130-727: The New Zealand Emissions Trading Scheme ( NZ ETS ) is an all-gases partial-coverage uncapped domestic emissions trading scheme that features price floors, forestry offsetting, free allocation and auctioning of emissions units. The NZ ETS was first legislated in the Climate Change Response (Emissions Trading) Amendment Act 2008 in September 2008 under the Fifth Labour Government of New Zealand and then amended in November 2009 and in November 2012 by
260-495: A subsidy for the sector in question. The Garnaut Climate Change Review considered the free allocation of permits unjustified in any circumstances, arguing that governments could deal with market failure or claims for compensation more transparently with the revenue from full auctioning of permits. Another economically efficient solution to carbon leakage is border adjustment, where tariffs are set on imported goods from less regulated countries. A problem with border adjustments
390-811: A "carbon tax", and when the government proposed the Clean Energy Bill in February 2011, the opposition denounced it as a broken election promise. The Lower House passed the bill in October 2011 and the Upper House in November 2011. The Liberal Party vowed to repeal the bill if elected. The bill thus resulted in passage of the Clean Energy Act, which possessed a great deal of flexibility in its design and uncertainty over its future. Fonterra Fonterra Co-operative Group Limited
520-589: A $ 25 carbon price and 3% to 4% for a $ 50 price. However, the report noted that there was little difference in costs between the government paying all and the ETS with free allocation, as all the model results indicated small reductions (-0.1% and -0.4%) in Gross National Disposable Income compared to 'business as usual'. In respect of the 2009 amendments to the NZ ETS, intensity-based allocation
650-427: A 25% discount to the freely traded value. The third step, titled "Trading Among Farmers", involves more far-reaching change to Fonterra's capital structure. The co-operative would no longer be obliged to issue or redeem shares at a price established via an independent valuation process. Instead, farmers would buy or sell shares among themselves at market prices through a farmer-only share trading market. This would have
780-529: A 40 by 40-metre banner reading 'Fonterra Climate Crime'. Greenpeace was protesting about Fonterra's use of brown coal ( lignite ) at the nearby Edendale Fonterra plant. Greenpeace alleged that the Edendale plant will burn 179,000 tonnes of lignite, which will release over 250,000 tonnes of carbon emissions. In response to the protest, Fonterra said, "We use 13.9 percent less energy to produce each tonne of export product than we did in 2003. That's equivalent to
910-663: A benchmarking approach, if designed properly, would reward more efficient operations". Hepburn et al. state that, empirically, businesses tend to oppose auctioning of emissions permits, while economists almost uniformly recommend auctioning permits. Auctioning permits provides the government with revenues, which can be used to fund low-carbon investment and cuts in distortionary taxes . Auctioning permits can therefore be more efficient and equitable than allocating permits. Garnaut stated that full auctioning will provide greater transparency and accountability and lower implementation and transaction costs as governments retain control over
1040-484: A carbon price of NZ$ 50 a tonne, the cost to taxpayers of the free allocation of NZ units to emitters will be NZ$ 99 billion between 2010 and 2091. Nick Smith's Cabinet Paper noted that the New Zealand Treasury had estimated that the long-term costs of intensity-based allocation of units to industry and agriculture would be 'very significant', in the order of NZ$ 900 million per annum by 2030. The Clerk of
1170-433: A controlling interest. The aim was to give more access to funds for global growth. Praised by some as a bold move which would allow better access to outside capital, the proposals encountered significant opposition from both farmer shareholders and the government (who would be required to pass enabling legislation). Despite including a range of safeguards, farmers were clearly concerned at the risk of losing control; in what
1300-898: A defined 'activity'. Bertram and Terry (2010, p 16) state that as the NZ ETS does not 'cap' emissions, the NZ ETS is not a cap and trade scheme as understood in the economics literature. Some stakeholders have criticised the New Zealand Emissions Trading Scheme for its generous free allocations of emission units and the lack of a carbon price signal (the Parliamentary Commissioner for the Environment ), and for being ineffective in reducing emissions ( Greenpeace Aotearoa New Zealand ). The NZ ETS has been reviewed and amended many times: first in November 2009 then in late 2011 to 2012 by an independent panel. A 2016 Government review concluded that
1430-606: A firm being given fewer permits in the future for aiming to cut emissions drastically. Another method of grandfathering is to base allocations on current production of economic goods rather than historical emissions. Under this method of allocation, the government will set a benchmark level of emissions for each good deemed to be sufficiently trade exposed and allocate firms units based on their production of this good. However, allocating permits in proportion to output implicitly subsidises production. The Garnaut Climate Change Review noted that grandfathered permits are not free of cost. As
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#17327804267521560-420: A fixed one-off free allocation of units. Transport (liquid fossil fuels), stationary energy and industrial processes would not receive a free allocation of units. Trade-exposed industries would have received a free allocation of 90% of 2005 emissions annually to 2018. From 2019 to 2029 the free allocation of units would have phased out at the rate of a 1/12 (8.3%) reduction each year. Agriculture would have received
1690-438: A fixed price of NZ$ 25 instead of buying and surrendering units. This measure means that firms will face a cost of no higher than NZ$ 12.50 per tonne of emissions. There is a restriction on the sale of units oversea during this transition period, except for forest removal credits. Agricultural emissions, methane from enteric fermentation and manure management as well as nitrous oxide from animal effluent and fertiliser, were to enter
1820-437: A free allocation of 90% of 2005 emissions each year to 2018. From 2019 to 2029 the free allocation would have phased out at the rate of a 1/12 (8.3%) reduction each year. Fishing would have received a free allocation based on 50% of 2005 emissions each year from July 2010 to January 2013. The Labour Government subsequently lost the 2008 New Zealand election to the coalition led by National Party , who had campaigned on amending
1950-528: A global commitment to protecting the environment. Sustainability, good environmental practice and environmental improvement are cornerstones of Fonterra's environmental commitment." Fonterra claims to have a number of initiatives such as the Dairying and Clean Streams Accord , relating to environmental protection to achieve this policy. In December 2011, the Green Party questioned Fonterra's credibility and
2080-485: A higher payout to dairy farmers. The first two steps of capital structure change received good support from farmer shareholders at Fonterra's annual meeting in November 2009. The first step allowed farmers to hold shares above their level of annual milk production; farmers could now own an additional 20% of "dry" shares (i.e. up to a maximum of 1.2 shares per kgMS). There were also enhanced incentives for farmers to hold shares even if their production falls. The rules about
