34.BRF 4433 Outcomes of industrial allocation data collection and other matters Redacted.pdf

CLASSIFICATION
Outcomes of industrial allocation data collection and
other matters
Key messages
1.  This briefing addresses three issues related to industrial allocation policy. It seeks the
following decisions/directions:
i
agreement to seek a Cabinet delegation enabling you to authorise drafting
instructions to support industrial allocation regulation updates;
ii
direction to draft a Gazette notice seeking information for the activity: manufacture of
carbon steel from cold ferrous feed from New Zealand Steel; and
iii
direction about whether you would like to ask the Climate Change Commission (the
Commission) to advise you on appropriate phase out rates for some priority
activities.
2.  There are a number of pieces of ongoing work associated with industrial allocation, and
Appendix 1 provides you with a timeline setting out the different items, for clarity.
3.  The issues discussed in this briefing are separate from discussions currently in train
regarding the treatment of New Zealand Aluminium Smelters’ and New Zealand Steel’s
electricity for its industrial allocation. For the later firm, we will be providing you with a
briefing next week (BRF-4717: NZ Steel, cogeneration, and industrial allocation).
Industrial allocation policy and recent changes
4.  The New Zealand Emissions Trading Scheme (NZ ETS) can affect the competitiveness
of some firms that carry out emissions intensive activities compared with their overseas
counterparts that do not face equivalent emissions costs. Free allocation (“industrial
allocation”) is provided to mitigate this risk.
5.  The rates at which industrial allocation is provided (the allocative baselines) are set by
the Minister of Climate Change in regulations, and are based on a process outlined in
the Climate Change Response Act 2002 (the Act). Over 2020-2023, the previous
government reformed industrial allocation policy, primarily due to out of date settings and
concerns of over-allocation. The latest stage of this process required the collection of
new data to inform new baselines.
2023 industrial allocation data collection and regulation updates
6.  The data collection stage is complete and we have calculated anticipated new allocative
baselines based on the statutory process. Broadly, the expected new baselines (45
baselines across 26 eligible activities) have decreased relative to the status quo,
however some have increased. The impacts on individual firms will vary depending on
whether their baselines increase or decrease, and their overall financial positions.
7.  We anticipate that updating regulations with these new baselines would result in an
estimated net decrease in allocations of 207k New Zealand Units (NZUs) for 2024. At
the current auction floor price of $64 this would amount to $13.2 million in cash receipts
if sold at auction.
BRF-4433

2
CLASSIFICATION

CLASSIFICATION
8.  We will provide you a briefing at the end of July seeking approval of final new baselines,
to be incorporated into regulations. We need two final pieces of information – a new
2024 electricity allocation factor and updates to fuel emissions factors – before we can
finalise recommendations to you on what the new baselines should be.
9.  Your approval of the new baselines is a technical decision based on a set formula and
does not involve policy considerations. Consequently, Cabinet policy approval is not
necessary. However, we recommend giving Cabinet visibility of this overall process by
seeking a delegation from Cabinet allowing you to issue drafting instructions for
regulations directly following your decision on the new baselines. An upcoming Cabinet
paper relating to New Zealand Steel’s industrial allocation is a natural vehicle to contain
that delegation request.
10.  We seek your agreement for us to make a targeted announcement by the end of May to
firms who submitted on the 2023 data collection. This will provide them with an indication
of what the baselines will be in future (noting there may be further updates).
Call for projected data from the manufacture of carbon steel from cold ferrous feed
11.  We need to collect projected data from New Zealand Steel for the activity, manufacture
of carbon steel from cold ferrous feed in order to recommend a baseline for that activity.
There is currently no new data, as the activity was not carried out by any firm during last
year’s data collection. In the absence of new data, this activity’s baselines are
consequently calculated as zero, despite New Zealand Steel anticipating the use of this
activity definition when its electric arc furnace comes online mid-2026.
12.  We recommend you issue a Gazette notice seeking projected data from this activity with
urgency. This needs to be done now to ensure that the activity’s baselines can be set at
a level other than zero. If you agree, we can prepare this and seek your approval by the
end of May. New Zealand Steel is expecting this Gazette notice to be issued soon.
Officials are meeting with New Zealand Steel before the end of May to discuss.
Referral of advice on eligible industrial activities to the Climate Change Commission
13.  Under the Act, you have the ability to set activity specific phase-out rates for eligible
industrial activities. These provisions could support the accelerated reduction of
allocations where there is sufficient evidence that a specific activity is no longer at risk of
emissions leakage. MfE’s initial investigation shows at least four activities may no longer
be at risk of emissions leakage.
14.  Setting activity specific phase-out rates requires a recommendation from the
Commission. If you would like the Commission to investigate, we recommend making a
referral soon, to ensure it can provide recommendations before the end of this year, and
regulations to be made over 2025. Setting an activity specific rate for the second
emissions budget period must be done prior to 1 January 2026.
15.  After receiving a recommendation from the Commission, you are not required to adopt it,
but you would be required to table a report in the House explaining the reasons for
deviating from this advice.
16.  If you wish to pursue this work further, we will provide you with a briefing in June seeking
your approval to refer a selection of activities to the Commission. We would also
recommend indicating that you are considering changes to phase out rates in the
discussion document for the second emissions reduction plan to inform consultation.
BRF-4433

