Professional duty breach (other than as a director)

•Claims made by shareholders with more that 15% of shares

•Issue of prospectus, shares or debentures. (Some insurers differ on this)

•Building failure or deterioration.

Claim examples

The past few years have seen a raft of prosecutions against company directors, largely in the financial sector. Because of the significant sums involved and the large number of victims these prosecutions have received wide publicity. However, the underlying causes can be applied to many occupations where directors have failed to understand the issues, have been poorly advised, didn’t make the right enquiries or were simply inexperienced or, perhaps, incompetent. The criminal verdicts are well known but many claims were settled out of Court for significant sums.

Feltex shareholders have a claim against directors for misleading statements.

The widow of a commercial vessel skipper that foundered with loss of his life and his passengers was successfully prosecuted for breaches of her duties as a director of the company that owned the vessel.

Companies trading whilst insolvent. Directors pursued by creditors. 

The Pike River Coal chief executive was prosecuted for breaches under the Health & Safety Act.

Conclusion

These days a company directorship is no sinecure. You may personally feel that you are conscientious, honest, knowledgeable and experienced. Hopefully you will have the same confidence in your fellow directors and senior staff. 

Even so, many executive directors are very focused on their business, which makes it difficult to be able to keep abreast of all aspects of the law relating to a directorship, judgement can be subjective and errors can occur. Non-executive directors usually have a different/special skills to bring to a board but may not have the same insight into the business as the executive director. He or she deserves to the comfort of the protection offered by a D&O policy.

This summary has, of necessity, been brief. It is not a complete description, or even a complete summary as some of the details of exclusions, or others that are common to many insurances, have not been mentioned. We will be pleased to go over it in more detail if you wish or answer any questions