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Annual Report for the year ended 30 June 2012
Presented to the House of Representatives pursuant to section 44(1) of the Public Finance Act 1989 and section 23 of the Environment Act 1986 Parliamentary Commissioner for the Environment Te Kaitiaki Taiao a Te Whare Pˉaremata
Dr The Rt Hon Lockwood Smith Speaker House of Representatives Parliament Buildings WELLINGTON
Mr Speaker In accordance with section 23 of the Environment Act 1986, I am pleased to submit my Annual Report for the year ended 30 June 2012.
Yours faithfully
Dr Jan Wright Parliamentary Commissioner for the Environment Contents
1 Commissioner’s overview 3
2 About the Commissioner for the Environment 5 1
2.1 Statutory functions 5 2.2 Our mission 6
3 Reports and advice 7
3.1 Work performed this year 7 3.2 Environmental issues for future work 13 3.3 Public concerns and inquiries 14 3.4 Other activities 14
4 Office management 15
4.1 Training and development 16 4.2 Organisational health 16
5 Financial statements and statement of service performance 17
5.1 Statement of responsibility 17 5.2 Independent Auditor’s Report 18 5.3 Statement of objectives and service performance 21 5.4 Statement of comprehensive income for the year ended 30 June 2012 25 5.5 Statement of financial position as at 30 June 2012 26 5.6 Statement of changes in taxpayers’ funds for the year ended 30 June 2012 26 5.7 Statement of cash flows for the year ended 30 June 2012 27 5.8 Statement of commitments 28 5.9 Statement of contingent liabilities and contingent assets 28 5.10 Statement of departmental expenses and capital expenditure against appropriations 29 5.11 Statement of departmental unappropriated expenditure and capital expenditure 30 5.12 Notes to the financial statements 31
Appendix - Update Reports 45 2 Home
1 Commissioner'sCommissioner's overview overview
In May this year I was appointed to my second term as Commissioner. As the Members of Parliament debated in the House I was pleased to hear the representatives of different political parties all agreeing that, from time to time, they have disagreed with the recommendations of my reports - and indeed may well do so again in the future. I see that as a good illustration of the strength of independence. I hope always to stimulate and inform decision making but I am very comfortable with not having all Members of Parliament agree with me all of the time.
If I consider whether my work over the last year has had a theme then it quickly emerges as “water” with reports on freshwater quality, wild and scenic rivers and residential water heating. And, of course, water has featured in other work also, most notably in my submission on the Exclusive Economic Zone Bill – legislation to protect our ocean environment which is being debated as this Annual Report is being written.
The first of these reports (Water quality in New Zealand: understanding the science) had its origin in a presentation on the science of water quality that I gave to Members of Parliament in 2010. Water remains an active area of discussion at both central and local government level. This is the first occasion that I have produced a report which contains no recommendations. Rather, this report sits more closely with the educational aspects of my duties as Commissioner - it seeks simply to provide Parliamentarians with a trusted resource that they can use to decode the, often labyrinthine, issue of water quality. And it does seem to have resonated – a second print run has already been done and requests for copies have come from a wide range of sources – from individuals, sector groups, and to schools. Indeed I was very pleased to learn that it is being used as a reference in some newsrooms and even as a teaching resource at Massey University.
Similarly, my report on solar water heating, Evaluating solar water heating: Sun, renewable energy and climate change, had an educational component which explored major questions about the electricity sector. However as this report was tabled in July 2012 it falls outside the focus of this year’s Annual Report. Chapter 1 – Commissioner's overview
But while the theme of water has run through much of my work this year, electricity has been an undercurrent – not only in my solar water heating report but also in the report Hydroelectricity or wild rivers? Climate change versus natural heritage. This report was tabled in May 2012 and was focused on how to make a decision in the face of competing environmental values – some of which are quantifiable, and some which are not. Some of our special wild and scenic rivers have little protection, particularly from hydroelectric development. However 4 hydropower is also extremely important. Since it is a low carbon form of energy generation it is very important in the fight against climate change. Therefore balancing these competing environmental goods requires a strategic approach to indentify wild and scenic rivers that need protection.
Another major exercise this year was the preparation of the submission on the proposed EEZ legislation at the end of 2011. The international community gave New Zealand the right to develop the ocean resources in the EEZ under the Law of the Sea but subject to an obligation to protect and preserve the marine environment. I was concerned that the proposed EEZ legislation was too weak to meet that obligation. Since my submission there have been significant changes made to the Bill that have dealt with many of my concerns.
Looking forward to the next financial year I expect to expand on my work on water quality but also to look at biodiversity issues including native eel stocks. I will also be releasing the results of my investigation into hydraulic fracturing (fracking). It promises to be another interesting and busy year for me and my staff. I would like to conclude with offering my thanks to all of those people who assist me in my work.
Dr Jan Wright Parliamentary Commissioner for the Environment Home
2 ReportsAbout the and Commissioner advice for the Environment
The Environment Act 1986 established the Parliamentary Commissioner for the Environment as an Officer of Parliament and laid out the Commissioner’s functions and powers. The Commissioner is appointed for a five-year term by the Governor- General on the recommendation of the House of Representatives.
The Commissioner has seven statutory functions under the Environment Act to investigate environmental issues, processes and public agencies. As an Officer of Parliament, the Commissioner has a unique opportunity to provide Parliament with independent advice in its consideration of any matters that may have an impact on the quality of the environment. The Commissioner also communicates her advice to a wider public audience.
It is with the wider public audience that the Commissioner has also been “influential in framing national debate on contentious environmental issues in the past.”1 This was seen in the reception of the Commissioner’s report on the use of 1080 as well as calls from both government and sector groups requesting an independent report from the Commissioner on hydraulic fracturing.
2.1 Statutory functions
The functions of the Commissioner in section 16(1) of the Environment Act 1986 are:
a) review the system of agencies and processes established by the Government to manage the allocation, use, and preservation of natural and physical resources, and report to the House of Representatives
b) investigate the effectiveness of environmental planning and environmental management carried out by public authorities, and advise them on remedial action
c) investigate any matter where the environment may be or has been adversely affected, advise on preventive measures or remedial action, and report to the House of Representatives
1 “Parliament's Environment Watchdog Launches Fracking Inquiry”, Business Week, 28 March 2012. Chapter 2 – About the Commissioner for the Environment
d) at the request of the House of Representatives or any select committee, report on any petition, bill, or other matter which may have a significant effect on the environment
e) on the direction of the House of Representatives, inquire into any matter that has had or may have a substantial and damaging effect on the environment and report to the House
6 f) undertake and encourage the collection and dissemination of information relating to the environment
g) encourage preventive measures and remedial actions for the protection of the environment.
2.2 Our mission
To maintain or improve the quality of the environment by providing robust independent advice that influences decisions
Our values
Excellence The questions we raise and the solutions we propose are based on sound science and reasoned argument. We are accountable to the people of New Zealand and deliver value for the funding we receive.
Determination We bravely and constructively question the status quo. We persist in communicating the results of our work in different ways to maximise its usefulness.
Generosity of spirit We work together in an open collegial way, sharing our expertise, listening carefully and not rushing to judgment. We actively acknowledge decisions and actions that benefit the environment.
Innovation Our independence empowers us to think freely and creatively. We strive to get beyond describing problems to proposing solutions.
Effectiveness Others trust and respond to our advice. Our work has a lasting and tangible impact on the New Zealand environment. Home
3 Reports and advice
3.1 Work performed this year
Water quality in New Zealand: Understanding the science In March 2012, the Commissioner tabled a report entitled Water Quality: Understanding the Science. Building on the Commissioner’s presentation to MPs in June 2010, the report was written to be a plain-English guide on the science of water quality.
This report was the first of its kind from the Commissioner in that there were no specific recommendations. The purpose of the report was to provide a solid understanding of the science on this issue to help inform public debate and assist with decision-making.
The report focuses on three major pollutants. These are pathogens, sediment and nutrients. Pathogens make people and animals sick. Sediment makes our waterways murky and covers waterbeds with silt and mud. And excess nutrients encourage weed growth and algae blooms, and can even lead to oxygen depletion.
The relative importance of these pollutants has changed over time. Early settlements were often plagued by sickness caused by water-bourne pathogens, while the extensive clearance of forests for agriculture created widespread erosion and the build-up of sediment in waterways. While the impacts of these pollutants have lessened over time, increases in nutrients are now the most pressing water quality problem.
In order to understand what is happening in our waterways it is essential to identify where the three major pollutants come from, how they enter a waterway, and what they do to the water. Not all rivers are the same and differences in factors such as topography, soil type and water flow mean that some rivers are more vulnerable to the impacts of human activities than others.
Across Parliament, the report generated a positive response. Comments relating to the report included from the Minister for the Environment that, “he is open to the idea of national water quality standards.”2
2 Radio New Zealand, 20 March 2012 Chapter 3 – Reports and advice
A number of MPs from political parties across Parliament attended the launch with the Green Party welcoming the report, “It is great to have this resource which can support informed debate and decision-making about how to begin the long process of cleaning up our rivers and lakes.”
The report was also well received within the sector, with Federated Farmers stating "If you have an interest in water, the report by Jan Wright, the Parliamentary 3 8 Commissioner for the Environment is a must read.” And Fish and Game commented, “PCE Jan Wright should be complimented for what is a practical piece of reporting.”4
A number of schools have expressed an interest in using the report as a teaching resource and Massey University now use it as part of its teacher training curriculum.
Wild rivers or hydroelectricity: Natural heritage versus climate change In the past few years the Commissioner has received a number of letters about concerns for the future of wild and scenic rivers. In particular, many of the letters singled out Meridian Energy’s now defunct plans to construct a large dam on the Mokihinui River on the West Coast.
This was an issue of particular interest to the Commissioner, as it raises the problem of deciding between two environmental goods - hydroelectricity and wild rivers. It is a very difficult comparison to make.
The report, Wild rivers or hydroelectricity: Natural heritage versus climate change, released in May 2012, assessed both hydroelectricity and wild rivers according to a set of criteria – alternatives and reversibility. It found that while there are many alternatives to reducing carbon dioxide in the atmosphere, wild rivers are becoming increasingly scarce and therefore more valuable.
Laws and policies should therefore give preference to low impact hydro schemes on already modified rivers. Wild rivers should be proactively protected for their wild and scenic value.
There were five recommendations in the report. The first two advised the Government to direct the Land and Water Forum to consider how the Resource Management Act and Water Conservation Orders can be improved to better protect wild rivers. Recommendations three and four asked the Government to identify important wild rivers running through public conservation land and protect them.
The final recommendation was about the interaction between the Resource Management Act and the Conservation Act. Each has a separate process that a hydroelectricity developer (like any other commercial operator) must go through to obtain permission to build and operate on conservation land. The Commissioner recommended streamlining and clarifying the interaction between these two processes.
3 Sunday Star Times, 25 March 2012 4 Fish and Game press release, 21 March 2012 The response to the report from MPs and environmental groups was generally positive. The Ministers for the Environment and Conservation said “We would like to thank the Commissioner for her careful consideration on how to better protect our rivers. This is a complex area and Dr Wright has raised some important points. We will be considering her recommendations.”5
Fish & Game, Forest and Bird, and the Environmental Defence Society came out in support of the report’s call for greater protection for rivers. Meridian Energy, on the 9 other hand, was disappointed and said the report oversimplified a complex issue.
A week before this report was launched Meridian Energy withdrew its plans to dam the Mokihinui River. The Commissioner welcomed the withdrawal and hopes her report will provide a blueprint for avoiding large dams on important wild rivers in the future, while creating encouragement for less damaging hydroelectricity schemes.