3
CLASSIFICATION

CLASSIFICATION
Recommendations
We recommend that you:
2023 industrial allocation data collection and regulation updates
a.  note that findings from the 2023 data collection indicate that updating allocative
baselines will decrease 2024’s final allocations by an estimated 207k NZUs
b.  agree to seek a delegation from Cabinet enabling you to authorise the issue of drafting
instructions to support industrial allocation regulation updates
Yes | No
c.  note this delegation could be incorporated in an upcoming Cabinet paper on New
Zealand Steel’s industrial allocation
d.  note that we will provide you with a briefing by the end of July seeking your approval of
final baselines and seeking your approval to issue drafting instructions (pending approval
of the delegation)
e.  approve the Ministry for the Environment (MfE) to make a targeted announcement by the
end of May on the outcomes of the 2023 data collection, to all firms who made a
submission
Yes | No
Call for projected data from the manufacture of carbon steel from cold ferrous feed
f.  note that when New Zealand Steel’s electric arc furnace comes online mid-2026, it
intends to use, in part, the activity definition: manufacture of carbon steel from cold
ferrous feed (regulation 19)
g.  note that if projected data is not collected for regulation 19, due to the current absence of
information, we would need to recommend its baselines are set to zero
h.  note that MfE will engage with New Zealand Steel on this issue before the end of May
i.  direct MfE to provide you with a Gazette notice before the end of May, seeking projected
data for regulation 19
Yes | No
Referral of activities to the Climate Change Commission
j.  note that you have the ability to set activity specific phase-out rates from 1 January 2026
k.  note that setting activity specific phase-out rates requires a recommendation from the
Climate Change Commission (the Commission), and for any rate to be set prior to the
commencement of the second emissions budget period
l.  note that if you are interested in pursuing this further, work needs to commence on this
now to ensure there is enough time for the Commission to provide advice, and for
regulations to be made over 2025
BRF-4433

4
CLASSIFICATION

CLASSIFICATION
m.  direct MfE to provide you with a briefing in June, seeking your approval to refer specific
activities to the Commission
Yes | No
n.  agree to note this action in the discussion document for the second emissions reduction
plan.
Yes | No
Signatures

Mark Vink
General Manager
Markets, Climate Change Mitigation and Resource Efficiency
17 May 2024

