Approval to issue drafting instructions on NZ ETS
annual regulatory updates 2024
Key messages
1. Alongside consultation on mandatory updates to New Zealand Emissions Trading Scheme
(NZ ETS) limits and price control settings for units, Cabinet approved consultation on
technical regulatory updates to other NZ ETS regulations. Consultation is now complete.
2. Al except two update items (affecting geothermal and liquid fossil fuel activities) were
delegated to you to make policy decisions post-consultation, including to directly issue
drafting instructions to the Parliamentary Counsel Office (PCO) to amend the regulations.
3. This briefing:
• Seeks your approval to issue drafting instructions for each of the individual update
items that were delegated, and provides analysis, submitter feedback, and officials’
recommended options to support your decision;
• Seeks your approval to make technical updates to the price of carbon and levy rates
used in the Climate Change (Synthetic Greenhouse Gas Levies) Regulations 2013
(SGGL Regulations), for which you have a standing delegation to update every year;
• Specifically draws your attention to feedback and concerns from the waste sector on
two update items, which have received a greater level of interest than anticipated
through the consultation process.
4. Timeframes and next steps, including for two non-delegated updates, are also provided.
PCO need to make a start on drafting soon, so that any amended regulations are agreed
by Cabinet and published no later than 30 September 2024. This is the same deadline as
for NZ ETS settings, in order to come into effect for 1 January 2025.
Recommendations
We recommend that you:
a.
note that Cabinet delegated the authority to issue drafting instructions on the set of updates
to NZ ETS regulations presented in this briefing to the Minister of Climate Change.
b.
note that submitter feedback has been considered in the analysis and recommendations
for options now that consultation is completed.
c.
agree the recommended options for each of the delegated items as set out in Table 1:
(1) Proceed with
Updating DEFs for natural gas activities as proposed;
Yes | No
(2) Proceed with
Improving accuracy for the waste sector as proposed, while ensuring
that the implementation process supports participants to fully understand and act on
sub-proposals (A) and (B);
Yes | No
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(3) Proceed with
Clarifying how the destruction of synthetic greenhouse gases is
recognised, with minor revisions that simplify the change based on key evidence
received;
Yes | No
(4) Proceed with
Clarifying the definition of qualified person as proposed;
Yes | No
(5) Proceed with
Improving auctioning collateral methodology, while ensuring that the
implementation process supports participants to fully understand and act on the
changes.
Yes | No
d.
approve officials to provide PCO with drafting instructions for each of the delegated items.
Yes | No
e.
approve of icials’ proposed approach to managing the feedback and concerns from the
waste sector on two updates (2A/B), via implementation rather than directly in regulations.
Yes | No
f.
note that the Minister of Climate Change has a standing delegation to make two specific
technical updates relating to the Synthetic Greenhouse Gas Levy (in addition to the update
items explicitly delegated this year), and that these also did not require public consultation.
g.
approve officials to provide PCO with drafting instructions for the items with standing
delegations.
Yes | No
Signatures
Mark Vink
General Manager
Markets Unit
Date:
24/06/2024
Hon Simon Watts
Minister of Climate Change
Date:
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Approval to issue drafting instructions on NZ ETS
annual regulatory updates 2024
Purpose
1. This briefing sets out recommended options for your approval on items delegated by
Cabinet, for technical updates to regulations that govern the New Zealand Emissions
Trading Scheme (NZ ETS), as well as technical updates to the price of carbon Synthetic
Greenhouse Gas Levy.
Background
2. As part of the approval to consult on NZ ETS
Sequence of decisions for NZ ETS updates in 2024
limits and price control settings for units, and
other technical regulatory updates, you
received delegated authority from Cabinet to
progress a series of the technical updates
without returning to Cabinet for policy
decisions [CAB-24-MIN-0156 and ECO-24-
MIN-0075 refer].
3. This includes authority to directly issue
drafting instructions to the Parliamentary
Counsel Of ice (PCO).
4. The flow diagram to the right summarises
the separate decision-making processes for
delegated and non-delegated update items,
as well as how this relates to the NZ ETS
settings, with the decisions presented in this
briefing shown in darker blue.
5. The overall package of NZ ETS updates will
come back together for final approval of
amended regulations by the LEG committee
and Cabinet for publication no later than 30
September 2024.
6. This delegation also includes future years, for items that meet the following agreed criteria:
• Routine updates to default and unique emissions factors (provided there are no
changes to how participants report their emissions, or any significant economic or
other implications);
• Correct errors in the NZ ETS regulations;
• Make similar minor or technical changes consistent with Government policy.
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Impacts on the waste sector
9. The first two sub-items for waste activities (A and B) have received a greater level of
interest from submit ers than anticipated.
10. The majority of this feedback has come from the waste sector, including independent
landfil s, local government, and Waste Management New Zealand. In general, they are
supportive of making the updates. The sector originally signalled the need for this update
to of icials. However, the cost implications for the sector are noted throughout
submissions, along with the implementation burden that it may create.
11. Following assessment of this feedback, officials stil advise that these two waste items
meet the criteria for delegation, as they remain primarily technical and our assessment of
the cost impacts has not increased.
12. Of icials advise that these concerns have possible mitigations, and can largely be worked
through with the sector as part of the implementation process, rather than incorporated
into the text of the regulations. We wil return to you with more information on this approach
as implementation begins.