Evaluating solar water heating: Sun, renewable energy and climate change The Commissioner tabled Evaluating solar water heating: Sun, renewable energy, and climate change in July 2012. While the report was released just outside of the 2011/12 fiscal year, much of the work was done in the 2011/12 fiscal year. In looking at the merits of solar water heaters, the focus was on the environmental benefits. In particular how much solar water heaters could help us with the greatest environmental challenge we face - the fight against climate change.
The report showed that in terms of environmental benefits, the timing of electricity savings is important. New Zealand uses most of its electricity during the winter so saving electricity during winter peak demand is the most valuable environmentally. Given that solar water heaters save the most electricity in summer, the report concluded that solar water heaters are least effective when savings are needed most.
In terms of climate change, it is important to ensure that new fossil fuelled power plants are not built as these will lock in carbon dioxide emissions for years to come. The need to build these types of power plants is largely driven by winter peak electricity use. While solar water heaters do reduce the carbon dioxide emissions from existing power plants, solar water heaters do little to reduce the need to build new fossil fuelled power plants.
The report received a mixed reaction within Parliament. Gareth Hughes of the Green Party said the report was "unhelpful" and a disservice to solar water heating.6 Labour’s Energy Spokeperson Moana Mackey referred to the report as being “spot on” and commented that “This report is a timely reminder to the Government to show some leadership on the crucial issue of climate change and the role renewable energy can play in meeting New Zealand's greenhouse gas reduction targets.”7
5 Press Release, Conservation Minister Hon. Kate Wilkinson and Environment Minister Hon. Amy Adams, 31 May 2012 6 NZ Herald, 6 August 2011 7 Labour Party press release, Thursday, 26 July 2012 Chapter 3 – Reports and advice
Evaluating the use of 1080: Predators, poisons and silent forests While the Commissioner’s report on 1080 was tabled in June 2011, it has remained an area of interest this financial year. The purpose of the Commissioner’s report was to provide a rigorous and independent assessment of both the need for 1080, and the way that it is used. The Commissioner concluded that 1080 was the best tool available for controlling possums, rats and stoats in our forests, and that we should in fact be using more 1080 to protect our native plants and animals. 10 The report raised a number of other issues related to the management of introduced pest mammals and their impacts, not the least being that only a small fraction of the conservation estate receives active pest control.
Submission on the Game Animal Council Bill One particular area of concern was the proposal to establish a Game Animal Council, and the possibility that the Council could delay or prevent the use of 1080 in parts of the conservation estate. Consequently, the Commissioner made a submission on the Game Animal Council Bill, in which she stressed the need to make sure the Game Animal Council could not prevent essential pest control being conducted.
Submission on the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Bill It has been over 15 years since New Zealand formally accepted environmental responsibility for an ocean area over twenty times larger than New Zealand by ratifying the United Nations Convention on the Law of the Sea. Over the years, work continued on developing policy and draft legislation, but progress was slow.
In December 2011, the Commissioner made a submission to the Local Government and Environment Select Committee on the proposed legislation that would cover the Exclusive Economic Zone (EEZ) and Extended Continental Shelf (ECZ). She welcomed the introduction of the Bill to fill a crucial gap in environmental regulation for New Zealand’s oceans that was long overdue.
However, the Commissioner was concerned about significant flaws in the Bill that would undermine its environmental purpose. She presented to the Local Government and Environment Select Committee that it was essential the proposed legislation effectively protected our ocean environment especially as there is already other legislation that provides economic balance.
There were six recommendations in the submission. The Commissioner’s submission highlighted that the proposed Bill would set up a weak environmental regulatory regime that would fail to meet our obligations under international law.
In May 2012, the Local Government and Environment Select Committee reported, “We agree with the submission of the Parliamentary Commissioner for the Environment that states in regards to UNCLOS… it becomes even more critical that we get the purpose clause right.” Submission on “Green Growth Issues for New Zealand” feedback to the Green Growth Advisory Group One of the recommendations from the Commissioner’s report on lignite was that a clean green taskforce should be established to explore growing our green economy, including considering the implications for New Zealand of the large-scale exploitation of lignite.
The Government announced the establishment of the Green Growth Advisory 11 Group in January 2011. The Group released a discussion document and the Commissioner made a submission on this in September 2011.
The submission focused on climate change as the biggest environmental challenge of our time, and noted that the transition to a low-carbon economy was hugely important. However, the Commissioner concluded that the Group’s terms of reference were too narrow to address this.
Presentation to the Commerce Select Committee on smart meters and smart grid In September 2011, the Commerce Select Committee published a report summarising the findings of the Commissioner’s 2009 report Smart electricity meters: How households and the environment can benefit. The Select Committee’s report also incorporated the updates that the Commissioner and the Electricity Authority provided to the Select Committee in August 2011. The Select Committee recommended that Parliament take note of its report, which concluded that while the Commissioner called for greater regulation of smart meter functionality, the Electricity Authority’s position was to rely solely on market forces.
Since the release of the Commissioner’s 2009 report a consortium of 13 mainly community-owned electricity lines companies called SmartCo have announced plans to roll out 500,000 smart meters. These have the functionality that would suit the requirements of electricity lines companies. These smart meters have the potential to manage peaks in electricity demand which also bring environmental benefits. However, a consequence of the Electricity Authority’s failure to regulate smart meter functionality is now unfolding in the Waikato. Almost 60,000 Waikato consumers will soon have two smart meters – one installed by the electricity retailer, Genesis Energy, and another installed by the electricity lines company WEL Networks.
Submission on the Emissions Trading Scheme 2012 consultation In her submission to the Ministry for the Environment’s consultation document on proposed changes to the ETS, the Commissioner acknowledged that an ETS is the right framework to curb greenhouse gas emissions. However, she reiterated her concerns that the large subsidies (free carbon credits) are distorting the purpose of the ETS. The subsidies reduce the financial incentive of emitters to reduce their emissions which, in turn, makes it harder for New Zealand to shift to a low-carbon economy.
While the discussion document was focussed on refining transitional measures, the Commissioner was concerned because this longer-term subsidy issue was not part of the discussion. Until it is addressed, New Zealand is not going to make sufficient progress towards our climate change targets to deliver reduced emissions nor provide certainty for the business community. Chapter 3 – Reports and advice
Commercial use of conservation land The Commissioner’s investigation into the commercial use of conservation land is expected to be released in the 2012/13 year. However, a substantial portion of the investigation has been undertaken this financial year.
At the Federated Mountain Clubs conference in June 2011 the Commissioner announced the investigation which was to consider how the Department 12 of Conservation could get the most value from the commercial use of the conservation estate.
To date the investigation has canvassed the Department of Conservation, commercial operators, the tourism sector, recreationalists, and other interested parties. It has also required an analysis of associated processes, data, and legislation.
It is clear from the work undertaken so far that there are improvements that can be made to how commercial use is managed. And the report will issue recommendations on improvements that can be made in this area.
Longfin eels The Commissioner plans to release a report on longfin eels in early 2013. The investigation into the management of longfin eels is well underway, and a significant portion of this work was done in the 2011/12 financial year.
This investigation was initiated after concerns were raised with the Commissioner that longfin eels are classified as at risk and declining, but still being commercially fished. Iwi groups are also concerned that in some places eel numbers are so low they can no longer carry out customary harvests.
The report will cover the main pressures on longfin eels and assess the legislation and related agencies that manage them.
State of the Environment Reporting The possibility remains that the Parliamentary Commissioner for the Environment will be given the role of producing a national state of the environment report. As a result this continues to be an area of interest for the office.
In September 2011, the Commissioner made a submission on the Ministry for the Environment’s discussion document on national-level state of the environment reporting. In the submission, the Commissioner noted that the role of national state of the environment reporting would complement and be consistent with the Commissioner’s other functions under the Environment Act. However, the Commissioner also noted that she would need to be free to choose what and how she reported, and that additional resources would be required if she was to be given this new function.
Despite the on-going uncertainty about the Commissioner’s role in state of the environment reporting, work in the office has been planned with this possibility in mind. As a result, thought has been given to how all information gathered may be relevant to national state of the environment reporting. Update reports Update reports allow the opportunity to track the progress of recommendations in reports and advice, and see how issues develop over time. The Commissioner has two update reports attached as an appendix to this annual report. They are in relation to the following investigations:
July 2010: Some biofuels are better than others: Thinking strategically about biofuels 13 December 2010: Lignite and climate change: The high cost of low grade coal
3.2 Environmental issues for future work
There is an inexhaustible range of environmental issues worthy of investigation. Through the strategic planning process the Commissioner has identified the following as being areas of future focus.
Energy is a vast topic, ranging from electricity through to transport and mining. Work is underway on an investigation into hydraulic fracturing. Other work on different types of fossil fuels and how they are obtained is likely to feature in future.
Water and Land management remains one of New Zealand’s greatest environmental challenges. Work is underway which builds on the report on understanding the science of water quality, and explores the relationship between land use and its effects on water quality. In addition, some initial work is being undertaken on how reporting on the state of the country’s soil might be done.
Biodiversity features as an area of future work with an investigation into pressures on New Zealand’s longfin eels, and some preliminary thinking on reporting on biodiversity.
Marine environments are a new area of focus. In addition to following the legislation on the Exclusive Economic Zone, initial work is underway on reporting on the state of our oceans and coasts. Aspects of the Quota Management System are also being explored in the investigation into long-finned eels.
Environmental agencies and processes are a significant area of work for the Commissioner. To some extent virtually all reports and advice examine the systems and processes which are in place. It is the specific focus of the investigation into the commercial use of the conservation estate currently underway. Chapter 3 – Reports and advice
3.3 Public concerns and inquiries
The Commissioner receives many letters and emails from the public and non- governmental organisations. Some provide or alert the office to valuable information, while others express concerns about particular environmental issues.
Specific individual concerns are kept confidential under the Environment Act 1986.
14 Public inquiries into the office often result in investigations. For example, the report into wild rivers and hydroelectricity was in part a response to complaints received about plans to dam the Mokihinui river.
Over the 2011/12 financial year the office received 202 letters from the public raising concerns. Nearly all (97%) of these were responded to within 10 days, and all were resolved within 9 months. In the previous year 98% were responded to within 10 days and all were resolved within 9 months.
3.4 Other activities
The delivery of an investigation to the House of Representatives is only part of the interaction with Members of Parliament. Once a report is tabled in Parliament it is usual for the Commissioner to brief the relevant select committee regarding her reasoning and recommendations. The Local Government and Environment Select Committee is the initial recipient, but may refer the report elsewhere if its content is more relevant to the work of another select committee. Advice may also be provided directly to a select committee on an issue at its request.
All reports and submissions are available to download from the website www.pce. parliament.nz, and on request, copies are available to the general public. Opinion pieces submitted to newspapers are an excellent way of providing some key points in a brief and easily digestible format. The aim of these pieces may be to start or contribute to current debate around an issue.
The Commissioner also has a programme of regional visits planned each year to keep informed on events outside Wellington. In 2011/12, the Commissioner visited the Southland, Otago, Waikato, and Northland regions. Regional visits were also made by the Commissioner’s staff to Auckland, Taranaki and Nelson. During these visits the Commissioner usually meets with staff of regional and local councils to look at local environmental challenges and solutions. These regional visits have proven valuable as a two-way exchange between the Commissioner and the councils and offer ‘on the ground’ insight into New Zealand’s environmental problems.