Hon Simon WATTS
Minister of Climate Change

Date
BRF-4433

5
CLASSIFICATION

CLASSIFICATION
Outcomes of industrial allocation data collection and
other matters
Purpose
1.  This briefing discusses three distinct issues related to industrial allocation policy.
i
It provides you an update on the outcomes of the industrial allocation data collection
and seeks your agreement for MfE to progress the next steps towards the drafting of
regulations and to make an announcement to firms; and
ii
seeks your direction to issue a Gazette Notice seeking projected information for the
eligible industrial activity Manufacture of carbon steel from cold ferrous feed from
New Zealand Steel; and
iii
seeks your direction to refer a range of eligible activities to the Climate Change
Commission, to provide a recommendation as to whether they should be subject to
activity specific phase-out rates.
2.  Appendix 1 provides you with a timeline of 2024’s briefings and Cabinet papers related
to this work.
Background
Industrial allocation rules and rationale
3.  The NZ ETS can affect the competitiveness of some firms that carry out emissions
intensive activities compared with their overseas counterparts that do not face equivalent
emissions costs. This competitive disadvantage can lead to firms closing in New
Zealand, or production and investments shifting offshore. The government mitigates this
risk by providing a free allocation of New Zealand Units (NZUs) to help these firms meet
some of their emissions costs. This is industrial allocation.
4.  Firms carrying out activities that are considered emissions intensive and trade
exposed are eligible for industrial allocation. The criteria defining these two properties
are in the Climate Change Response Act 2002.
5.  Allocations are calculated using a formula:
Allocation = allocative baseline x level of assistance x production
where:
•  Allocation is the number of NZUs allocated to a firm who carries out activity,
for each eligible product. For some eligible activities there are multiple
products
•  Allocative baseline is the national average emissions cost intensity of
production for a particular eligible product
BRF-4433

6
CLASSIFICATION

CLASSIFICATION
•  Level of assistance is the percentage of emissions costs covered by
industrial allocation. In 2024 this is 0.86 for highly emissions intensive
activities, and 0.56 for moderately emissions intensive activities.
•  Production is the amount of product produced by the firm (typically in
tonnes).
6.  The ‘level of assistance’ is currently being phased out by a default rate of one
percentage point per annum until 2030. This increases to two, and three percentage
points in the following two decades. The Minister of Climate Change has the ability to set
activity specific phase-out rates from 2026.
Industrial allocation review and reform
7.  A review of industrial allocation commenced early 2020. The primary purpose of the
review was to determine if over-allocation was occurring due to out-of-date allocative
baselines (current settings are based on pre-2010 data).
8.  A reform bill was considered by the Environment Select Committee from February to
August 2023. The Climate Change Response (Late Payment Penalties and Industrial
Allocation) Amendment Act 2003 (the Amendment Act) received Royal assent at the end
of August. The key parts of this amendment for the industrial allocation provisions were:
i
legislating the requirement to collect data from 2017-2021 financial years to allow
baselines to be updated
ii
introducing a 5-10 year review and update window for future baseline updates, with
an over-allocation test
iii
introducing additional tests if a new activity were to be considered for eligibility
iv
introducing the ability to use projected data to determine baselines or eligibility in
certain circumstances
v
introducing a new framework to update the electricity allocation factor annually.
9.  Following Royal assent of the Amendment Act, the previous Minister of Climate Change
issued a tranche of Gazette notices on 13 October 2023 relating to each of the 26
eligible industrial activities. This allowed the collection of emissions, production, and
revenue data to enable the recalculation of allocative baselines.
10.  PricewaterhouseCoopers (PwC) carried out the data collection between 13 October and
15 December last year. Over the first quarter of 2024, the data was checked for
completeness, and went through various validation checks to ensure it was as accurate
as possible.
11.  PwC delivered a final report at the end of April providing conclusions on the data
collection, including insights on why baselines should increase or decrease (where
possible).
BRF-4433

7
CLASSIFICATION

CLASSIFICATION
Analysis and advice
Issue 1: Industrial allocation data collection and regulation
amendments
12.  PwC have calculated new anticipated baselines for all the companies that receive
industrial allocations, based on the new data collected. Updating baselines is expected
to provide fiscal savings to the government by reducing the amount of NZUs given to
eligible industries, and therefore allowing more units to be sold at New Zealand
Emissions Trading Scheme (NZ ETS) auctions.1
PricewaterhouseCoopers have delivered a final report on data collection outcomes
13.  PwC’s report attached to this briefing provides a summary of the data collected and the
anticipated new baselines (Appendix 2). Where there has been a reasonable change in
a recommended new baseline, the report provides some context and explanation (where
applicable).
14.  The report provides findings on trade-exposure and emissions intensity which are both
pertinent to an activity’s eligibility. While eligibility cannot be reassessed via this update,2
the research and commentary on these provide useful insights as to how an activity has
tracked over the past decade with respect to the eligibility criteria in legislation.
Allocative baselines have generally trended downwards
15.  Section three of PwC’s report (pages 5 to 9) provides a summary table of the expected
new baselines, and the percentage change compared to the baselines currently in
regulations.
16.  Broadly, the expected new baselines are a decrease relative to the status quo, however
there would be some increases. Across the 26 eligible activities (covering the allocative
baselines of 45 unique products):
i
21 baselines would decrease (ranging from -0.33% to -77.67%)
ii
12 baselines would increase (ranging from +1.97% to +31.00%)
iii
1 baseline (product B for urea production) is new and has no historical comparison
iv
no data was received for 11 baselines.3
17.  Decreases in the expected baselines are typically caused by energy efficiency
improvements, fuel switching, or the exit of higher emitting firms.