2210-527: A move to address non-compliance with regional council dairy effluent rules. The 2012 independent audit spurred further progress in this area with Fonterra announcing that suppliers will be required to complete fencing of Accord waterways by June 2013. Whether this will occur is yet to be seen. In February 2008, the inaugural Fonterra Environmentalist of the Year was announced at the Beehive . The Award continues
2340-412: A one-off free allocation of units on a historic basis. Owners of pre-1990 forests received a fixed free allocation of units. Free allocation to emissions-intensive industry, is provided on an output-intensity basis. For this sector, there is no set limit on the number of units that may be allocated. The number of units allocated to eligible emitters is based on the average emissions per unit of output within
2470-748: A partnership between Keep New Zealand Beautiful and Fonterra. Fonterra is also a Corporate Sponsor of the Society and each year teams of staff from the company's manufacturing sites participate in the Keep New Zealand Beautiful Clean Up Week campaign, clearing rubbish from around roadsides, sports fields, parks and beaches. These activities have been criticised as token however as they have limited impacts on preventing stock from entering waterways and in assisting farmer to implement more effective fertiliser regimes that could cut farmers costs and improve water quality. Fonterra
2600-472: A positive leakage to developing countries. However, a negative leakage might also occur due to technological developments driven by domestic regulation of GHGs, helping to reduce emissions even in less regulated regions. The current state of carbon emissions trading shows that roughly 22% of global greenhouse emissions are covered by 64 carbon taxes and emission trading systems as of 2021. Energy intensive industries that are covered by such instruments may view
2730-556: A reduction, avoidance or removal of one metric tonne of carbon dioxide or its carbon dioxide-equivalent (CO 2 e). A variety of greenhouse gas reduction projects can qualify for offsets and credits depending on the scheme. Some include forestry projects that avoid logging and plant saplings, renewable energy projects such as wind farms , biomass energy , biogas digesters , hydroelectric dams , as well as energy efficiency projects. Further projects include carbon dioxide removal projects, carbon capture and storage projects, and
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#17327804267522860-516: A review panel. In late 2009, Climate Change Minister Nick Smith stated that estimates of fiscal impacts beyond 2020 at the present time are meaningless as there are simply too many unknowns. Although the level of allocation per unit of output for emissions-intensive and trade-exposed industrial activities decreases at 1.3% per year from 2013, as production may increase, allocations may also increase over time. The NZ ETS contains special transitional provisions from 1 July 2010 (when fossil emissions enter
2990-533: A sustainable supply of palm kernel "and ensuring we do not support deforestation, directly or indirectly." Fonterra is a member of the Roundtable for Sustainable Palm Oil to ensure it was informed or sustainability issues in South-East Asia and "to actively contribute to more robust sustainability certification systems." Fonterra was also the subject of Greenpeace Aotearoa New Zealand protests off
3120-706: A temporary cap on the price of carbon; to delay bringing in sectors into the NZETS; to delay phasing out free emission units; and, maximum alignment with the Australian Carbon Pollution Reduction Scheme . Oram viewed these changes as significantly weakening the incentives to reduce emissions and to plant carbon forests. On 14 September 2009, the National Government Minister for Climate Change Issues Nick Smith announced that it had reached an agreement with
3250-514: Is New Zealand's largest producer of biofuel, processing a waste stream from casein manufacture into bio-ethanol. The company produces around 20 million litres of premium ethanol annually. Since 2004, Fonterra has produced ethanol from whey, a by-product of casein, in the Edgecumbe, Tirau and Reporoa plants. In 2008, Fonterra began supplying Gull Petroleum with ethanol from its Edgecumbe plant. The fuel has significant environmental benefits as it
3380-470: Is a New Zealand multinational publicly traded dairy co-operative owned by New Zealand farmers. The company is responsible for approximately 30% of the world's dairy exports and with revenue exceeding NZ $ 22 billion, making it New Zealand's largest company. It is the sixth-largest dairy company in the world as of 2022, as well as the largest in the Southern Hemisphere . Fonterra
3510-498: Is a carbon trading mechanism that enables entities to compensate for offset greenhouse gas emissions by investing in projects that reduce, avoid, or remove emissions elsewhere. When an entity invests in a carbon offsetting program, it receives carbon credit or offset credit, which account for the net climate benefits that one entity brings to another. After certification by a government or independent certification body, credits can be traded between entities. One carbon credit represents
3640-618: Is a common method that countries use to attempt to meet their pledges under the Paris Agreement , with schemes operational in China , the European Union , and other countries. Emissions trading sets a quantitative total limit on the emissions produced by all participating emitters, which correspondingly determines the prices of emissions. Under emission trading, a polluter having more emissions than their quota has to purchase
3770-508: Is a highly contentious subject. The Sustainability Council argued that the allocation of units to industry is highly costly to taxpayers. Dr Christina Hood, a climate change and energy policy consultant, submitted to the Finance and Expenditure Select Committee that the use of uncapped intensity based allocation of units will result in a taxpayer subsidy to emitters of about NZ$ 105 billion up to 2050. Economist Geoff Bertram estimated that at
3900-965: Is a significant cause of climate change, and loss of bio-diversity. Greenpeace campaign director Chris Harris said only 4 per cent of palm oil came from sustainable sites. Greenpeace stated that forests were being cleared for the planting of the trees that produce palm oil. In August 2016, Fonterra announced a new palm products sourcing standard that was developed in consultation with key supply partners, and following discussions with Greenpeace that began in December 2015. "The new standard requires Fonterra to purchase on segregated supply palm oil by 2018, and to work with suppliers of palm products to ensure that plans are in place for full traceability to plantation by 2018", said Fonterra's director of social responsibility, Carolyn Mortland. On 17 November 2009, Greenpeace members protested at Solid Energy 's New Vale opencast lignite mine near Gore, New Zealand , by unfurling
4030-408: Is constrained in its regulatory jurisdiction. GHG emissions may thus leak to another region or sector with less regulation. Generally, leakages reduce the effectiveness of domestic emission abatement efforts. Notwithstanding, leakages may also be negative in nature, increasing the effectiveness of domestic abatement efforts. For example, a carbon tax applied only to developed countries might lead to
New Zealand Emissions Trading Scheme - Misplaced Pages Continue