Presentations on environmental issues are also given by the Commissioner to different groups around the country. For example, a presentation on the importance of using 1080 was given at the annual conference of the New Zealand Ecological Society and a presentation on the science of water quality to the Dairy Environment Leadership Group. The Commissioner has also met with international delegations, including members of the German Bundestag in February 2012.
In November 2011 the Commissioner met with the Commissioner for Environmental Sustainability in Melbourne, Australia. They discussed the role of environmental auditing and the Victorian Commissioner’s experience with state of the environment reporting. Home
4 ReportsAboutOffice the andmanagement Commissioner advice for the Environment
A culture of continuous improvement has resulted in changes in the office over the last year. Our approach to change is focused on ensuring systems are straightforward and fit for purpose, and that obtaining value for money is always considered.
All staff are employed on individual employment agreements. The Parliamentary Commissioner for the Environment’s remuneration policy is aligned with those already operating across the state sector. The Human Resources Manual and a Code of Conduct guide staff with regard to employment matters.
As at 30 June 2012 18 staff (16.7 FTEs) were employed within the office (Table 1).
Table 1 Number and diversity of staff as at 30 June 2012
2010/11 2010/11 2011/12 2011/12 staff FTEs staff FTEs
Number of men employed 10 9.6 9 8.6
Number of women employed 7 6.3 9 8.1
Total employees 17 15.9 18 16.7
New Zealand European 11 12
New Zealand Māori 1 2
New Zealand Polynesian 1 1
Other nationalities 4 3 Chapter 4 – Office management
4.1 Training and development
The capability and productivity of staff is a core component of the effectiveness of the office. The relationship between the organisation and an employee is a reciprocal one. The Commissioner’s intent is to provide a supportive and rewarding environment where excellence is valued. In turn, staff provide their knowledge and commitment. As a result, productivity should continue to rise and expectations on 16 both sides be met.
Staff are encouraged, with the support of their managers, to plan for their own professional and personal development. In 2011/12, 2 percent of the total salary budget was spent on training and development. This included plain English writing, communications and media training, and attendance at conferences and seminars.
4.2 Organisational health
Staff must have the right skills and experience in order for the Commissioner to deliver advice that is of high quality. That means retaining top performing staff and attracting high calibre applicants. It also means ensuring that the office is recognised as a challenging workplace in which results are expected and delivered. Systems and structures support this work. For example:
• Regular meetings of the management team
• Regular staff meetings
• Regular financial and operational reporting
• Ongoing corporate systems development.
Proactive measures to promote a healthy workplace include:
• Flexible work time to accommodate family needs
• Ability to use remote access to facilitate working from home in special circumstances
• Negotiable part-time working arrangements, where appropriate
• Encourage participation in office sports teams.
No health and safety incidents were recorded in 2011/12. Home
5 Financial statements ReportsandAbout statement the and Commissioner advice of service performance for the Environment
5.1 Statement of responsibility
In my opinion, the statement of service performance and the financial information presented in these statements and notes fairly reflects the position and operations of the Parliamentary Commissioner for the Environment, for the year ended 30 June 2012.
A system of internal control has been established and maintained which provides reasonable assurance as to the integrity and reliability of financial reporting.
In terms of the Public Finance Act 1989, I accept responsibility, as Parliamentary Commissioner for the Environment, for the preparation of the financial statements and the associated judgements and the statement of service performance.
Dr Jan Wright Sarah Clark Parliamentary Commissioner for Chief Financial Officer the Environment
26 September 2012 Chapter 5 – Financial statements and statement of service performance
5.2 Independent Auditor’s Report
To the readers of 18 Parliamentary Commissioner for the Environment’s financial statements and statement of service performance for the year ended 30 June 2012
The Auditor-General is the auditor of the Parliamentary Commissioner for the Environment (the Commissioner). The Auditor-General has appointed me, Karen Young, using the staff and resources of Audit New Zealand, to carry out the audit of the financial statements and the statement of service performance of the Commissioner on her behalf.
We have audited:
• the financial statements of the Commissioner on pages 25 to 43 that comprise the statement of financial position, statement of commitments, statement of contingent liabilities and contingent assets as at 30 June 2012, the statement of comprehensive income, statement of changes in equity, statement of departmental expenses and capital expenditure against appropriations, statement of unappropriated expenditure and capital expenditure and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information; and
• the statement of service performance of the Commissioner on pages 21 to 23. Opinion
In our opinion:
• the financial statements of the Commissioner on pages 25 to 43:
• comply with generally accepted accounting practice in New Zealand; and
• fairly reflect the Commissioner’s:
• financial position as at 30 June 2012; and
• financial performance and cash flows for the year ended on that date; and
• expenses and capital expenditure incurred against each appropriation administered by the Commissioner and each class of outputs included in each output expense appropriation for the year ended 30 June 2012; and
• unappropriated expenses and capital expenditure for the year ended 30 June 2012. and
• the statement of service performance of the Commissioner on pages 21 to 23:
• complies with generally accepted accounting practice in New Zealand; and • fairly reflects for each class of outputs for the year ended 30 June 2012 the Commissioner’s:
• service performance compared with the forecasts in the statement of forecast service performance at the start of the financial year; and
• actual revenue and output expenses compared with the forecasts in the statement of forecast service performance at the start of the financial year. 19
Our audit was completed on 26 September 2012. This is the date at which our opinion is expressed.
The basis of our opinion is explained below. In addition, we outline the responsibilities of the Commissioner and our responsibilities, and we explain our independence.
Basis of opinion We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements and the statement of service performance are free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements and the statement of service performance. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the statement of service performance. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements and the statement of service performance, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Commissioner’s preparation of the financial statements and the statement of service performance that fairly reflect the matters to which they relate. We consider internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Commissioner’s internal control.
An audit also involves evaluating:
• the appropriateness of accounting policies used and whether they have been consistently applied;
• the reasonableness of the significant accounting estimates and judgements made by the Commissioner;
• the adequacy of all disclosures in the financial statements and the statement of service performance; and
• the overall presentation of the financial statements and the statement of service performance. Chapter 5 – Financial statements and statement of service performance
We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and the statement of service performance. We have obtained all the information and explanations we have required and we believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.
Responsibilities of the Commissioner 20 The Commissioner is responsible for preparing financial statements and a statement of service performance that:
• comply with generally accepted accounting practice in New Zealand;
• fairly reflect the Commissioner’s financial position, financial performance, cash flows, expenses and capital expenditure incurred against each appropriation and its unappropriated expenses and capital expenditure; and
• fairly reflects its service performance.
The Commissioner is also responsible for such internal control as is determined is necessary to enable the preparation of financial statements and a statement of service performance that are free from material misstatement, whether due to fraud or error.
The Commissioner’s responsibilities arise from the Public Finance Act 1989.
Responsibilities of the Auditor We are responsible for expressing an independent opinion on the financial statements and the statement of service performance and reporting that opinion to you based on our audit. Our responsibility arises from section 15 of the Public Audit Act 2001 and the Public Finance Act 1989.
Independence When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the New Zealand Institute of Chartered Accountants.
Other than the audit, we have no relationship with or interests in the Commissioner.
Karen Young Audit New Zealand On behalf of the Auditor-General Wellington, New Zealand 5.3 Statement of objectives and service performance
The primary impact that the Parliamentary Commissioner for the Environment seeks is influencing decisions in order to contribute toward the maintenance and improvement of the natural and physical environment of New Zealand. The measures below directly and indirectly indicate whether we have achieved our mission. 21 Output: Reports and advice Reports and advice are the sole output class appropriated through Vote: Parliamentary Commissioner for the Environment, although there are a variety of activities which result from the work programme. These include:
• Reports of investigations and reviews that are tabled in Parliament. Under standing orders, each of these is referred to a Select Committee which subsequently reports to the House.
• Presentations to Select Committees on investigations and other matters.
• Provision of advice and/or briefing of MPs on investigations and other matters.
• Advice and submissions on Bills and Inquiries to Select Committees.
• Submissions on proposed regulations.
• Responding to calls for public submissions on environmental matters where appropriate.
• Update reports on responses to recommendations made by the Commissioner.
• Support for inter-Parliamentary delegations.
• Presentations on environmental issues to a wide variety of groups.
• Responses to concerns and enquiries from members of the public.
• Ongoing development of the website www.pce.parliament.nz
• Engagement with the media.
• A regular email newsletter informing MPs of the work of the office.
Table 2 Resources Employed in 2011/12
30/06/2011 30/06/2012 Actual Actual Main Est Supp Est $ (000) $ (000) $ (000) $(000) 2,605 Revenue Crown8 2,613 2,605 2,613
0 Other revenue 10 3 3
2,605 Total revenue 2,623 2,608 2,616
2,595 Total expenses8 2,623 2,608 2,616
10 Net surplus/(Deficit) 0 0 0
8 This includes the Commissioner’s remuneration of $276,000 (2011: $268,000) Chapter 5 – Financial statements and statement of service performance
Impact One of the main functions of the Commissioner is to provide advice to Members of Parliament (MPs). The key indicator of the effectiveness of the Commissioners work is the proportion of recommendations made that are adopted by MPs. The level of performance this year was 62 percent, slightly below the target of 65 percent. This was an improvement on last year’s result of 61 percent.
22 As the recommendations are live, in time the advice in submissions and reports may well be implemented or ignored. The Commissioner will continue to make these recommendations without fear or favour, nor make them so easy as to be worthless.
Raising levels of awareness and public debate is a priority for the Commissioner so ensuring work is accessible and accurate is important. Gaining coverage in the media also allows topics to be more widely discussed.
Table 3 shows other performance measures for assessing impact.
Table 3 Performance measures and targets for assessing impact and output performance measures and standards
Measure Target Performance
Proportion of recommendations: 9 • adopted or partially adopted 65% 62% • responded to 100% 100%
Evaluate outcomes from projects 100% for major Achieved: Chapter 3 of the projects10 Annual Report describes all major work undertaken this year in chronological order, along with subsequent reaction for all reports and advice on legislation. Appendix 1 of the Annual Report provides a detailed analysis of the results of two previous investigations.
External peer review for technical 100% for major 100% accuracy projects11 Content review and internal peer 100% 100% review
Complaints and inquiries resolved 90% 100% to completion within 9 months
All types of queries given initial 100% 97% response within 10 working days
Advice to Parliament delivered 100% 100% within agreed timeframes
9 As the responses of the Ministers or agencies targeted do not necessarily coincide with the annual reporting cycle, this figure reflects the recommendations made as part of environmental investigations during the tenure of the current Commissioner (since March 2007) 10 Major projects are those pieces of work under the output class “Reports and Advice”. These are Reports on investigations. Our major projects are available on our website: www.pce.parliament.nz 11 Major projects are those pieces of work under the output class “Reports and Advice”. These are Reports on investigations. Our major projects are available on our website. Quality assurance It is extremely important that the work produced by the office is well researched, well argued and well written. Therefore time is invested in ensuring that content is the best is can be. Our quality assurance process involves internally reviewing all reports and submissions. For major projects, a further step is taken by having work externally peer reviewed for technical accuracy. These quality assurance steps ensure investigations undertaken by the office are of a consistently high standard. 23 Investigations undertaken by the office can be a result of inquiries and complaints from the public. This was true of the report on Hydroelectricity or wild rivers: Climate change versus natural heritage which had its genesis from complaints received by the office about the proposed damming of Mokihinui river by Meridian Energy. Concerns about hydraulic fracturing, or fracking, is another example where a number of requests from both the public and Members of Parliament has led to the Commissioner conducting an investigation.
All complaints and inquiries received are given an initial response with 10 working days. The office aims to resolve all complaints within 9 months.