1 Assuming constant production, and that the NZ ETS ‘cap’ remains unchanged.
2 Refer clause 40 of Schedule 1AA of the Climate Change Response Act 2002.
3 Of the 26 eligible activities, data was not received for four activities (covering 9 baselines). These
were manufacture of carbon steel from cold ferrous feed, production of newsprint, production of clay
bricks and field tiles, and the production of gelatine. Additionally, no data was submitted for product B
for the activities production of tissue paper, and the production of market pulp.
BRF-4433

8
CLASSIFICATION

CLASSIFICATION
18.  Increases are attributed to production interruptions, decrease in production output,
inefficient or aging plants, improved metering of energy use (implying historical baselines
were not accurate), and increases in natural gas emission factors.
19.  PwC’s report shows that the baseline for aluminium smelting should decrease (-1.26%)
due to electricity efficiency improvements. However, this is not the baseline typically
used for this activity. New Zealand Aluminium Smelters (NZAS) have a unique baseline
calculated each year to account for its electricity contract with Meridian. Combining the
new data with the methodology used to calculate NZAS’s unique baseline results in a
slight increase (+0.6%) compared to the 2023 unique baseline currently in regulations.
Financial impact of updating allocative baselines
20.  The national average emissions costs of carrying out an activity have changed since
baselines were first set in 2010.  Under current settings, some firms will be receiving
more free units than their operations warrant, and some will be receiving fewer. The
purpose of updating baselines is to ensure allocations reflect recent national average
emissions costs of carrying out an activity.
21.  The financial impacts on activities as a whole (in many cases consisting of multiple firms)
will vary depending on whether its relevant baselines increase or decrease. The table
below shows preliminary estimated gains and losses those activities face if the change
in units were valued at the 2024 auction floor price of $64.
22.  Impacts on individual firms will be more nuanced and will depend on how the individual
emissions intensity of production compares to its peers, as well as their overall financial
position. We will provide more advice on general impacts when we seek final approvals.
Table 1: Expected annual gains and losses to each activity due to updating baselines (valued at $64 per NZU)
Activity
Estimated
financial impact
($m)4
Aluminium smelting
$ 0.2
Manufacture of iron and steel from iron sand
-$ 2.7
Production of burnt lime
-$ 0.9
Production of carbamide (urea)
-$ 0.1
Production of cartonboard
-$ 2.9
Production of caustic soda
-$ 0.1
Production of cementitious products
-$ 5.7
Production of cut roses
-$ 0.1
Production of ethanol
$ 0.2
Production of fresh capsicums
-$ 0.3
Production of fresh cucumbers
-$ 1.1
Production of fresh tomatoes
-$ 1.1
Production of glass containers
$ 0.1
Production of hydrogen peroxide
-$ 0.1
Production of lactose
-$ 0.3

4 Gains and losses are annual but will change due to the phase-out, and the prevailing market price of
NZUs.
BRF-4433

9
CLASSIFICATION

CLASSIFICATION
Production of market pulp
-$ 3.0
Production of methanol
$ 3.2
Production of packaging and industrial paper
$ 1.4
Production of protein meal
$ 1.0
Production of reconstituted wood panels
-$ 0.2
Production of tissue paper
-$ 0.6
Production of whey powder
-$ 0.1