4160-575: Is renewable and biodegradable. In July 2016, Fonterra announced that their tanker fleet was switching to ZBioD (Z Energy's biodiesel fuel) as a foundation customer. Chief Operating Officer Global Operations, Robert Spurway said "the move to biodiesel has the potential to reduce emissions for the tankers using it up to four per cent each year, and the partnership is an important milestone for Fonterra." In 2006, Forest and Bird asked Fonterra to 'clean up its act', instead of obtaining consent to continue to discharge 8,500 cubic metres per day of wastewater into
4290-560: Is required by Fonterra to protect streams and that evaluating success in this area may be better carried out by an independent third party auditor. In July 2007, the Green Party called on Fonterra to use financial penalties on its suppliers who were " dirty dairying ", and to particularly penalise the 'recidivist polluters' the Crafar Farms . In 2010, Fonterra launched its every farm every year initiative. Fonterra plans to check every farm's effluent management infrastructure every year in
4420-400: Is that the emitters of greenhouse gases (GHGs) do not face the external costs of their actions, which include the present and future welfare of people, the natural environment, and the social cost of carbon . This can be addressed with the dynamic price model of emissions trading. An emissions trading scheme for greenhouse gas emissions (GHGs) works by establishing property rights for
4550-408: Is that they might be used as a disguise for trade protectionism . Some types of border adjustment may also not prevent emissions leakage. The EU Carbon Border Adjustment Mechanism takes in effect for 6 sectors in 2026. The Paris Agreement provided a legal base for the creation of a global carbon market, which has a potentially significant role in stopping climate change. In the beginning of 2024,
4680-474: Is the current chairperson and in March 2020, he foreshadowed that he would step down in November 2020. In June 2020, Peter McBride was announced as Monaghan's successor. In November 2007, the board of directors announced a two-year consultation programme regarding their preferred capital re-structuring option: putting the business operations in a separate publicly listed company, with the co-operative maintaining
4810-447: Is to change producers' behaviour, it is vital to be able to measure emissions in a cost effective manner. If the transaction costs of measuring emissions outweigh the benefits of emissions reduction, the policy may not be net welfare enhancing. Therefore the transaction costs of implementing an all-sectors all-gases ETS need to be evaluated. It may be advisable to exempt sectors such as agriculture where measurement costs are high relative to
4940-637: The 2022 Russian invasion of Ukraine . The company had exported NZ$ 240 million worth of produce to Russia in 2021. On 21 March, Fonterra closed its office in Moscow and withdrew from its joint venture with Russian company Unifood . In mid May 2024, Fonterra announced plans to sell its global consumer business as part of a shift towards becoming a global business-to-business supplier of dairy nutrition products. The company's consumer business brands included Anchor , Mainland , Kapiti , Anlene, Anmum, Fernleaf, Western Star, and Perfect Italiano; which comprise 15% of
5070-642: The European Union Emissions Trading System (EU-ETS) complement the country-to-country trading stipulated in the Kyoto Protocol by allowing private trading of permits, coordinating with national emissions targets provided under the Kyoto Protocol. Under such programmes, a national or international authority allocates permits to individual companies based on established criteria, with a view to meeting targets at
5200-614: The Fifth National Government of New Zealand . The NZ ETS was until 2015 highly linked to international carbon markets as it allowed unlimited importing of most of the Kyoto Protocol emission units. There is a domestic emission unit; the 'New Zealand Unit' (NZU), which was initially issued by free allocation to emitters until auctions of units commenced in 2020. The NZU is equivalent to 1 tonne of carbon dioxide. Free allocation of units varies between sectors. The commercial fishery sector (who are not participants) received
5330-545: The Manawatu River . Fonterra responded to Forest and Bird's request, agreeing to treat wastewater it discharges into the Manawatu River, greatly reducing its impact on the river. Treatment will be phased in so that by 2015 the discharge will be treated to a level where the water will be fit to swim in year-round. In 2010, Fonterra signed a voluntary agreement with local councils and freezing works to clean up
New Zealand Emissions Trading Scheme - Misplaced Pages Continue
5460-626: The Māori Party about revisions to the NZ ETS and that an amending bill would be drafted in order to "make the ETS workable and affordable". On 24 September 2009, the Climate Change Response (Moderated Emissions Trading) Amendment Bill had its first reading in Parliament and was sent to the Finance and Expenditure Select Committee for public submissions. Between 15 October 2009 and the date of its final report, 16 November 2009,
5590-614: The New South Wales (NSW) state government unilaterally established the New South Wales Greenhouse Gas Abatement Scheme to reduce emissions by requiring electricity generators and large consumers to purchase NSW Greenhouse Abatement Certificates (NGACs). This has prompted the rollout of free energy-efficient compact fluorescent lightbulbs and other energy-efficiency measures, funded by the credits. This scheme has been criticised by
5720-914: The New Zealand Dairy Research Institute (NZDRI) was founded in Palmerston North as part of the Department of Scientific Industrial Research , which was renamed to the Fonterra Research and Development Centre (FRDC) when Fonterra was formed in 2001. FRDC is purportedly one of the largest dairy research centres in the world, and as of 2019, it hosts several hundred engineers, scientists and researchers and holds 350 milk related patents. A large number of technologies involving whey , casein , lactoferrin , nisin , anhydrous milk fat , as well as cheesemaking and milk powder production have been developed at
5850-670: The United Nations Framework Convention on Climate Change . In 2008, the Labour Government enacted the Climate Change Response (Emissions Trading) Amendment Act 2008 which added the first version of the New Zealand Emissions Trading Scheme to the Climate Change Response Act 2002. The proposed scheme covered all six greenhouse gases specified in the Kyoto Protocol and was intended to progressively apply to all sectors of
5980-532: The atmosphere . The atmosphere is a global public good , and GHG emissions are an international externality . In the cap-and-trade variant of emissions trading, a cap on access to a resource is defined and then allocated among users in the form of permits. Compliance is established by comparing actual emissions with permits surrendered. The setting of the cap affects the environmental integrity of carbon trading, and can result in both positive and negative environmental effects. Emissions trading programmes such as
6110-522: The 2008 election, the policy of the National Party was that the NZ ETS should be fiscally neutral, in the sense of a Government policy where any new taxes or revenues equal any new spending The policy of a fiscally neutral NZ ETS was confirmed by John Key Bill English , and Nick Smith in his speech on the third reading of the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009. The cost of free allocation of units to emitters
6240-439: The 75% threshold required for a favourable vote. In May 2021, Fonterra started a consultation process to seek farmer feedback on potential options to change its capital structure. Based on farmer feedback over the consultation period as well as further expert advice, a proposal was put forward in September 2021 to move to a Flexible Shareholding structure, aimed at giving farmers more financial flexibility. In December 2021,