We deliver value for money Value for money is a guiding principle that is incorporated into day-to-day operations. Over recent years there have been many changes in the office aimed at achieving value for money. These have led to direct operational cost savings.
The office has a culture of actively pursuing continuous improvement. This means continually reviewing the way things are done and looking for ways to improve. Producing reports which are well presented and which communicate the issues clearly is an ongoing priority. With this in mind, the office now has the capability to lay out reports internally, reducing the costs associated with publishing and streamlining the production process. Similarly, illustrations such as figures and maps are now developed ‘in-house’, allowing greater fine tuning of the way in which material is presented.
Table 4 shows other performance measures regarding value for money.
Table 4 Performance measures and targets for assessing for value for money
Measure Target Performance
Remuneration increases consistent with 100% 100% public sector expectations
Percentage of supplier contracts 100% Achieved: 100% consistent with procurement policy
We value our staff The Commissioner’s staff must have the right skills in order for the office to deliver high quality reports and advice to Parliament. That means retaining top performing staff and attracting high calibre applicants. It also means the office is recognised as a workplace which encourages achievement and challenge, and where results are expected and delivered. See Table 5 for performance measures representing organisational health. Chapter 5 – Financial statements and statement of service performance
Table 5 Performance measures and targets for assessing organisational health
Measure Target Performance
Performance management plans in 100% Achieved: 100% place and annual performance reviews undertaken
Personal development plans in place 100% Achieved: 100% 24 and uptake of budgeted training and development activities
Annual unplanned staff turnover Equal or less Not achieved: than 10.9%12 17.9%13
12 Average core unplanned turnover for the public sector as reported by the State Services in their Human Resource Capability Survey of Public Service Departments, 2011 13 As a small organisation, any change to staff numbers can have a significant impact on results. In 2011/12 three people resigned. 5.4 Statement of comprehensive income for the year ended 30 June 2012
Actual Note Actual Main Supp Estimates 2011 2012 Estimates 2012 $ (000) $ (000) 2012 $ (000) $ (000) Income 25 2,605 Revenue Crown 2,613 2,605 2,613
0 Revenue Other 10 3 3
2,605 Total Revenue 2,623 2,608 2,616
Expenditure
1,568 Personnel costs (2) 1,731 1,722 1,730
136 Depreciation and 125 134 134 amortisation
3 Loss on sale of property, (3) 0 0 0 plant and equipment
46 Capital charge (4) 49 49 49
842 Other operating expenses (5) 718 703 703
2,595 Total Expenditure 2,623 2,608 2,616
10 Net Surplus 0 0 0
0 Other Comprehensive 0 0 0 Income
10 Total Comprehensive 0 0 0 Income for the year
The accompanying notes form part of these financial statements. Chapter 5 – Financial statements and statement of service performance
5.5 Statement of financial position as at 30 June 2012
Actual Note Actual Main Estimates Supp Estimates 2011 2012 2012 2012 $ (000) $ (000) $ (000) $ (000)
Assets Current Assets 26 613 Cash and cash equivalents 661 595 552
0 Debtors and other (6) 11 15 15 receivables
613 Total Current Assets 672 610 567
Non-Current Assets
333 Property, plant and (7) 255 245 288 equipment
15 Intangible assets (8) 2 0 0
348 Total Non-Current Assets 257 245 288
961 Total Assets 929 855 855
Liabilities Current Liabilities
280 Creditors and other payables (9) 243 181 181
10 Repayment of surplus (10) 0 0 0
57 Employee entitlements (11) 72 60 60
347 Total Current Liabilities 315 241 241
347 Total Liabilities 315 241 241
614 Net Assets 614 614 614
Taxpayers’ Funds
614 General funds 614 614 614
614 Total Taxpayers’ Funds 614 614 614
5.6 Statement of changes in taxpayers’ funds for the year ended 30 June 2012
Actual Actual Main Estimates Supp Estimates 2011 2012 2012 2012 $ (000) $ (000) $ (000) $ (000)
614 Balance at 1 July 614 614 614
10 Total comprehensive income 0 0 0
(10) Repayment of surplus to Crown 0 0 0
614 Balance at 30 June 614 614 614
Explanations of major variances against budget are detailed in note 19. The accompanying notes form part of these financial statements. 5.7 Statement of cash flows for the year ended 30 June 2012
Actual Actual Main Estimates Supp Estimates 2011 2012 2012 2012 $ (000) $ (000) $ (000) $ (000)
Cash flows from operating activities 27 2,605 Receipts from Crown 2,613 2,605 2,613
15 Receipts from revenue other 10 3 3
(667) Payments to suppliers (784) (801) (831)
(1,572) Payments to employees (1,716) (1,719) (1,727)
(46) Payments for capital charge (49) (49) (49)
(4) Goods and services tax (net) 18 14 14
331 Net cash from operating 92 53 23 activities
Cash flows from investing activities
0 Receipts from sale of property, 0 0 0 plant and equipment
(28) Purchase of property, plant and (34) (71) (73) equipment
(28) Net cash from investing (34) (71) (73) activities
Cash flows from financing activities
(208) Payment of surplus to Crown (10) 0 (11)
(208) Net cash from financing (10) 0 (11) activities
95 Net (decrease)/increase in cash 48 (18) (61)
518 Cash at the beginning of the year 613 613 613
613 Cash at the end of the year 661 595 552
The GST (net) component of operating activities reflects the net GST paid and received with the Inland Revenue Department. The GST component has been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes. The accompanying notes form part of these financial statements. Chapter 5 – Financial statements and statement of service performance
5.8 Statement of commitments
As at 30 June 2012, the Parliamentary Commissioner for the Environment had no capital commitments (2011: nil).
Non-cancellable operating lease commitments In 2011, the Parliamentary Commissioner for the Environment renewed its 28 office lease for a further three years. The amounts disclosed below for future commitments are based on the renewed rental.
Other non-cancellable commitments The Parliamentary Commissioner for the Environment has entered into a non- cancellable 4 year contract for a photocopier under the government’s All of Government contracts.
Actual Actual 2011 2012 $ (000) $ (000)
Non-cancellable operating lease commitments
212 No later than one year 212
405 Later than one year and no later than five years 176
617 Total operating lease commitments 388
Other non-cancellable commitments
2 No later than one year 2
5 Later than one year and no later than five years 3
7 Total other commitments 5
There are no restrictions placed on the Parliamentary Commissioner for the Environment by any of its leasing arrangements. The accompanying notes form part of these financial statements.
5.9 Statement of contingent liabilities and contingent assets
The Parliamentary Commissioner for the Environment had no known quantifiable or unquantifiable contingent liabilities as at 30 June 2012 (2011: nil).
The Parliamentary Commissioner for the Environment had no contingent assets as at 30 June 2012 (2011: nil).
The accompanying notes form part of these financial statements. 5.10 Statement of departmental expenses and capital expenditure against appropriations
Expenditure 2011 Expenditure 2012 Appropriation Voted 2012* $ (000) $ (000) $ (000)
Vote Parliamentary Commissioner for the Environment Appropriation for Output Expense 29
2,327 Reports and Advice 2,347 2,340
2,327 Sub-total 2,347 2,340
Appropriation for other expenses
268 Remuneration of the Parliamentary 276 276 Commissioner for the Environment (Permanent Legislative Authority)
268 Sub-total 276 276
2,595 Total 2,623 2,616
Departmental Capital Expenditure
28 Parliamentary Commissioner for the 34 71 Environment - Capital Expenditure (Permanent Legislative Authority)
2,623 Total 2,657 2,687
*This includes adjustments made in the Supplementary Estimates. Chapter 5 – Financial statements and statement of service performance
5.11 Statement of departmental unappropriated expenditure and capital expenditure
Unappropriated Expenditure Expenditure Appropriation Unappropriated 2011 2012 Voted 2012* Expenditure 2012 $ (000) $ (000 $ (000) $ (000)
Vote Parliamentary Commissioner for the Environment 30 Appropriation for Output Expense
0 Reports and Advice 2,347 2,340 7
0 Sub-total 2,347 2,340 7
Appropriation for other expenses
0 Remuneration of the 276 276 0 Parliamentary Commissioner for the Environment (Permanent Legislative Authority)
0 Sub-total 276 276 0
0 Total 2,623 2,616 7
Departmental Capital Expenditure
0 Parliamentary Commissioner 34 71 0 for the Environment - Capital Expenditure (Permanent Legislative Authority)
0 Total 2,657 2,687 7
*This includes adjustments made in the Supplementary Estimates.
Expenses and capital expenditure approved under section 26B of the Public Finance Act 1989 The Parliamentary Commissioner for the Environment incurred $7,000 of additional expenditure on producing reports and advice. This unappropriated expenditure has been approved by the Minister of Finance under section 26B of the Public Finance Act 1989. The unappropriated expenditure was fully funded from other income and required no additional funding from the Crown.
No capital expenditure has been in excess of appropriation, nor has there been a breach of its departmental net asset schedule during the year.
The accompanying notes form part of these financial statements. 5.12 Notes to the financial statements
1. Statement of accounting policies
Reporting Entity The Parliamentary Commissioner for the Environment was established under the Environmental Act 1986 and is designated as an Officer of Parliament by the Public 31 Finance Act 1989.
As the Commissioner’s primary objective is to investigate environmental concerns independent of government, the Parliamentary Commissioner for the Environment has designated itself as a public benefit entity for financial reporting under New Zealand equivalents to International Financing Reporting Standards (NZ IFRS).
The financial statements for the Parliamentary Commissioner for the Environment are prepared pursuant to the Public Finance Act 1989 and are for the year ended 30 June 2012. The financial statements were authorised for issue by the Parliamentary Commissioner for the Environment on 26 September 2012.
Basis of Preparation Statement of compliance
The financial statements have been prepared in accordance with the requirements of the Public Finance Act 1989, which include the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP), and Treasury Instructions.
Measurement basis The financial statements have been prepared on an historical cost basis.
Functional and presentational currency The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). The functional currency of the Parliamentary Commissioner for the Environment is New Zealand dollars.
Changes in accounting policies There have been no changes in accounting policies during the financial year. Standards, amendments, and interpretations issued but not yet effective that have not been early adopted and which are relevant to the Parliamentary Commissioner for the Environment are:
Amendments to NZ IAS 1 Presentation of Financial Statements. The amendments introduce a requirement for additional disclosures for changes in each component of equity, however these do not currently affect the Parliamentary Commissioner for the Environment.
NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following 3 main phases: Phase 1 Classification and Measurement, Phase 2 Impairment Methodology, and Phase 3 Hedge Accounting. Phase 1 has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its financial Chapter 5 – Financial statements and statement of service performance
assets (its business model) and the contractual cash flow characteristics of the financial assets. The financial liability requirements are the same as those of NZ IAS 39, except for when an entity elects to designate a financial liability at fair value through the surplus/deficit. The new standard is required to be adopted for the year ended 30 June 2016. However, as a new Accounting Standards Framework will apply before this date, there is no certainty when an equivalent standard to NZ IFRS 9 will be applied by public benefit entities. 32 FRS-44 New Zealand Additional Disclosures and Amendments to NZ IFRS to harmonise with IFRS and Australian Accounting Standards (Harmonisation Amendments) - The purpose of the new standard and amendments is to harmonise Australian and New Zealand accounting standards with source IFRS and to eliminate many of the differences between the accounting standards in each jurisdiction. The main effect of the amendments is that certain information about property valuations is no longer required to be disclosed. The Parliamentary Commissioner for the Environment does not own any property and therefore the standard is unlikely to have any effect on the financial statements.