23.  Across all activities, comparing current allocations (calculated using baselines currently
in regulations) with allocations calculated using the expected new baselines, it is
estimated there would be a net decrease of approximately 207k NZUs for 2024’s final
allocation.5 Policy decisions about whether to sell those units at auction or whether to
take them out of circulation would be made through next year’s NZ ETS settings. If these
units were sold at auction, this could generate at least $13.2 million in cash receipts
(2024 floor price $64 / NZU).
Process of updating allocative baselines and the Minister’s role
24.  The process of calculating allocative baselines is tightly prescribed in legislation. The Act
lays out the high-level rules that the Minister must follow in making a decision to set
them. Lower-level rules are defined in the Gazette notices when data is called. Once
data is collected, the process by which MfE calculates recommended new baselines is
essentially mechanical - MfE inputs the data to the legislative formula, and the resulting
output forms the basis of MfE’s advice to the Minister.
25.  9(2)(h)


Baselines can be revised with an updated electricity allocation factor prior to seeking
your decisions
26.  The electricity allocation factor is a type of emissions factor that is used to calculate an
allocative baseline. It quantifies the cost impact of the NZ ETS on electricity prices. The
current grid EAF is 0.537 t CO2-e / MWh (meaning that for each MWh of electricity
purchased from the grid, the NZ ETS adds an average cost equivalent to half an NZU).
27.  The Electricity Authority (EA) will provide you with the 2024 EAF by 31 July at the latest
(as required under the Act). Preliminary estimates from the EA indicate this EAF will be

5 This assumes the average production across 2017-2021 financial years is representative of 2023
calendar year production, and that NZAS’s 2024 electricity use wil  be the same as its 2023 electricity
use. Modelling does not include consideration of a unique EAF for New Zealand Steel, or any update
to NZAS’s electricity contracts.
BRF-4433

10
CLASSIFICATION

CLASSIFICATION
lower than the current grid EAF, which suggests that all else being equal the revised
baselines would be lower than the calculations provided by PwC.
28.  Prior to seeking final decisions, we can revise the baselines to account for the 2024
EAF. Depending on the progression of the annual NZ ETS regulation updates, updates
to fuel emission factors could also be incorporated into the revised baselines.
Delegation and upcoming secondary legislative process
29.  We recommend you seek a delegation from Cabinet allowing you to approve the
commencement of drafting by the Parliamentary Council Office (PCO).
30.  The technical nature of the amendments would fit within the scope of clause 7.95 (d) of
the Cabinet Manual, which allows a Minister to authorise drafting without reference to
Cabinet if the matters are routine and do not require new policy decisions.
31.  Rather than relying on this, we recommend seeking an explicit Cabinet delegation as
this will be the first time your Cabinet colleagues will be acquainted with this work. In
addition, while the process is mechanical and does not involve policy decisions, Cabinet
is likely to be interested in understanding the impacts of the change. To support this
delegation, and due to the technical natural of the amendments, the Treasury have
granted a Regulatory Impact Statement exemption when decisions are confirmed at
LEG.
32.  If you agree to pursue a delegation from Cabinet to enable you to authorise the issue of
drafting instructions, we can incorporate it into an upcoming Cabinet paper related to
New Zealand Steel’s industrial allocation. This Cabinet paper will be brought to your
attention in a briefing coming to you next week (BRF-4717: NZ Steel, cogeneration, and
industrial allocation).
33.  We are currently working towards a combined LEG paper with the NZ ETS regulation
updates, for September. The drafting delegation will support this timeline and improve
the likelihood that PCO have enough time to draft these regulations prior to the
September Cabinet approval.
Issue 2: Gazette notice seeking projected data for the activity
manufacture of carbon steel from cold ferrous feed
We recommend projected data is collected for the activity: manufacture of carbon
steel from cold ferrous feed
34.  Projected data from the activity, manufacture of carbon steel from cold ferrous feed
needs to be collected from New Zealand Steel to ensure the electric arc furnace funding
agreement with the Crown continues.
35.  To do this, we recommend you issue a Gazette notice for this activity seeking projected
data with urgency. This needs to be done now to ensure that the activity’s baselines are
not set to zero for the next five years.
36.  If you agree to issue a Gazette notice seeking projected data from New Zealand Steel,
we can prepare this and seek your approval by the end of May.
BRF-4433