6370-621: The Centre for Energy and Environmental Markets (CEEM) of the University of New South Wales (UNSW) because of its lack of effectiveness in reducing emissions, its lack of transparency and its lack of verification of the additionality of emission reductions. Prior to the 2007 federal election , both the incumbent Howard Coalition government and the Rudd Labor opposition promised to implement an emissions trading scheme (ETS). Labor won
6500-550: The EU ETS, where industries that have been judged to be internationally exposed have been given permits for free. The International Air Transport Association , whose 230 member airlines comprise 93% of all international traffic, argue that emissions levels should be based on industry averages rather than using individual companies' previous emissions levels to set their future permit allowances, stating that "would penalise airlines that took early action to modernise their fleets, while
6630-542: The Finance and Expenditure Committee received 399 submissions on National's draft bill. In 2007, the Ministry for the Environment released a detailed report, "The Framework for a New Zealand Emissions Trading Scheme", which stated the NZ ETS would not have a binding, absolute limit on the total level of emissions allowed in New Zealand. While the quantity of domestic NZ Units gifted to eligible emitters would be fixed,
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#17327804267526760-520: The Government's intention to modify the NZ ETS. The report "Economic modelling of New Zealand climate change policy" created static computable general equilibrium (CGE) models using 2008 emissions projections. The terms of reference set the policy options to look at as the 2008 NZETS vs the least-cost option for meeting the Kyoto liability vs a revenue-neutral tax on carbon equivalents. The impacts of
6890-584: The Greens (9 votes), ACT (5 votes) and the Progressive Party (1 vote) voted against the third reading. On 7 December 2009, the Climate Change Response (Moderated Emissions Trading) Amendment Act 2009 received the royal assent. The NZ ETS covers forestry (a net sink), energy (42% of total 2012 emissions), industry (7% of total 2012 emissions) and waste (5% of total 2012 emissions) but not pastoral agriculture (46% of 2012 total emissions). Participants in
7020-636: The House invited economist Suzi Kerr to give independent specialist advice on the Climate Change Response (Moderated Emissions Trading) Amendment Bill. Kerr's advice was that the free allocation of emission units significantly raised the overall cost of the NZ ETS to the economy and transferred it to taxpayers. The 2009 legislation did not include a specific sunset clause to change the allocation of units to firms that undertake emissions-intensive and trade-exposed activities. The legislation stipulates that allocations must be reviewed no less than once every five years by
7150-510: The Kyoto Protocol due to the surplus of allowances that some countries possess. For example, Russia had a surplus of allowances due to its economic collapse following the end of the Soviet Union. Other countries could have bought these allowances from Russia, but this would not have reduced emissions. In practice, as of 2010, Kyoto Parties had not yet chosen not to buy these surplus allowances. The complexity of cap and trade schemes around
7280-567: The Liberals opposed the ETS. This left the Rudd Labor government unable to secure passage of the bill, and it was subsequently withdrawn. Julia Gillard defeated Rudd in a leadership challenge, becoming Federal Prime Minister in June 2010. She promised that she would not introduce a carbon tax, but would look to legislate a price on carbon when taking the government to the 2010 election . In
7410-448: The NZ ETS from 1 January 2015. Agriculture was indefinitely excluded from the NZ ETS in 2013. The Climate Change Response (Moderated Emissions Trading) Amendment Act 2009 established an emissions trading scheme with obligations on emissions from all sectors and all gases. From 2015, the technical details can be summarised as: The proposed sector entry dates, obligations and unit allocation terms of National's proposed NZ ETS are set out in
7540-498: The NZ ETS had caused only minimal reductions in net emissions. In 2020 rules for emissions budgets and auctions of units within price caps were introduced. In June 2009, Nick Smith released an economic modelling report on the NZ ETS by economic consultants NZIER and Infometrics which had been prepared for the Emissions Trading Scheme Review Committee . Smith stated that the report supported
7670-593: The NZ ETS is unlike most other emissions trading schemes, Ministry for the Environment Fact Sheet 16 stated "There is no cap on the emissions that occur within New Zealand." However, the Ministry for the Environment still regarded the NZ ETS as operating within the cap on emissions established by the Kyoto Protocol for the first commitment period of 2008–2012. Moyes (2008) describes this as a "flexible cap" where New Zealand sourced emissions regulated by
7800-598: The NZ ETS must surrender one emission unit (either an international 'Kyoto' unit or a New Zealand-issued unit) for every two tonnes of carbon dioxide equivalent emissions reported or they may choose to buy NZ units from the government at a fixed price of NZ$ 25. The one-for-two surrender obligation was phased out evenly over three years from 1 January 2017. The "one for two" or 50 percent surrender obligation increased to 67 percent from 1 January 2017, then to 83 percent from 1 January 2018, and to 1 unit for one tonne of emissions surrender obligation from 1 January 2019 for all sectors in
7930-578: The NZ ETS. In December 2008, the National-led Government set up the Emissions Trading Scheme Review Committee to review the NZ ETS. The committee provided a report nine months later on 31 August 2009. In early September 2009, Rod Oram predicted that the National Government's goals would be; to adopt intensity-based allocation of free carbon credits to export industries; have no cap on greenhouse gas emissions; to have
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#17327804267528060-598: The NZ ETS. Individual sectors of the economy have different entry dates when their obligations to report emissions and surrender emission units took effect. Forestry, which contributed net removals of 17.5 Mts of CO 2 e in 2010 (19% of NZ's 2008 emissions) entered the NZ ETS on 1 January 2008. The stationary energy, industrial processes and liquid fossil fuel sectors entered the NZ ETS on 1 July 2010. The waste sector (landfill operators) entered on 1 January 2013. From November 2009, methane and nitrous oxide emissions from pastoral agriculture were scheduled to be included in
8190-445: The NZETS are constrained only by the international market price for GHG emissions. Nick Smith's press release of September 2009 announced that the method of allocation of NZ units to trade exposed and emissions intensive firms would now be based on average industry production, where the levels of units allocated would vary in proportion to a firm's production. In combination with the unlimited use of internationally sourced Kyoto units,
8320-535: The NZMP brand (95% of its New Zealand production is exported). It also operates a fast-moving consumer goods business for dairy products, Fonterra Brands. Fonterra has a number of subsidiaries and joint-venture companies operating in markets around the world. In 2005, the company purchased a large factory in Dennington, Victoria , Australia, from Nestlé , after they moved out of the collection of milk from farmers and