The Minister of Commerce has approved a new Accounting Standards Framework (incorporating a Tier Strategy) developed by the External Reporting Board (XRB). Under this Accounting Standards Framework, the Ministry is classified as a Tier 1 reporting entity and it will be required to apply full Public Benefit Entity Accounting Standards (PAS). These standards are being developed by the XRB based on current International Public Sector Accounting Standards. The effective date for the new standards for public sector entities is expected to be for reporting periods beginning on or after 1 July 2014. This means the Ministry expects to transition to the new standards in preparing its 30 June 2015 financial statements. As the PAS are still underdevelopment, the Ministry is unable to assess the implications of the new Accounting Standards Framework at this time.
Due to the change in the Accounting Standards Framework for public benefit entities, it is expected that all new NZ IFRS and amendments to existing NZ IFRS will not be applicable to public benefit entities. Therefore, the XRB has effectively frozen the financial reporting requirements for public benefit entities up until the new Accounting Standard Framework is effective. Accordingly, no disclosure has been made about new or amended NZ IFRS that exclude public benefit entities from their scope.
The Parliamentary Commissioner for the Environment has not yet assessed the effect of the new standards and expects they will not be early adopted.
Significant Accounting Policies Budget figures The budget figures are those included in the Information Supporting the Estimates of Appropriations for the Government of New Zealand for the year ended 30 June 2012, which are consistent with the financial information in the Main Estimates. In addition, the financial statements also present the updated budget information from the Supplementary Estimates. The budget figures have been prepared in accordance with the NZ GAAP, using accounting policies that are consistent with those adopted in preparing these financial statements. Revenue Revenue is measured at the fair value of consideration received or receivable.
Revenue from the Crown The Parliamentary Commissioner for the Environment is primarily funded through revenue received from the Crown, which is restricted in its use for the purpose of the Parliamentary Commissioner for the Environment meeting its objectives as 33 specified in the Statement of Intent. Revenue from the Crown is recognised as revenue when earned and is reported in the financial period to which it relates.
Capital charge The capital charge is recognised as an expense in the period to which it relates.
Leases The Parliamentary Commissioner for the Environment leases office premises and office equipment. As substantially all the risks and benefits of ownership are retained by the lessor, these leases are classified as an operating lease. Lease payments are recognised as an expense on a straight-line basis over the lease term.
Cash and cash equivalents Cash and cash equivalents include cash on hand and is measured at its face value.
Debtors and receivables Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less impairment changes.
Impairment of a receivable is established when there is objective evidence that the Parliamentary Commissioner for the Environment will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the debtor is impaired. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. The carrying amount of the asset is reduced through the use of a provision for impairment account, and the amount of the loss is recognised in the surplus or deficit. Overdue receivables that are renegotiated are reclassified as current (that is, not past due).
Property, plant and equipment Property, plant and equipment consist of furniture, fittings and fixtures, computer hardware, and other office equipment. Assets are shown at cost less any accumulated depreciation and impairment losses.
Individual assets, or groups of assets, are capitalised if their cost is greater than $1000. The value of an individual asset that is less than $1000 and is part of a group of similar assets is capitalised.
The cost of an item of property, plant, and equipment is recognised as an asset if it is probable that future economic benefits or service potential associated with the item will flow to the Parliamentary Commissioner for the Environment and the cost of the item can be measured reliably. Chapter 5 – Financial statements and statement of service performance
Work in progress is recognised at cost less impairment and is not depreciated.
In most instances, an item of property, plant and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value as at the date of acquisition.
Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount of the asset. Gains and losses on disposals are included in 34 the surplus or deficit.
Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Ministry and the cost of the item can be measured reliably.
The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year.
Depreciation is calculated on a straight-line basis over the useful life of the asset as follows:
Furniture, fittings and fixtures 10 years 10% Computer hardware 4 years 25% Other office equipment 3-5 years 20-33%
Leasehold improvements are depreciated over the unexpired period of the lease or the estimated remaining useful life of the improvement whichever is the shorter.
Realised gains and losses on the disposal of property, plant and equipment are recognised in the Statement of Comprehensive Income in the period in which the transaction occurs.
Intangible assets Intangible assets are recorded at their cost of acquisition less accumulated amortisation.
Amortisation is calculated on a straight-line basis over the useful life of the asset as follows:
Acquired computer software 3 years 33% Developed computer software 4 years 25%
Acquired computer software licenses are capitalised on the basis of the costs incurred to purchase the software.
Developed computer software relate to costs incurred to develop software for internal use.
Impairment of assets Property, plant and equipment and intangible assets that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an asset is impaired, its carrying amount is written down to the recoverable amount and the impairment loss recognised in the Statement of Comprehensive Income. The recoverable amount is the higher of an asset’s fair value less costs to see and value in use. Creditors and other payables Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.
Employee entitlements Current employee entitlements
Employee entitlements that the Parliamentary Commissioner for the Environment 35 expects to be settled within 12 months of balance date are measured at undiscounted nominal values based on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date and annual leave earned but not yet taken at balance date.
Non-current employee entitlements The Parliamentary Commissioner for the Environment does not have any employee entitlements that may be payable beyond 12 months of balance date.
Superannuation schemes Defined contribution schemes Obligations for contributions to KiwiSaver are accounted for as defined contribution superannuation scheme and are recognised as an expense in the Statement of Comprehensive Income when incurred.
Provisions The Parliamentary Commissioner for the Environment recognises that a provision for future expenditure of uncertain amount or time when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that expenditures will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at present value of the expenditures expected to settle the obligation using a pre-tax discount that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.
Goods and Services Tax (GST) All items in the financial statements including appropriation statements are stated exclusive of Goods and Services Tax (GST), except:
• where GST incurred on goods or services is not recoverable from the taxation authority, it is recognised as part cost of acquisition of the asset or part of the expense items as applicable; and
• receivables and payables, which are stated with the amount of GST included.
The net amount of GST receivable or payable to the taxation authority is included in receivables or payables in the Statement of Financial Position.
Commitments and contingencies are disclosed exclusive of GST.
The net GST paid, or received, including the GST relating to investing and financing activities, is classified as an operating cash flow in the statement of cash flows. Chapter 5 – Financial statements and statement of service performance
Income tax The Parliamentary Commissioner for the Environment is not liable for the payment of income tax in terms of the Income Tax Act 2007. Accordingly, no charge for income tax has been provided for.
Commitments Expenses yet to be incurred on non-cancellable contracts that have been entered 36 into on or before balance date are disclosed as commitments to the extent that there are equally unperformed obligations.
Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the statement of commitments at the value of that penalty or exit cost.
Taxpayers’ funds This is the Crown’s net investment in the Parliamentary Commissioner for the Environment and is measured as the difference between total assets and total liabilities.
Statement of cost accounting policy The Parliamentary Commissioner for the Environment has one output only. All costs are allocated directly to that output.
Critical judgements in applying the Parliamentary Commissioner for the Environment’s accounting policies Management has exercised the following critical judgements in applying the Parliamentary Commissioner for the Environment’s accounting policies for the period ended 30 June 2012:
Lease classification Determining whether a lease agreement is a finance lease or an operating lease requires judgement as to whether the agreement transfers substantially all the risks and rewards of ownership to the Parliamentary Commissioner for the Environment. Judgement is required on various aspects that include, but are not limited to, the fair value of the leased asset, the economic life of the leased asset, whether or not to include renewal options in the lease term and determining an appropriate discount rate to calculate the present value of the minimum lease payments. Classification as a finance lease means the asset is recognised in the statement of financial position as property, plant and equipment, whereas with an operating lease, no such asset is recognised.
The Parliamentary Commissioner for the Environment has exercised her judgement on the appropriate classification of equipment leases and property and has determined none are finance leases. 2. Personnel costs
Actual Actual 2011 2012 $ (000) $ (000)
1,535 Salaries and wages 1,676 37 Employer contributions to defined contribution plans 40 (4) Increase/(decrease) in employee entitlements 15 37 1,568 Total personnel costs 1,731
3. Gain/(Loss)
Actual Actual 2011 2012 $ (000) $ (000)
3 Net gain/(loss) on disposal of property, plant and equipment 0
3 Total gain/(loss) 0
4. Capital charge The Parliamentary Commissioner for the Environment pays a capital charge to the Crown on its taxpayers’ funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2012 was 8.0% (2011: 7.5%).
5. Other operating costs Included within other operating costs are:
Actual Actual 2011 2012 $ (000) $ (000)
21 Audit fees for the financial statement audit 21
212 Operating lease payments 217
0 Advertising and publicity 0
344 Consultancy 171
37 Maintenance 49
29 Accommodation 34
28 Communication 29
30 Travel 34
10 Consumables 24
31 Professional fees and development 33
41 Library acquisitions 29
59 General expenses 77
842 Total 718 Chapter 5 – Financial statements and statement of service performance
6. Debtors and other receivables
Actual Actual 2011 2012 $ (000) $ (000)
0 Prepayments 11
0 Total Debtors and other receivables 11 38 The Parliamentary Commissioner for the Environment has no other debtors or receivables.
7. Property, plant and equipment
Furniture, Computer Other Leasehold Total fittings & hardware office improvements fixtures equipment $ (000) $ (000) $ (000) $ (000) $ (000)
Cost
Balance at 1 July 2011 206 184 43 375 808
Additions 3 11 0 20 34
Disposals 0 (33) 0 0 (33)
Balance at 30 June 2012 209 162 43 395 809
Depreciation
Balance at 1 July 2011 129 120 36 190 475
Depreciation expense 11 26 3 72 112
Disposal 0 (33) 0 0 (33)
Balance at 30 June 2012 140 113 39 262 554
Carrying amounts
At 30 June 2011 77 64 7 185 333
At 30 June 2012 69 49 4 133 255 8. Intangible assets
Acquired Internally Total software generated software $ (000) $ (000) $ (000)
Cost
Balance at 1 July 2011 155 12 167 39 Additions 0 0 0
Disposals (48) 0 (48)
Balance at 30 June 2012 107 12 119
Accumulated amortisation and impairment losses
Balance at 1 July 2011 143 9 152
Amortisation expense 10 3 13
Disposals (48) 0 (48)
Balance at 30 June 2012 105 12 117
Carrying amounts
At 30 June 2011 12 3 15
At 30 June 2012 2 0 2
There are no restrictions over the title of the Parliamentary Commissioner for the Environment’s intangible assets, nor are any intangible assets pledged as security for liabilities.
9. Creditors and other payables
Actual Actual 2011 2012 $ (000) $ (000)
217 Creditors 150
57 Accrued expenses14 69
6 GST payable 24
280 Total creditors and other payables 243
Creditors and other payables are non-interest bearing and are normally settled on 30 day terms; therefore the carrying value of creditors and other payables approximates their fair value.
14 Accrued expenses includes an accrual for salaries and wage Chapter 5 – Financial statements and statement of service performance
10. Repayment of surplus
Actual Actual 2011 2012 $ (000) $ (000)
10 Net surplus 0
10 Total repayment of surplus 0 40 The repayment of surplus is required to be paid by 31 October of each year.
11. Employee entitlements
Actual Actual 2011 2012 $ (000) $ (000)
57 Annual leave 72
57 Total employee entitlements 72
The Parliamentary Commissioner for the Environment has no retirement leave or long service leave obligations. Annual leave obligations are calculated on the actual to be paid.