11
CLASSIFICATION

CLASSIFICATION
Accounting for New Zealand Steel’s allocations under its new plant configuration
37.  New Zealand Steel is currently in the process of integrating an electric arc furnace into
its Glenbrook site after a funding agreement was signed with the Crown last year. New
Zealand Steel expects the new furnace to be operational from mid-2026.
38.  When the funding agreement was signed, the current understanding between New
Zealand Steel and MfE was that two different activities in the Climate Change (Eligible
Industrial Activities) Regulations 2010 could be used alongside each other to accurately
determine its allocations: the manufacture of iron and steel from iron sand (regulation
23), and the manufacture of carbon steel from cold ferrous feed (regulation 19). This
understanding was based on an Emissions Ruling from the Environmental Protection
Authority.
Where no data is submitted in response to a Gazette notice – baselines are set to zero
39.  Regulation 19 is not currently carried out by any firm in New Zealand, however once
New Zealand Steel’s EAF comes online, it is expected this activity definition wil  be
utilised. Because no firm was carrying out regulation 19 on 13 October last year when
the data collection process commenced, no data was received for this activity.
40.  The Act prescribes requirements that must be followed when making regulations to set
allocative baselines. 9(2)(h)


Implications of setting baselines to zero was not anticipated by the Amendment Act
41.  The setting of baselines to zero, combined with a component of the Amendment Act
does not accommodate New Zealand Steel’s expected use of regulation 19 to obtain an
allocation for some of their products following integration of the electric arc furnace.
42.  The Amendment Act introduced a 5–10-year review and update window. This rule states
that a baseline cannot be reviewed for at least 5 years since a previous update, and
must be reviewed after 10 years. The implication of this 5–10-year window means that
once a baseline is set to zero, it will remain so, for at least 5 years. If this were to occur,
this would have significant impacts on the electric arc furnace funding agreement.
Ongoing discussions with New Zealand Steel
43.  There are multiple issues concurrently being dealt with regarding New Zealand Steel,
the electric arc furnace funding agreement, and its industrial allocation.
44.  This issue regarding regulation 19 is separate from the ongoing conversation about the
treatment of New Zealand Steel’s electricity usage from its co-generation facility. We will
be providing you with a briefing next week on this (BRF-4717: NZ Steel, cogeneration,
and industrial allocation).
Issue 3: Bespoke phase-out rates – Referral of activities to the
Climate Change Commission
45.  Separate from amending allocative baselines, you are able to set increased phase-out
rates for specific activities at the start of the second emissions budget period (1 January
2026).
BRF-4433

12
CLASSIFICATION

CLASSIFICATION
46.  You were provided a briefing discussing industrial allocation phase-out provisions on 18
April 2024 (refer BRF-4330). This provided context on the default phase-out across all
eligible activities, and your ability to set increased phase-out rates for specific activities.
Phase-out rates reduce the ‘level of assistance’ – which is the percentage of emissions
costs covered by industrial allocation (see background section).
47.  To set activity specific phase-out rates, the Act specifies that:
i
activity specific phase-out rates are to be set before the start of an emissions budget
period, and apply for the entire emissions budget
ii
the Minister must obtain recommendations from the Climate Change Commission
on phase-out rate changes
iii
the Minister does not need to follow the Commission’s recommendations (including
taking no action), but the Minister must table a report in the House explaining the
reasons for deviating from this advice within 16 weeks
iv
when making recommendations for activity specific phase-out rates, the Minister
must consider a range of specified matters, and must be satisfied the
recommendation is consistent with the relevant emissions budget and the purpose
of the Act.
There may be merit to implementing increased phase-out rates
48.  Eligibility for industrial allocation cannot be reassessed without further legislative
change. However, the eligibility criteria is both out of date, and intentionally broad due to
the difficultly in assessing the risk of emissions leakage.
49.  If there is clear evidence that an activity is no longer at risk of emissions leakage, there
could be merit in utilising increased phase-out rates to reduce allocations.
50.  MfE’s initial investigation based on information gathered as part of the recent data
collection shows at least four activities may no longer be at risk of emissions leakage
(accounting for over 1 million NZUs of annual allocation (18 percent)).
Timing and process to set increase phase-out rates
51.  If you would like pursue this, your direction is needed soon to make formal referrals. This
will ensure there is time for the Commission to provide advice by the end of this year,
and for regulations to be in place before the second emissions budget period
commences on 1 January 2026.
52.  If you are interested in taking this work further, we can provide you with a briefing in
June providing further advice, and seeking your approval to formally refer activities to the
Commission.
53.  Given the breadth of activities and the short time available for the Commission to provide
advice, it may be useful to focus on priority activities. We can triage the activities using
evidence collected in the recent data collection, and provide options on which activities
may be best to investigate further.
54.  If you are interested in referring activities to the Commission, we recommend you
indicate this in the discussion document for the second emissions reduction plan to
BRF-4433