8450-476: The Port of Tauranga on 16 September 2009 and Port Taranaki on 5 February 2011, where Greenpeace activists invaded ships carrying palm kernel animal feed, destined for dairy farms. Palm kernel imports went from 0.4 tonnes in 1999 to 455,000 tonnes in 2007 and then to 1.1 million tonnes in 2008, one quarter of the world's palm-based animal feed. Greenpeace says that deforestation for the production of palm products
8580-399: The actual reductions achieved. To be credible, the reduction in emissions must meet three criteria: they must last indefinitely, be additional to emission reductions that were going to happen anyway, and must be measured, monitored and verified by independent third parties to ensure that the amount of reduction promised has in fact been attained. A domestic carbon emissions trading scheme
8710-563: The allocation of New Zealand units to eligible emitters in proportion to their production means that there is no cap on total emissions within New Zealand. There is also no cap on total emissions during the transition period as the Government will supply the market with unlimited New Zealand units at the fixed price of NZ$ 25 per NZU. When the NZETS included a proposed free allocation of units to agriculture, there were no eligibility tests. Allocations to agricultural activities were to have been made on an intensity basis. The baseline would have been
8840-525: The basis of data collected by Fonterra. The integrity of this data was later questioned when a 2012 independent report commissioned by MAF indicated that while Fonterra's survey of farmers suggests that nationally 84% of properties have stock excluded from waterways, an independent audit by MAF revealed a position that only 42% of farms nationally had stock exclusion. The difference in Fonterra's results against those in an independent audit suggest further work
8970-514: The benefit that would be gained from that sector’s inclusion. Our modelling suggests that, in the short term, such exemptions do not reduce economy wide welfare. The Parliamentary Commissioner for the Environment considered that there was insufficient evidence to justify leaving agriculture out of the NZ ETS until 2015. A submission from the Institute of Policy Studies (New Zealand) and The New Zealand Climate Change Research Institute considered that
9100-437: The centre. FRDC has a substantial library of over 100,000 cheese starter cultures , which began in the 1930s under Hugh Whitehead . The centre has pioneered research on bacteriophages ; in 1935 a bacteriophage was identified as the cause of failure in cheese starter isolates, and in 1992 the centre sequenced the genome of bacteriophage c2, which was the first whole genome to be sequenced in New Zealand. John Roadley
9230-412: The certainty of a particular quantity limit of emissions. Emissions trading has been criticized for a variety of reasons. For one, it has been argued that climate change requires more radical solutions than pollution trading schemes, and that systemic changes must be made to reduce fossil fuel usage. At the same time, carbon credits have been seen as enabling large companies to pollute the environment at
9360-479: The change in regulations and not simply due to paying the real cost of carbon. However, if there is advanced notice of this change, or if the carbon price is introduced gradually, this one-time regulatory cost will be minimized. There has now been enough advance notice of carbon pricing that this effect should be negligible on average. Allocating permits based on past emissions is called "grandfathering". Grandfathering permits can lead to perverse incentives , such as
9490-637: The co-op's total milk solids. Other brands affected by the proposed divestment include its subsidiaries Fonterra Oceania and Fonterra Sri Lanka. In addition, the divestment could affect Fonterra's 17 manufacturing sites including three facilities in New Zealand. On 11 November, Fonterra confirmed that it would be selling its consumer brands including Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano. The company also confirmed that it would sell its subsidiaries Fonterra Oceania and Fonterra Sri Lanka, as well as its 17 manufacturing sites including its three New Zealand facilities. In 1927
9620-432: The co-operative or increasing/decreasing their milk production. Additionally, Fonterra would set up a special fund that would financially help farmers purchase shares (or retain shares they would otherwise have to sell). The fund would pay farmers for the right to receive dividends and the gain/loss from any changes in value of some of their shares, but the farmer would still be the owner of the shares. The fund would raise
9750-604: The co-operative, which was required to buy the shares back off them. Consequently, Fonterra faced the risk of losing large amounts of share capital through redemptions during times of declining milk production. For instance, after milk production fell during the 2007/08 drought, Fonterra had to pay out $ 742 million of share capital to farmers via redemptions. The capital structure changes also sought to provide greater incentives for farmers to increase their investment in Fonterra shares, helping ensure Fonterra has sufficient share capital to fund profitable business opportunities and drive
9880-452: The co-operative. A key goal of the capital structure changes was to stop large amounts of money washing in and out of Fonterra's balance sheet each year as milk production fluctuates. Under the previous structure, farmers matched their shareholding with their milk production by owning one co-operative share for each kilogram of milksolids (kgMS) produced annually. If their milk production dropped in any season, they could redeem shares back to
10010-405: The company acquired the yoghurt and dairy dessert business of Nestlé Australia, which it on-sold to Parmalat Australia in December 2015. In 2010, leaked US embassy cables suggested New Zealand had only sent troops to Iraq in 2003, following the initial invasion, so Fonterra would keep valuable Oil for Food contracts. New Zealand was not a member of the coalition which supported invasion of
10140-540: The country, but later sent combat engineers for mine clearance and other such tasks. In 2019, the Tip Top ice cream brand was sold for NZ$ 380 million to Froneri , a global joint venture between Nestlé and PAI Partners . In September 2019, Fonterra agreed to sell its 50% stake in DFE Pharma for NZ$ 633 million ($ 400.37 million). In late February 2022, Fonterra suspended exports to Russia in protest of
10270-619: The critical thresholds of 1.5 °C or "well below" 2 °C, with oversupply leading to low prices of allowances with almost no effect on fossil fuel combustion. Emission trade allowances currently cover a wide price range from €7 per tonne of CO 2 in China's national carbon trading scheme to €63 per tonne of CO 2 in the EU-ETS (as of September 2021). Other greenhouse gases can also be traded but are quoted as standard multiples of carbon dioxide with respect to their global warming potential . The economic problem with climate change
10400-491: The delayed entry of agriculture into the NZ ETS would reduce long term competitiveness of the New Zealand economy by supporting industry that can not compete in an emissions constrained world. On 25 November 2009, the bill had its second and third readings and it was adopted by 63 votes to 58, with the support of the National Party (58 votes), the Maori Party (4 votes) and United Future (1 vote). The Labour Party (43 votes),
10530-421: The destruction of tropical forests as it is a waste by-product with almost no commercial value. A spokesperson John Hartnell stated that "Not one millimetre of forest is being cleared just to feed dairy cows". Fonterra says it shares community concern about tropical deforestation , "which in some cases has been driven by the establishment of palm oil plantations". Fonterra says it has been proactive in ensuring