12. Taxpayers’ funds
Actual Actual 2011 2012 $ (000) $ (000)
614 General funds 614
10 Operating (deficit)/surplus 0
(10) Provision for repayment of surplus 0
614 General funds at 30 June 614
13. Reconciliation of net surplus to net cash from operating activities
Actual Actual 2011 2012 $ (000) $ (000)
10 Net surplus/(deficit) 0 Add/(less) non-cash items:
136 Depreciation and amortisation expense 125
146 Total non-cash items 125
Add/(less) items classified as investing or financial activities:
3 (Gains)/losses on disposal of property, plant and equipment 0
Add/(less) movements in working capital items:
15 (Inc)/dec in prepayments (11)
171 Inc/(dec) in creditors and other payables (37)
(4) Inc/(dec) in employee entitlements 15
185 Net movements in working capital items (33)
331 Net cash from operating activities 92 14. Related party transactions and key management personnel Related party transactions
All related party transactions have been entered into on an arm’s length basis.
The Parliamentary Commissioner for the Environment is a wholly owned entity of the Crown. Parliament significantly influences the work of the Parliamentary Commissioner for the Environment as well as being its major source of revenue. 41 Significant transactions with government-related entities
The Parliamentary Commissioner for the Environment has received funding from the Crown of $2.613m (2011: $2.605m) to provide reports and advice to the public for the year ended 30 June 2012.
Collectively, but not individually, significant transactions with government- related entities
In conducting its activities, the Parliamentary Commissioner for the Environment is required to pay various taxes and levies (such as GST, PAYE, and ACC levies) to the Crown and entities related to the Crown. The payment of these taxes and levies, other than income tax, is based on the standard terms and conditions that apply to all tax and levy payers. The office of the Parliamentary Commissioner for the Environment is exempt from paying income tax.
The Parliamentary Commissioner for the Environment also purchases goods and services from entities controlled, significantly influenced, or jointly controlled by the Crown. Purchases from these government-related entities for the year ended 30 June 2012 totaled $293,000 (2011 $284,000). These purchases included the purchase of electricity from Genesis Energy, air travel from Air New Zealand, and postal services from New Zealand Post.
There were no transactions carried out with other related parties.
No provision has been required, nor any expense recognised, for impairment of receivables from related parties.
There is a balance of $41,000 outstanding at year end (2011 $47,000).
Key management personnel compensation
Actual Actual 2011 2012 $ (000) $ (000)
610 Salaries and other short-term employee benefits 772
17 Post employment benefits 20
627 Total key management personnel compensation 792
Key management personnel are the management team, comprising the Commissioner, General Manager, Research Managers, Finance Manager and Office Manager. There are 6 staff that comprise the senior management team (2011: 4).
15. Events after the balance date There have been no significant events after the balance sheet date. Chapter 5 – Financial statements and statement of service performance
16. Financial instrument risks The Parliamentary Commissioner for the Environment’s activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The Parliamentary Commissioner for the Environment seeks to minimise exposure from financial instruments and does not allow any transactions that are speculative in nature to be entered into.
42 Market risk
Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The number of foreign currency transactions entered into by the Parliamentary Commissioner for the Environment is very small and current practice for foreign exchange is to purchase the exact foreign currency amount at the time it is required.
At balance date there are no foreign currency transactions outstanding.
Interest rate risk Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or, the cash flows from a financial instrument will fluctuate, due to changes in market interest areas.
The Parliamentary Commissioner for the Environment has no interest bearing financial instruments and, accordingly, has no exposure to interest rate risk.
Credit risk Credit risk is the risk that a third party will default on its obligation to the Parliamentary Commissioner for the Environment, causing them to incur a loss.
In the normal course of its business, credit risk arises from debtors, deposits with banks and derivative financial instrument assets.
The Parliamentary Commissioner for the Environment has no receivables from debtors outstanding and therefore no credit rate risk from this source.
The Parliamentary Commissioner for the Environment is only permitted to deposit funds with Westpac, a registered bank. This entity has high credit ratings.
The Parliamentary Commissioner for the Environment’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount. There is no collateral held as security against these financial instruments.
Liquidity risk Liquidity risk is the risk that the Parliamentary Commissioner for the Environment will encounter difficulty raising liquid funds to meet commitments as they fall due.
In meeting its liquidity requirements, the Parliamentary Commissioner for the Environment closely monitors its forecast cash requirements with expected cash drawdowns from the New Zealand Debt Management Office. The Parliamentary Commissioner for the Environment maintains a target level of available cash to meet liquidity requirements. The table below analyses the Parliamentary Commissioner for the Environment’s financial liabilities that will be settled based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.
Less than 1 year $ (000) 43 2011
Creditors and other payables 280
2012
Creditors and other payables 243
17. Categories of financial instruments The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:
Actual Actual 2011 2012 $ (000) $ (000)
Loans and receivables
613 Cash and cash equivalents 661
613 Total loans and receivables 661
Financial liabilities measured at amortised cost
280 Creditors and other payables (note 9) 243
18. Capital management The Parliamentary Commissioner for the Environment’s capital is its equity (or taxpayers’ funds), which comprise general funds and capital contribution. Equity is represented by net assets.
The Parliamentary Commissioner for the Environment manages its revenues, expenses, assets, liabilities, and general financial dealings prudently. The Parliamentary Commissioner for the Environment’s equity is largely managed as a by-product of managing income, expenses, assets, liabilities, and compliance with the Government Budget processes and with Treasury instructions.
The objective of managing the Parliamentary Commissioner for the Environment’s equity is to ensure the Commissioner effectively achieves the goals and objectives for which it has been established, whilst remaining a going concern.
19. Explanations of major variances against budget Explanations of major variances from the Parliamentary Commissioner for the Environments budget figures are as follows:
Statement of financial position Creditors are higher than expected due to timing differences as a number of contracts were completed just prior to 30 June 2012. This has had a corresponding increase in the budgeted amount of cash held at year end. 44 Home
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Appendix Update Reports
Contents
Some biofuels are better than others: Thinking strategically about biofuels 47
Lignite and climate change: The high cost of low grade coal 53
46 Some biofuels are better than others: Thinking strategically about biofuels
Update Report July 2012 47
In July 2010 the Parliamentary Commissioner for the Environment released a report entitled Some biofuels are better than others: Thinking strategically about biofuels. The report looked at the role of biofuels in New Zealand, asking:
• How biofuels might reduce our dependence on fossil fuels
• Whether they could reduce our greenhouse gas emissions
• What New Zealand could realistically achieve with biofuels
• What needed to be done to achieve that potential.
• This is an update on the response to the report and its recommendations.
Background
Liquid fuels allow us to drive cars, trucks, tractors, and fishing boats, and run boilers and generators. Those fuels principally come from petroleum, but they can also be biofuels, made from ‘biomass’ like sugarcane, corn, vegetable oil, animal fats, wood, or even algae.
Oil price shocks in the 1970s led New Zealand to explore alternative fuel sources, but projects were shelved within a few years as the price of oil came back down. Today, there is a great deal of oil left in the world, but little left that is high quality and readily accessible. Biomass is the only renewable resource that can yield the liquid fuels needed for present-day transport.
When petrol and diesel are burned, carbon dioxide is emitted. This greenhouse gas is the major contributor to dangerous man-made climate change. Some biofuels can be ‘low-carbon’, for they are made from plants that absorb carbon dioxide as they grow, offsetting emissions.
Four recent government initiatives were aimed at encouraging biofuel production in New Zealand:
• The Biofuel Bill 2007, which aimed to create a biofuel sales obligation in New Zealand, under which every fuel supplier’s sales would have to include at least 0.5% biofuels. Signed into law in September 2008, it was repealed by the incoming government in December the same year.
• The Sustainable Biofuel Bill 2009, which revived the three ‘sustainability principles’ for biofuels that had been inserted into the Biofuel Bill by Select Committee.
• The Biodiesel Grants Scheme, which from July 2009 provided a 42.5 cent per litre sales credit for one particular kind of biodiesel, fatty acid methyl esters (FMEs), made in New Zealand from methanol and either vegetable oil or animal fat. • The Emissions Trading Scheme, which put a price on greenhouse gas emissions, and which should in theory reduce the price of biofuels relative to petroleum fuels. However it is ineffective in practice, because petrol and diesel are only partly exposed to the ETS, and because current biofuels are sold as low percentage blends with petroleum fuels, diluting the price advantage.
48 With biofuel temporarily high on the policy agenda, the Commissioner took the opportunity to provide some strategic context, and to encourage progress toward reducing fossil fuel dependence and greenhouse gas emissions.
Main findings of the investigation
Biofuels made from whey and tallow have been successfully sold in New Zealand for some time. Still, today’s biofuels have limited prospects. There are not enough fats, oils and fermentable materials in New Zealand to make large volumes of biofuels. And our currrent vehicles can only use today’s biofuels in low-percentage blends.
Instead, the report concluded that if biofuels are to play a significant role in our energy future, we should move toward developing drop-in biodiesel made from wood.
• Drop-in fuels can be used in today’s vehicle fleet without having to be blended with conventional fuels. Drop-in fuels are important because a biofuel that can be used only in low-percentage blends can never substitute for a large percentage of demand. It is not practical to replace entire vehicle fleets or distribution networks.
• Biodiesel, rather than ethanol, should be our focus: substituting for diesel is more important than substituting for petrol because our economy is critically reliant on diesel. Virtually all land freight is moved by diesel; fishing boats, agricultural machinery, and forestry, construction and mining equipment run on diesel.
• Wood can be made into biodiesel, for example by the Fischer-Tropsch process. It is the only source of biomass large enough to produce sufficiently large quantities of fuel, preferably supported by grasses and algae.
However, the Biodiesel Grants Scheme has not been as effective in encouraging biodiesel production as it should be. Only a very small proportion of the available financial support is being taken up. The Scheme only supports high-specification transport fuel, which some diesel users do not need, especially for stationary engines such as boilers and generators. It only covers FME biodiesels, which discourages future production of more desirable drop-in biodiesels. It is only guaranteed through to June 2012, which is not long enough to encourage investment in production facilities.
The Sustainable Biofuel Bill Some biofuels are better than others: they require little or no fossil fuel to produce, substantially reduce greenhouse gas emissions, do not compete with food crops, and producing them does not destroy ecosystems. Others can be worse than the fossil fuels they seek to replace. The Sustainable Biofuel Bill laudably sought to ensure that the biofuels we use in New Zealand are ‘good’ biofuels. But it was not workable. It would have imposed its environmental standards only on biofuel production and not on other land uses or other fuels.
There is no question that much of the biofuel grown in developing countries is environmentally and socially damaging. But it is difficult to see how New Zealand could prevent the import of ‘bad’ biofuels under current trade policy. As a small, 49 open economy that relies heavily on trade, New Zealand is unusually careful to comply with World Trade Organisation rules. Under these rules, New Zealand cannot unilaterally impose environmental standards to block the import of goods from other countries. The International Standards Organisation has begun work on a standard, Sustainability criteria for biofuel, but it is not expected to be complete until at least 2014.
Reaction to the report
Government The report was welcomed by the then Minister of Energy and Resources, Hon. Gerry Brownlee, who said that “the government will be considering its recommendations carefully… I particularly welcome the Parliamentary Commissioner’s comment that it makes no environmental sense for New Zealand to import ‘bad’ biofuels.”1
Political parties Green Party co-leader Jeanette Fitzsimons agreed with most of the report’s findings.