Regulatory impact analysis
13. Summary impact analysis is included in the table above where notable, but full regulatory
impact assessment wil only be required at a high level for final approval of the amended
regulations by Cabinet fol owing drafting.
14. As the delegated items are not expected to have significant economic impacts or are
technical decisions, they are exempt from regulatory impact assessment requirements.
Te Tiriti analysis
15. No feedback was received via public consultation on Tiriti matters or impacts for these
delegated items, nor did iwi/Māori-affiliated submit ers respond to these updates in detail.
16. Due to the targeted and technical nature of these items, officials have considered and not
identified unique Tiriti implications or impacts on iwi/Māori of these updates.
17. Any regulatory changes that come with general economic impacts wil indirectly impact
iwi/Māori. These updates are not expected to have significant general economic impacts,
hence the basis of the delegation from Cabinet, but there nevertheless may be minor
and/or indirect economic consequences of these changes that may impact iwi/Māori.
Synthetic Greenhouse Gas Levy updates
18. There are also two routine technical updates for which the Minister of Climate Change has
a standing delegation:
• Update the price of carbon;
• Update the Synthetic Greenhouse Gas Levy (SGGL) rates.
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19. These items have been identified as requiring no policy decisions each year since 2015,
for the purposes of impact assessment requirements. Cabinet has also confirmed that
these updates could be made directly by the Minister of Climate Change several times
since, typically with reference to the Cabinet manual (section 7.95(d) refers).
Consequently, in recent years, this precedent has been treated as a standing delegation
by the Minister of Climate Change.
20. These two items do not require public consultation, so were not presented in the decision
to approve consultation or in the consultation material.
21. The
price of carbon, which is set in clause 10 of the SGGL regulations, is based on a
rolling average of the NZU prices for the previous year (01 July to 30 June). This means
that the increases and decreases in the NZ ETS secondary market prices are smoothed
out and have a delayed effect on the calculated price of carbon.
22. This calculated price is used for two purposes:
• Calculating penalties for NZ ETS non-compliance, for example where they are based
on an estimated value of units that were not surrendered;
• Calculating the SGGL rates, as described below.
23. Based on the price of carbon,
levy rates are prescribed in Schedules 1 (motor vehicles
levy schedule) and 2 (goods levy schedule) of the SGGL regulations. Each item subject
to the levy attracts a dif erent levy rate depending on the amount of SGG in the item and
its global warming potential.
24. Increasing the SGGL wil increase prices of some consumer goods. However, the levy is
a relatively minor portion of the total cost of most of these goods. Additionally, local
manufacturers of heating, ventilation, and air conditioning equipment who purchase bulk
SGGs for their products would be at a competitive disadvantage if the levy is not increased
to match the increased price of carbon.
25. You are required by section 30W of the CCRA to consider three matters before updating
the price of carbon:
The price of units used to calculate revenue from the NZ ETS in the Crown annual financial
statements in the preceding 12 months
• The SGGL regulations are not materially different to the carbon price used to reflect
revenue. The two methodologies use the same source data and similar calculations.
The price of NZUs sold by auction in the preceding 12 months
• There have been four auctions in this period. Only one of these auctions (partially)
cleared, at a clearing price of $64.00.
• The price of NZUs sold at auction are accounted for through the existing methodology
as the auction clearing price is generally close to the secondary market price.
Any changes to the operation of the NZ ETS that have affected the price of the units
surrendered, or may do so before the end of the next levy year
• The methodology also accounts for changes to the operation of the NZ ETS because
this is reflected in the secondary market price. It is difficult to predict the impact of NZ
ETS changes on the price of units to be surrendered in 2025.
• There is a lag between the carbon price faced by NZ ETS participants and the SGGL,
so the impact wil be accounted for next year.
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• Many participants with surrender obligations wil have secured 2025 supply already,
at prices used in calculating the update to the price of carbon.
26. Of icials recommend proceeding with the precedent to calculate a new price of carbon
once data is available, and new SGGL rates to reflect this. This should be possible in time
to incorporate alongside the other drafting instructions recommended in this briefing.
27. We can then provide details on the new price of carbon and levy rates.
Next steps
28. There are two remaining technical updates that were taken to public consultation:
Updating DEFs and UEF methodologies for geothermal activities; and,
Updating DEFs for
liquid fossil fuel activities.
• These were both considered to potentially have more-than-minor impacts, and the
geothermal item includes a possible policy decision about restructuring the emissions
reporting approach set out in the regulations.
• Feedback received on these items has been broadly supportive, though both sectors
are interested in continuing to participate in engagement on the details of these
updates as they are rolled out.
• We wil return to you with further advice on options and information on submissions as
part of the Cabinet material that also includes NZ ETS settings decisions.
29. Of icials wil continue to discuss with PCO their capacity and the likely time implications of
the staggered drafting approach to delegated technical items, non-delegated technical
items, and NZ ETS settings decisions under compressed timeframes.
30. Once amendment regulations have been drafted, they wil return to Cabinet for final
approval to publish. This process wil include all delegated items, non-delegated items,
and NZ ETS settings. Publication of the new regulations must occur no later than 30
September 2024 to come into effect on 01 January 2025.
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