10660-470: The economy including agriculture. 'Participants' (who would account for their emissions) were to be few, and high in the production chain of each sector. Their compliance obligation would have been to surrender one New Zealand unit (NZU) or one internationally tradable Kyoto-compliant unit for each tonne of emissions. New Zealand units were to be capped in number and were to be allocated to participants either by grandparenting (gifting) or auctioning. Sectors of
10790-517: The economy were to have progressively entered the NZ ETS, with forestry the first from January 2008 and agriculture last in January 2013. Allocation rules varied between sectors. In general, participants who could pass on costs of the ETS, such as fuel companies, would not be allocated free units. Participants such as exporters with products that are priced internationally, would be allocated free units. Forest owners with pre-1990 forests were to receive
10920-527: The effect of making Fonterra shares permanent capital, providing the co-operative with more confidence to invest in long-term projects without fear that some of its share capital might be needed to fund redemptions in future years. As part of the changes, farmers would have greater flexibility with their Fonterra shareholding. The maximum shareholding would be 2 times production (up from the 1.2 times approved in step one) and farmers would have up to three years to comply with shareholding rules when entering/exiting
11050-455: The effectiveness of the self-auditing approach given the wide discrepancy between Fonterra's claims and an independent audit of Dairying and Clean Streams Accord. In 2003, Fonterra became a signatory to the Dairying and Clean Streams Accord , which sets a timeframe for the improvement of water quality on farms. Progress on the Accord goals is reported by the signatories in March of each year on
11180-592: The election, and the new government proceeded to implement an ETS. The new Rudd government introduced the Carbon Pollution Reduction Scheme , which the Liberal Party of Australia (now led by Malcolm Turnbull ) supported. Tony Abbott questioned an ETS, advocating a "simple tax" as the best way to reduce emissions. Shortly before the carbon vote, Abbott defeated Turnbull in a leadership challenge (1 December 2009), and from there on
11310-465: The elimination of methane emissions in various settings such as landfills . Many projects that give credits for carbon sequestration have received criticism as greenwashing because they overstated their ability to sequester carbon, with some projects being shown to actually increase overall emissions. Carbon offset and credit programs provide a mechanism for countries to meet their Nationally Determined Contributions (NDC) commitments to achieve
11440-506: The emissions intensive good. This method of allocation is often referred to as 'intensity based allocation'. Intensity based allocations are allocations that are based on the volume of production of a firm. Allocations are given at the beginning of the period and then balanced at the conclusion to reflect actual output. The benchmark (or allocative baseline) for free allocation for firms considered emissions-intensive and trade-exposed includes compensation for electricity price increases. From
11570-692: The end of the 1990s, there were only four co-operatives nationwide: the Waikato-based New Zealand Dairy Group , the Taranaki-based Kiwi Co-operative Dairies , Westland Milk Products , and Tatua Co-operative Dairy Company . Fonterra was formed in 2001 from the merger of the two largest co-operatives, New Zealand Dairy Group and Kiwi Co-operative Dairies, together with the New Zealand Dairy Board , which had been
11700-478: The expense of local communities. Carbon trading has also been criticised as a form of colonialism , in which rich countries maintain their levels of consumption while getting credit for carbon savings in inefficient industrial projects. Groups such as the Corner House have argued that the market will choose the easiest means to save a given quantity of carbon in the short term, which may be different from
11830-530: The first Australian hung-parliament result in 70 years, the Gillard Labor government required the support of crossbenchers - including the Greens . One requirement for Greens' support was a carbon price, which Gillard proceeded with in forming a minority government. A fixed carbon-price would proceed to a floating-price ETS within a few years under the plan. The fixed price lent itself to characterisation as
11960-409: The full marginal social costs of their actions. Regulation of emissions applied only to one economic sector or region drastically reduces the efficiency of efforts to reduce global emissions. There is, however, no scientific consensus over how to share the costs and benefits of reducing future climate change, or the costs and benefits of adapting to any future climate change. Carbon offsetting
12090-408: The full value of its free permits. Grandfathering may also slow down technological development towards less polluting technologies. The Garnaut Report noted that any method for free permit allocation will have the disadvantages of high complexity, high transaction costs, value-based judgements, and the use of arbitrary emissions baselines. Garnaut also noted that the complexity of free allocation and
12220-522: The global value of carbon markets was $ 948.75 billion. It is expected to reach 2.68 trillion dollars by 2028 and 22 trillion by 2050. Tradable emissions permits can be issued to firms within an ETS by two main ways: by free allocation of permits to existing emitters or by auction. In the first case, the government receives no carbon revenue. In the second it receives the full value of the permits, on average. In either case, permits will be equally scarce and just as valuable to market participants, such that
12350-688: The goals of the Paris Agreement . Article 6 of the Paris Agreement includes three mechanisms for "voluntary cooperation" between countries towards climate goals, including carbon markets . Article 6.2 enabled countries to directly trade carbon credits and units of renewable power with each other. Article 6.4 established a new international carbon market allowing countries or companies to use carbon credits generated in other countries to help meet their climate targets. Carbon offset and credit programs are coming under increased scrutiny because their claimed emissions reductions may be inflated compared to
12480-647: The idea made some progress, as in the Bonn meeting new tools and supervisory bodies was created. The rules of the European Union Emissions Trading System include the possibility of connecting it with other trading systems. This has already happened with the Switzerland emissions trading system . China expressed a support for a global carbon market, saying it is better than the EU Carbon Border Adjustment Mechanism . In 2023
12610-479: The industry. The first dairy co-operative was established in Otago in 1871. By 1920, there were 600 dairy processing factories of which about 85% were owned by co-operatives. In the 1930s there were around 500 co-operatives but after World War II , improved transportation, processing technologies and energy systems led to a trend of consolidation, where the co-operatives merged and became larger and fewer in number. By
12740-551: The input assumptions and on the assumption that other variables remain constant. Therefore, the "interpretation of CGE results should centre on their direction (up or down) and broad magnitude (small, medium or large), rather than on the precise point estimates that the model produces". The report's bolded conclusion was that a narrow carbon tax or trading scheme was the least cost option in the short term. Predicted reductions in GHG emissions ranged from 0% (Government pays), 0.4% to 2.8% for