However Fitzsimons, who had sponsored the Sustainable Biofuel Bill, disagreed with the Commissioner’s stance on that matter. She believed that the Bill’s provisions would have been enforceable and compliant with World Trade Organisation rules. She considered that biofuel feedstocks needed to be grown sustainably so that the new industry could be established on the right footing. She felt that the alternative prospect – having the biodiesel grant discontinued due to the discovery of a ‘bad’ producer – would create more uncertainty and less willingness to invest in biofuels.2
The Labour Party’s Charles Chauvel applauded the report: “It is incredibly valuable, forward-looking insight and research…”3
Commentators For the Green Growth Advisory Group appointed by the Government in 2011, the Commissioner’s report confirmed that biodiesel substitution for fossil fuel, will require the emergence of a biomass industry, and of conversion technologies still under development.4 They saw greater potential for reducing fossil fuel use in ‘more integrated investment in transport infrastructure and greater use of new communications technologies’.
1 Hon Gerry Brownlee, Minister for Energy and Resources, press release ‘Minister welcomes biofuel report’, 29 July 2010. 2 Hon Jeanette Fitzsimons, letter to Parliamentary Commissioner for the Environment, 26 September 2010. 3 Chauvel, C. 2012. Offices of Parliament – Address to Governor-General: year 2012/13. New Zealand Parliamentary Debates, 679, [what page?]. 5 April 2012. 4 Green Growth Advisory Group, Greening New Zealand’s growth, December 2011. Industry The Bioenergy Association of New Zealand welcomed the report, especially Recommendation 3 relating to the Biodiesel Grants Scheme.5 However, although executive director Brian Cox agreed that large volumes of biofuels could only come from wood, he considered that current biofuels still had great importance as stepping stones to a wood-fuelled future. 50 Response to the Commissioner’s recommendations
The report included four recommendations:
Recommendation 1: The Local Government and Environment Select Committee recommends to Parliament that the Sustainable Biofuel Bill 2009 does not proceed.
Response: This recommendation was taken up. In June 2011 the Local Government and Environment Committee reported back to the House regarding the Sustainable Biofuel Bill, recommending that the Bill not proceed. The Committee cited the Commissioner’s report among other considerations influencing its decision.6
The Sustainable Biofuel Bill was defeated 69-51 at its second reading on 4 April 2012.
Recommendation 2: The Minister for the Environment:
• directs officials to monitor the biomass feedstocks used by companies receiving support under the Biodiesel Grants Scheme, and
• recommends to Cabinet that the Scheme is discontinued if taxpayers are subsidising environmental and social damage in developing countries
Response: This recommendation appears to have been taken up. Hon Phil Heatley, on behalf of the Minister for the Environment, advised that the Energy Efficiency and Conseration Authority (EECA) is monitoring feedstocks used by Biodiesel Grants Scheme participants. EECA has established a voluntary report mechanism for biofuel sustainability.7
The Local Government and Environment Committee, in their report on the Sustainable Biofuel Bill, reinforced the thrust of this recommendation, saying “we intend to monitor the use of biofuels in New Zealand, and their sustainability, and would encourage the relevant agencies to also monitor their use and be prepared to adapt the regulatory regime if necessary”.
5 Bioenergy Association of New Zealand, press release, 31 July 2010. 6 ‘Sustainable Biofuel Bill’, report of the Local Government and Environment Committee, 24 June 2011. 7 Heatley, P. 2012a. Letter to Parliamentary Commissioner for the Environment. Minister of Energy and Resources, Wellington. 3 April 2012. Recommendation 3: The Minister of Energy and Resources modifies the Biodiesel Grants Scheme in the following ways:
• Requiring biodiesels to be used for transport to meet higher specifications
• Providing partial subsidy for low-specification biodiesel for uses such as boilers and generators 51 • Allowing biodiesels, other than fatty acid methyl esters, to qualify for support
• Guaranteeing the Scheme beyond June 2012
Response: By comparison, in Australia, the Cleaner Fuels Grants Scheme was extended indefinitely from 1 July 2011. This scheme covers 100% of the excise duty payable on both FMEs and another kind of biodiesel, hydrogenated renewable diesels. It is worth around $0.38 per litre. Australian ethanol producers get a similar subsidy, also worth $0.38 per litre.
The Minister of Energy and Resources, Hon Phil Heatley, advised in April 2012 that:
• The New Zealand biodiesel specification is ‘as strict as any, and exceeds the European specification for stability’.
• While uptake of low-specification biodiesel could be increased by a subsidy, he perceived there was a risk of low-specification biodiesel being used in vehicles, undermining public confidence.
• The Government has chosen to invest ‘$41 million of research and development funding’ into advanced biofuels, rather than providing the incentive of a per- litre subsidy when they reach commercial scale.8
The Minister of Finance’s 2012 Budget announcement revealed that the Biodiesel Grants Scheme will be discontinued at the end of June 2012.
While this recommendation has not been taken up, it is some consolation to see that advanced biofuels remain on the Government’s spending priorities.9
Recommendation 4: The Minister of Finance and the Minister of State-Owned Enterprises should not support large-scale synthetic fuel production facilities without considering whether they are designed and located to run on wood.
Response: The Minister of State-Owned Enterprises, Hon Tony Ryall, responded on 9 March 2012 to state that he did not have this responsibility: ‘In accordance with section 5(2) of the SOE Act, matters of an operational nature, such as the design and location of proposed investments, are legally the responsibility of SOE boards.’
8 Heatley, P. 2012a. Letter to Parliamentary Commissioner for the Environment. Minister of Energy and Resources, Wellington. 3 April 2012. 9 Heatley, P. 2012b. ‘Thousands more NZ homes to be insulated’. Press release by Minister of Energy and Resources, Wellington. 24 May 2012. These are theoretical considerations, but since the release of the report they have gained practical relevance. Solid Energy New Zealand holds that synthetic fuel projects are part of its core business activities, and therefore operational matters. In particular, it is advancing plans for a lignite-to-fuel plant at Mataura in Southland. These plans are discussed in the Commissioner’s November 2010 report Lignite and climate change: the high cost of low-grade coal.
52 The Commissioner will continue her interest in the proposed Mataura lignite-to-fuel facility, and in the stance taken by the Ministers on that project.
Other Matters
Review of the Engine Fuel Specifications Regulations 2008 The Engine Fuel Specifications Regulations 2008 limited ‘biodiesel’ to fatty acid methyl esters (FMEs), and ‘diesel’ to distillates refined from mixtures of natural hydrocarbons. They did not appear to cover synthetic fuels that meet diesel specifications but which are not FMEs. This was a barrier to allowing biodiesels other than FMEs to qualify for support from the Biodiesel Grants Scheme, as envisaged in Recommendation 3 of the report.
In December 2010 the Ministry of Economic Development announced a review of these Regulations. Among other matters, the Ministry proposed to amend the definitions of petrol and diesel to explicitly cover all fuels that meet the specifications, regardless of the feedstock or production process employed to produce them.
The Commissioner supported these changes, which were duly implemented as the Engine Fuel Specifications Regulations 2011.
Conclusion Biofuels do have the potential to make a real difference – to substantially reduce greenhouse gas emissions, to improve fuel security, and to make New Zealand’s economy cleaner and greener. If biofuels are to play a significant role in our energy future, there is a need to move toward developing drop-in biodiesel made from wood.
Disappointingly, little has been done to realise the potential of biofuels since the report was released. The Biodiesel Grants Scheme was discontinued, and has not been replaced by any mechanism to assist biodiesel manufacturers in reaching commercial scale. EECA has established a voluntary report mechanism for biofuel sustainability, and MfE has changed the legal definitions of petrol and diesel so that fuels made from biomass can have the same standing as fuels made from conventional crude oil.
To the contrary, much attention has gone into converting a very poor quality fossil fuel, lignite, into liquid fuels. Lignite may improve New Zealand’s fuel security but it certainly will not reduce greenhouse gas emissions, let alone make the economy cleaner. Lignite and climate change: The high cost of low grade coal
Update Report July 2012 53
In November 2010 the Parliamentary Commissioner for the Environment released a report entitled Lignite and climate change: The high cost of low grade coal. The report examined the impact on New Zealand greenhouse gas emissions of proposals to exploit the large lignite reserves in southern New Zealand. This is an update on the response to the report and its recommendations.
Background Lignite is a very poor quality coal. It contains less energy, less carbon and more water than other types of coal. And, because of these physical characteristics, using lignite creates particularly high emissions of carbon dioxide, the principal greenhouse gas.
Nonetheless, there has long been interest in exploiting the very large lignite deposits in Otago and Southland. Currently 250,000 tonnes per year is being mined and burned for industrial heating. Solid Energy and L&M Group have separately proposed massive expansion programmes, potentially converting as much as 30 million tonnes of lignite per year into diesel, urea and processed heating fuels (briquettes). Lignite can also be burned in thermal power plants to produce electricity.
The primary environmental challenge examined in the report was the greenhouse gas emissions associated with using lignite. New Zealand has made a commitment to reduce its emissions to 10-20% below 1990 levels by 2020. Large scale lignite developments would make it very difficult to achieve this goal.
In theory, we could buy carbon credits offshore – in other words, pay others to make emissions reductions on our behalf. But too much of this would conflict with our clean green credentials that underpin our international branding, and miss the opportunities for New Zealand to take advantage of changing world circumstances, especially the development of clean green technologies.
Main findings of the investigation
Official predictions show that New Zealand is on track to exceed its 1990 level of greenhouse gas emissions by 30% in 2020, even without large scale lignite developments. So there is already a huge gap between the country’s projected emissions and the commitment made at the UN Climate Change Conference at Copenhagen in 2010.
All uses of lignite will widen the gap further. In particular, the emissions intensity of synthetic diesel made from lignite is almost double the emissions intensity of diesel from crude oil. Carbon capture and storage (CCS) technology might deal with some emissions from lignite processing. Carbon capture and transport are well understood and proven on a large scale, but there are many difficulties in storing carbon dioxide underground, and there is no known suitable reservoir to store carbon dioxide from a South Island lignite industry. Creating rules for carbon capture and storage is another major challenge.
54 Growing more trees is another avenue to help New Zealand reduce its greenhouse gas emissions, for trees take up carbon dioxide as they grow. But earning carbon credits from forestry is only a temporary fix – a forest stops removing carbon dioxide from the atmosphere when it is mature, and if it is felled the carbon is released again.
The main tool New Zealand currently has in place to help us meet our international obligations is the Emissions Trading Scheme (ETS). But under the ETS, the production of diesel and urea from lignite may well qualify for much of their greenhouse gas liabilities to be met by the Government in the form of ‘free’ carbon credits, with the cost of emissions borne by the taxpayer.
Subsidising new uses of such a carbon-intensive resource simply makes no sense. Moreover, such developments would lock in the use of dirty technology for many years.