13
CLASSIFICATION

CLASSIFICATION
inform consultation. It is expected this will be provided to you for feedback the week
starting 20 May.
Other considerations
Consultation and engagement
2023 data collection and allocative baseline updates
55.  Pending your approval, we are planning to make an initial announcement by the end of
May on the outcomes of the 2023 data collection. This will be a targeted announcement
to all firms who made a submission. The announcement will communicate preliminary
allocative baselines (noting these may be updated to account for updates to the EAF
and other NZ ETS emissions factors).
56.  We recommend making a targeted announcement as we understand many firms want
some indication of what the new allocative baselines will be. Updates to allocative
baselines have been signalled for years and will not come as a surprise. Firms have had
multiple opportunities to engage and provide feedback on industrial allocation reform.
57.  A full public announcement is planned after the September LEG paper. We will provide
more information on this when final decisions are sought.
Projected data Gazette notice for carbon steel
58.  We intend to consult New Zealand Steel on the need to collect projected data for the
activity: manufacture of carbon steel from cold ferrous feed. This will ensure both parties
share the same understanding of the problem, and that the Gazette Notice is drafted in a
way that will allow the practical provision of useable information.
Risks and mitigations
Projected data Gazette notice for carbon steel
59.  If projected data is not collected for the activity: manufacture of carbon steel from cold
ferrous feed, then there will be no way for you to set its baselines at a level other than
zero later this year when amendments are made to the regulations. Given the significant
impact this may have on New Zealand Steel and its new operations, there is a real risk
this may endanger the continuation of the electric arc furnace funding agreement.
Collecting projected data now will allow non-zero baselines for this activity to be set,
mitigating this risk.
Referral of activities to the Climate Change Commission
60.  Activity specific phase-out rates are required to be set prior to the commencement of a
budget period. If it is desired to progress this, work must start on this now. Referring
specific activities to the Commission in the next couple of months will ensure this work
remains practically possible.
BRF-4433

14
CLASSIFICATION

CLASSIFICATION
9(2)(h)










Financial, regulatory and legislative implications
65.  There are no financial, regulatory, or legislative implications associated with the specific
proposals in this briefing. Upcoming decisions on the matters contained in this briefing
will contain financial, regulatory, and legislative implications. These will be identified
when decisions are sought.
Next steps
66.  Pending your agreement to pursue a drafting delegation, and if it receives Cabinet
approval, we will provide you with a briefing by the end of July, presenting final allocative
baselines and seeking your approval to commence drafting.
BRF-4433

15
CLASSIFICATION

CLASSIFICATION
67.  Pending your direction, we will:
i
incorporate a delegation from Cabinet to enable you to authorise the issue of
drafting instructions into the upcoming Cabinet paper on New Zealand Steel
ii
provide you with a Gazette notice seeking projected data from the activity:
manufacture of carbon steel from cold ferrous feed (regulation 19), by the end of
May
iii
provide you with a briefing seeking your approval to refer specific activities to the
Climate Change Commission to investigate the merit of activity specific phase-out
rates in June.

BRF-4433

16
CLASSIFICATION

CLASSIFICATION

Appendix 1: 2024 Overview of industrial allocation briefings and Cabinet papers

BRF-4433

17
CLASSIFICATION