12870-468: The large amounts of money involved encourage non-productive rent-seeking behaviour and lobbying of governments — activities that dissipate economic value. At the same time, allocating permits can be used as a measure to protect domestic firms who are internationally exposed to competition. This happens when domestic firms compete against other firms that are not subject to the same regulation. This argument in favor of allocation of permits has been used in
13000-615: The lowest overall economic cost. "Economy-wide pricing of carbon is the centre piece of any policy designed to reduce emissions at the lowest possible costs". Ross Garnaut , lead author of the Garnaut Climate Change Review in 2011 Carbon emission trading began in Rio de Janeiro in 1992, when 160 countries agreed the UN Framework Convention on Climate Change (UNFCCC). The necessary detail
13130-535: The manufacture of powdered milk in Australia. Also in 2005 the company made moves towards purchasing Australian companies Dairy Farmers and National Foods . It also converted its 50 per cent stake in Victoria dairy producer Bonlac to full ownership. At this time $ 1 billion of Fonterra's revenue was from Australian sales, which was 14 per cent of the dairy products it sells around the world. In June 2008,
13260-883: The marketing and export agent for all the co-operatives. Fonterra effectively has monopsony control of the New Zealand domestic and export dairy industry. The merger was initially turned down by the New Zealand Commerce Commission , but later approved by the New Zealand Government, with subsequent legislation deregulating the dairy industry, allowing for the export of dairy products to be undertaken by any company. The two smaller co-operatives, Tatua and Westland (which would later be acquired by Yili Group in 2019), did not join Fonterra, instead remaining independent. The company has an annual revenue of around NZ$ 22 billion. Its core business consists of exporting dairy products under
13390-595: The means to reduce climate change. In September 2010, campaigning group FERN released "Trading Carbon: How it works and why it is controversial" which compiles many of the arguments against carbon trading. According to Carbon Trade Watch, carbon trading has had a "disastrous track record". The effectiveness of the EU ETS was criticized, and it was argued that the CDM had routinely favoured "environmentally ineffective and socially unjust projects". Some groups have claimed that non-existent emission reductions can be recorded under
13520-456: The money it needed to pay farmer shareholders by selling investment units to investors. Fonterra would require the fund to target "friendly" investors such as sharemilkers, retired farmers and offshore Fonterra suppliers, although the public and institutions would also be able to participate. The "Trading Among Farmers" proposal went before a special meeting on 30 June 2010 and received 89% support from farmer shareholders voting, easily exceeding
13650-810: The new Flexible Shareholding structure received a strong mandate with [85.16%] of total farmer votes cast in support of the recommendation and [82.65%] participation based on milk solids voted. Fonterra is continuing to work with the Government on how the Flexible Shareholding structure can be given effect under the Dairy Industry Restructuring Act, the legislation that enabled the formation of Fonterra back in 2001. Dairying stock entering waterways due to lack of fencing and poor use of fertilisers are major contributors to water pollution in New Zealand. Fonterra's environmental policy states that "Fonterra shall demonstrate
13780-438: The new, non-zero cost of emissions. This gives permit-liable polluters an incentive to reduce their emissions. However, if a firm sells the same amount of output as before that cap, with no change in production technology, the full value of permits received for free becomes windfall profits . However, since the cap reduces output and often causes the company to incur costs to increase efficiency, windfall profits will be less than
13910-477: The permit revenue. Auctions of units are more flexible in distributing costs, provide more incentives for innovation, lessen the political arguments over the allocation of economic rents , and reduce tax distortions. Recycling of revenue from permit auctions could also offset a significant proportion of the economy-wide social costs of a cap and trade scheme. The perverse incentive of grandfathering can be alleviated through auctioning. Regulatory agencies run
14040-427: The permits are scarce, they have value, and the benefit of that value is acquired in full by the emitter. The cost is imposed elsewhere in the economy, typically on consumers who cannot pass on the costs: The cost of a grandfathered permit may be regarded as the opportunity cost of not selling the permit at full value. As a result, profit-maximising firms receiving free permits will raise prices to customers because of
14170-925: The potential of creating a new speculative market through the commodification of environmental risks through financial derivatives . Annie Leonard 's 2009 documentary The Story of Cap and Trade criticized carbon emissions trading for the free permits to major polluters giving them unjust advantages, cheating in connection with carbon offsets , and as a distraction from the search for other solutions. In China, some companies started artificial production of greenhouse gases with sole purpose of recycling and gaining carbon credits. Similar practices happened in India. Earned credit were then sold to companies in US and Europe. Corporate and governmental carbon emission trading schemes have been modified in ways that have been attributed to permitting money laundering to take place. In 2003
14300-415: The price at sale will be the same in either case. Generally, emitters will profit from permits allocated to them for free. But if they must pay, their profits will be reduced. If the carbon price equals the true social cost of carbon, then long-run profit reduction will reflect the consequences of paying this new cost. If having to pay this cost is unexpected, then there will likely be a one-time loss due to
14430-406: The pricing of end of season share transactions were also tidied up. The second step changed the way Fonterra shares were valued to reflect that share ownership is restricted to farmers only. Previously, Fonterra shares were valued on a theoretical basis as if the shares were freely traded like a public share. An independent valuator subsequently assessed that the restricted market value should be at
14560-413: The quantity of international 'Kyoto-compliant' units that could be imported in to match emissions would not be limited. In consequence, as there is no limit on the volume of international emissions units (CERs and ERUs) that may be imported, there is no cap or limit on the volume of emissions permitted in New Zealand provided that emissions units are imported into the country and surrendered. In that respect,
14690-551: The regulatory disparity between jurisdictions as a loss of competitiveness. They may therefore make strategic production decisions that involve carbon leakage. To mitigate carbon leakage and its effects on the environment, policymakers need to harmonize international climate policies and provide incentives to prevent companies from relocating production to regions with more lenient environmental regulations. Free emission permits, given to sectors vulnerable to international competition, are one way of addressing carbon leakage by acting as