Reaction to the report
Government The Government has been broadly supportive of developing the lignite resource.1 Energy Minister Hon. Gerry Brownlee disagreed with the report’s view that free carbon credits for lignite developments constitute a taxpayer subsidy. He noted that lignite opportunities could reduce imports of urea and “make a significant difference to the availability of fuels in New Zealand.”2
Acting Energy and Resources Minister Hon. Hekia Parata wrote to the Commissioner in June 2011, saying “the high CO2 emissions related to use of lignite however, ensures that any discussion about its development will inevitably include some discussion around emissions management.”3
In September 2011 the Environment Minister, Hon Nick Smith, stated that “the question as to whether the development of lignite resources for briquettes, urea, or diesel and whether they would be eligible for an allocation under the emissions trading scheme is an open question.”4
1 Southland Times. ‘PM backs mining south’s lignite’, 3 June 2011. 2 Brownlee, G. Questions for Oral Answer, 16898, 17 Feb, 2011. 3 Parata, H. Letter to Parliamentary Commissioner for the Environment, 14 June 2011. 4 Smith, N. Questions for Oral Answer, 21575, 29 September 2011. Political parties Labour Party environment spokesman at the time of the report’s release, Charles Chauvel, said lignite development “just doesn’t make sense” and climate change spokesman Brendon Burns stated that the report presented “damning evidence against lignite mining.” 5
In November 2011, Labour leader Phil Goff announced that the Labour Party would not allow Solid Energy to mine lignite for diesel in Southland. He said that “Labour 55 does not support the mining of lignite, and its conversion to liquid fuels using current technologies, because of the high volume of greenhouse gases produced.”6
The Green Party welcomed the report, agreeing with its findings and recommendations – Green co-leader Dr Russel Norman labelled proposals to develop lignite “taxpayer subsidised madness.”7
The Green Party has since been active in campaigning against lignite, and has cited the Commissioner’s report on a number of occasions, calling it “a comprehensive report”. MP Gareth Hughes drafted a Member’s Bill “based on recommendations by the Parliamentary Commissioner for the Environment.”8 The Green Party’s energy policy states that the Green Party will “not support any conversion of lignite or coal to other fuels or fertiliser.”9
In response to a pre-election “Vote For Nature” survey by Forest & Bird, the Māori Party gave the following response to a question about stopping all new coal and lignite mines:“The Parliamentary Commissioner for the Environment stated that New Zealand has no options to deal with the alarming level of emissions created by lignite and I tend to agree. We just do not have the economic base or the population capacity to sustain such an intensive plan to sink the amount of carbon that a dangerous initiative like this would produce. The Māori Party will not be supporting any lignite mining project in this country.”10
In the same survey, United Future responded that they “approach these issues on a case-by-case basis”.
The ACT Party view was that lignite needs to be developed because New Zealand “can no longer afford to leave valuable resources in the ground.”11
5 Chauvel, C. ‘Mining lignite doesn’t make the cut’. Labour Party media release, 22 July 2011; and Burns, B. ‘Commissioner damns lignite, PM signals support’. Labour Party media release, 19 August 2011. See also Burns, B. ‘Government lignite mining ambitions still billowing smoke’, Labour Party media release, 31 August 2011. 6 3 News. ‘Lignite mining ruled out by Labour’, 6 Nov 2011. 7 Norman, R. Green Party media release, 8 December 2010. 8 Hughes, G. ‘Green tetris game aims to keep coal in the hole’. Green Party media release, 26 May 2011. 9 http://www.greens.org.nz/policy/energy-policy 10 http://www.forestandbird.org.nz/node/4332 11 Boscawen, J. Speech to the Penrose Rotary Club, March 1 2011. The Mana Party do not have a specific policy position on lignite. However they do state in their draft energy and environment policy that “MANA believes the Precautionary Principle should be applied to the introduction of all new technology. This means that if an action or policy might cause harm to people or the environment, those who are taking the action or implementing the policy must prove that it is harmless, unless there is already scientific consensus to this effect.”12
56 Industry Solid Energy’s General Manager New Energy, Brett Gamble, viewed the report as “a contribution to the debate” but said that it was “narrowly focused”, looking only at carbon dioxide and ignoring the wider benefits of lignite development.13
Solid Energy’s CEO Dr Don Elder said, “[the Commissioner] is quite correct – there are potentially significant negative national issues… We believe they can be addressed and managed very well.”14 He has repeatedly stated that any lignite plants will “take full responsibility” for emissions from proposed developments.15 However, it is not clear what full responsibility means and a CEO cannot place restrictions on decisions made by future Boards.
In February 2011, Solid Energy disclosed their internal assessments of emissions from coal-to-diesel plants, which closely align with the estimates in the Commissioner’s report.16
South Port CEO Mark O’Connor wrote that Southland lignite was “an important element of New Zealand’s future economic wellbeing.” South Port would “play its part in assisting wherever possible the establishment of projects which are designed to make efficient use of these and other known lignite deposits.”17
Meanwhile L&M Mining told the Southland Times in June 2012 that plans for a lignite to diesel plant had not been abandoned although any possible resource consent application for the plant was years away.18
Others Professor Jonathan Boston, the Director of the Institute of Policy Studies at Victoria University, said “Dr Jan Wright has produced a rigorous and compelling analysis of why mining lignite and converting it to diesel, urea or briquettes is contrary to New Zealand’s economic interests.”19
12 http://mana.net.nz/policy/#tab-7 13 Radio New Zealand. Solid Energy says lignite could be New Zealand’s insurance policy, 9 December 2010. 14 Elder, D. Presentation to Commerce Select Committee, February 17 2011. 15 http://www.coalnz.com/index.cfm/1,485,0,0/Lignites-and-Carbon-Emissions.html See also: Southland Times. ‘Govt warned of lignite conversion costs’, 9 December 2011; New Zealand Herald. ‘Lignite projects worth billions’, 17 February 2011; The Press. ‘Think big with lignite’, 13 August 2011. 16 Solid Energy New Zealand. Letter from Corporate Solicitor, Solid Energy New Zealand, to World Wildlife Fund New Zealand, 8 February 2011. 17 South Port NZ Ltd. Media Statement, 10 February 2011. 18 Southland Times, 18 June 2012. 19 Victoria University of Wellington. ‘Lignite and Climate Change report findings endorsed’. Press release, 9 December 2010. Greenpeace called Solid Energy’s proposed briquette plant “a crime of global significance”.20
Economic commentator Rod Oram called the benefits “largely illusory”, pointing out that other countries also have large lignite fields and suggesting that those fields could be developed at lower cost.21
On his 2011 visit to New Zealand, NASA’s Dr James Hansen singled out lignite development as an internationally significant blow to efforts to ameliorate climate 57 change. Dr Hansen wrote to the Prime Minister saying that “Implications for New Zealand are clear… New Zealand should leave the massive deposits of lignite coal in the ground.” 22
Some writers have sought to advance a debate on lignite development, using the Commissioner’s report as a starting point. New Zealand Herald economics editor Brian Fallow discussed the report under the headline “Opening treasure trove comes at a cost.”23 Listener feature writer Rebecca Macfie asked “Does it make sense for ‘clean, green’ New Zealand… to launch a new carbon-intensive industry that will make our emissions substantially worse?”24
Response to the Commissioner’s recommendations
The report included three recommendations. Two were addressed to the Minister of Climate Change Issues and one to Cabinet as a whole.
Recommendation 1: The Minister for Climate Change Issues introduce legislation to amend the ETS so that new industries which use lignite on a large scale are specifically excluded from receiving any free carbon credits.
Recommendation 2: The Minister for Climate Change Issues introduce legislation to amend the ETS to provide criteria for deciding which new activities are eligible to receive free carbon credits, including a requirement that the new activity will reduce New Zealand’s national greenhouse gas emissions.
20 Greenpeace New Zealand. Media release, 25 January 2011. 21 Oram, R. ‘Taking us right back to the stone age’. Sunday Star-Times, 12 December 2010. 22 Hansen, J. Open letter to Prime Minister Rt Hon. John Key, 1 June 2011. 23 Fallow, B. ‘Opening treasure trove comes at a cost’. New Zealand Herald, 9 December 2010. 24 Macfie, R. ‘Dark matter’. The Listener, 3692, 12 February 2011. Response: These recommendations were reiterated in the Commissioner’s submission to the Emissions Trading Scheme Review Panel in 2011.25 The Panel, noting the Commissioner’s recommendations, recommended that the Government consider addressing them by capping total allocations or by making new activities ineligible for allocation.26
The Acting Minister for Climate Change Issues, Hon. Simon Bridges, wrote to the 58 Commissioner in May 2012: “I do not consider that there is any urgent need to legislate to restrict allocations for a specific class of new activities. Developments such as large- scale exploitation of lignite would have long lead times, which enable the Government to consider the implications of activities when they arise.”27
While the Acting Minister has not disagreed with the thrust of the recommendations, it is disappointing that no action is being taken at this time. Solid Energy’s annual reports show that the state-owned enterprise is investing in feasibility studies for large-scale lignite projects; in 2011 it spent more than $5 million on lignite gasification and conducted more exploratory drilling in Eastern Southland lignite fields. It has previously invested in technology, land and mining rights that are necessary for these projects.28 A full-scale lignite-to-diesel plant could be commissioned as soon as 2017, major briquette or urea plants even sooner.
Above and beyond lignite, the Commissioner remains concerned that the extent of subsidies in the ETS (free carbon credits) continues to render it generally ineffective and inefficient.
Currently the worst emitters are only responsible for 10% of the carbon dioxide they emit. And the phase-out is so slow under the current scheme that they will still be responsible for only 50% of their emissions by 2050.29 These subsidies reduce the incentive to reduce emissions, making it harder for New Zealand to shift to a low-carbon economy.
Recommendation about promoting green technology The Engine Fuel Specifications Regulations 2008 limited ‘biodiesel’ to fatty acid methyl esters (FMEs), and ‘diesel’ to distillates refined from mixtures of natural hydrocarbons. They did not appear to cover synthetic fuels that meet diesel specifications but which are not FMEs. This was a barrier to allowing biodiesels other than FMEs to qualify for support from the Biodiesel Grants Scheme, as envisaged in Recommendation 3 of the report.
25 Parliamentary Commissioner for the Environment. ‘Emissions Trading Scheme Review’, submission to the Emissions Trading Scheme Review Panel, 6 April 2011. 26 Recommendations 3.14 and 3.5 in Emissions Trading Scheme Review Panel. ‘Doing New Zealand’s Fair Share. Emissions Trading Scheme Review 2011: Final Report’. Ministry for the Environment, 2011. 27 Bridges, S. Letter to Parliamentary Commissioner for the Environment from Acting Minister for Climate Change, 22 May 2012. 28 Solid Energy New Zealand. Annual report 2011. Solid Energy New Zealand Ltd., 2011. 29 Parliamentary Commissioner for the Environment. Letter to ETS Review Consultation, 11 May 2012. Recommendation 3: Cabinet establish a clean green taskforce comprising members from both the private and public sectors to explore growing our green economy, including considering the implications for New Zealand of the large-scale exploitation of lignite.
59 Response: In 2011 the Government appointed a ‘Green Growth Advisory Group’ to advise on how exporters can leverage greater international value from ‘our clean, green brand’ opportunities for smarter use of existing technology and innovation in productive sectors, and options for small- and medium-sized business to ‘move to a lower-carbon economy’.
The brief given to the group recognised that “while New Zealand is already undertaking a number of activities to align environmental stewardship and economic performance, we need a more coherent strategy”. It acknowledged that New Zealand’s per capita greenhouse gas emissions were relatively high.30
Yet the Green Growth Advisory Group’s narrow terms of reference did not allow it to evaluate the effect that large-scale exploitation of lignite would have on the clean green brand. The Commissioner pointed out that its focus on small and medium-sized businesses was neither consistent nor equitable, and that it could not produce a coherent strategy because it had to ignore the potential for carbon- intensive growth by large enterprises to undermine the green growth of smaller enterprises.31
The recommendation has only been partly implemented because the Green Growth Advisory Group did not consider the implications of the large-scale exploitation of lignite for New Zealand.
Conclusion The Commissioner’s conclusion remains unaltered – New Zealand’s lignite should remain in the ground, at least until subsidies for its large-scale exploitation are ruled out and mitigation options are proven sufficient and reliable. New Zealand faces a carbon-constrained future and one way or another will be paying the price for its greenhouse gas emissions. A decision to lock the country into low-grade coal would make that a very high price indeed.
30 Green Growth Advisory Group. ‘Greening New Zealand’s growth’. Report to New Zealand Government, December 2011. 31 Parliamentary Commissioner for the Environment. ‘Green growth – issues for New Zealand’. Submission to the Green Growth Advisory Group, 20 September 2011.