14820-423: The right to emit more from emitters with fewer emissions. This can reduce the competitiveness of fossil fuels , which are the main driver of climate change . Instead, carbon emissions trading may accelerate investments into renewable energy , such as wind power and solar power . However, such schemes are usually not harmonized with defined carbon budgets that are required to maintain global warming below
14950-421: The risk of issuing too many emission credits, which can result in a very low price on emission permits. This reduces the incentive that permit-liable firms have to cut back their emissions. On the other hand, issuing too few permits can result in an excessively high permit price. An argument has been made for a hybrid instrument having a price floor and a price ceiling. However, a price-ceiling safety value removes
15080-399: The river. Fonterra has since encouraged its farmers to clean up their waste and plant trees alongside waterways. In August 2009, Greenpeace claimed that Fonterra was implicated in the destruction of Indonesian and Malaysian rainforests , causing deaths of orangutans and increased global greenhouse gas emissions . In response, Federated Farmers said the use of palm kernel does not cause
15210-433: The scheme on 1 January 2015. A 'Questions and Answers' fact sheet released by Nick Smith (Minister for Climate Change Issues) stated that the delayed entry was due to the difficulties in measuring and monitoring agricultural emissions and the limited technologies available for reducing emissions in the sector. The economic modelling conducted by NZIER and Infometrics stated: If the aim of climate change mitigation policies
15340-682: The scheme) until 31 December 2012 (transition period). This end date coincides with the end date of the Kyoto Protocol . Although transitional measures are legislated to end after 2012, the Government has suggested that they will be extended in the event that major trading partners such as the US and Australia do not implement emissions trading schemes of their own before then. During the transition period participants in energy, fossil fuels and industry will only need to surrender one NZU for two tonnes of carbon dioxide equivalent emissions. Free allocation of units to energy-intensive and trade-exposed activities will also be halved. Secondly, participants may pay
15470-574: The sector average emissions per unit of output. Under the 2009 NZ ETS, all NZ emission units were only distributed into the market by free allocation (gifting). In 2010, the Ministry for the Environment stated that there was no intention in the short term to auction any emission units. 'Emissions-intensive' and 'trade-exposed' (EITE) activities are designated a benchmark level of emissions per unit of production. For example, x amount of carbon dioxide equivalent emissions per tonne of steel. Firms then receive an allocations based on their expected production of
15600-735: The start of the Chinese national carbon trading scheme . The increasing costs of permits on the EU ETS have had the effect of increasing costs of coal power. A 2019 study by the American Council for an Energy Efficient Economy finds that efforts to put a price on greenhouse gas emissions are growing in North America. In 2021, shipowners said they were against being included in the EU ETS. Economists generally agree that to regulate emissions efficiently, all polluters need to face
15730-434: The table below. Emissions trading scheme Carbon emission trading (also called carbon market , emission trading scheme ( ETS ) or cap and trade ) is a type of emissions trading scheme designed for carbon dioxide (CO 2 ) and other greenhouse gases (GHGs). A form of carbon pricing , its purpose is to limit climate change by creating a market with limited allowances for emissions. Carbon emissions trading
15860-507: The various options were estimated as the differences between a carbon tax and a reference 'business as usual' scenario assuming New Zealand had not signed the Kyoto Protocol. The variables changed in the model runs were the NZ carbon price ($ 0, $ 10, $ 25 or $ 100), the world carbon price, the duration (short term to 2012, long term to 2025), the level of free allocation and whether the Government assumed all Kyoto liabilities. The results of each model run
15990-470: The world has resulted in the uncertainties around such schemes in Australia, Canada, China, the EU, India, Japan, New Zealand, and the US. As a result, some organizations have had little incentive to innovate and comply, resulting in an ongoing battle of stakeholder contestation for the past two decades. Proposals for alternative schemes to avoid the problems of cap-and-trade schemes include Cap and Share , which
16120-577: Was considered by the Irish Parliament in 2008, and the Sky Trust schemes. Carbon emission trading without border adjustments for exports leads to reduced global competitiveness for carbon-intensive products. The Financial Times published an article about cap-and-trade systems, which argued that "Carbon markets create a muddle" and "...leave much room for unverifiable manipulation". Emissions trading schemes have also been criticised for
16250-409: Was established in October 2001 following the merger of the country's two largest dairy co-operatives, New Zealand Dairy Group (NZDG) and Kiwi Cooperative Dairies, with the New Zealand Dairy Board . The name Fonterra comes from Latin fons de terra , meaning " spring from the land". In New Zealand, as in most Western countries, dairy co-operatives have long been the main organisational structure in
16380-527: Was favoured over allocations based on historical emissions by business groups, and representatives of large emitters, by Fonterra and by Federated Farmers . Environmental organisations and opposition political parties opposed intensity based allocations. In 2002, the Fifth Labour Government of New Zealand adopted the Climate Change Response Act 2002 in order for New Zealand to ratify the Kyoto Protocol and to meet obligations under
16510-493: Was left to be settled by the UN Conference of Parties (COP). In 1997, the Kyoto Protocol was the first major agreement to reduce greenhouse gases. 38 developed countries committed themselves to targets and timetables. The resulting inflexible limitations on GHG growth could entail substantial costs if countries have to solely rely on their own domestic measures. Carbon emissions trading increased rapidly in 2021 with
16640-411: Was reported as the percent difference from the 'no-Kyoto' 'business as usual' scenario in 2012 or 2025. The report noted several limitations of computable general equilibrium models that should be kept in mind in interpreting the results: CGE models are only an approximation of highly complex real economies, results can only ever be indicative, and are highly dependent on the structure of the models and
16770-411: Was sometimes described as a demutualization . The board responded in 2008 by shelving the November 2007 proposal and continuing consultation and discussion with farmer shareholders. In September 2009, the board announced a three-step process to revamp Fonterra's capital structure. The new approach abandoned thoughts of a public listing of Fonterra shares and retained 100% farmer control and ownership of
16900-510: Was the inaugural chairman of Fonterra's board. He foreshadowed his resignation in August 2002 and was succeeded, after the next annual general meeting, by Henry van der Heyden . Van der Heyden held the chairmanship until December 2012. John Wilson succeeded van der Heyden and announced his resignation in July 2018 due to illness (he died in January 2019 aged 54). John Monaghan succeeded Wilson. He
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