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Meeting with the EPA – 4pm 6 August 2024
Purpose
1. This aide memoire provides background information for your meeting with of icials from
the Environmental Protection Authority (EPA) and Ministry for the Environment (MfE)
scheduled for Tuesday 6 August 2024 from 4pm-4:30pm. You may wish to invite
Minister Simmonds to attend the meeting.
2. EPA attendees wil be:
• Dr Al an Freeth – Chief Executive and Registrar
• Michelle Ward – General Manager, Climate, Land and Oceans
• Annie Willians – Principal Advisor, Government Engagement
MfE attendees wil be:
• Sam Buckle – Deputy Secretary, Climate Change Mitigation and Resource
Efficiency
• Martin Workman - Chief of Staf , Office of the Chief Executive
• Susan Baas – Manager, Market Assurance and Operations
Background
3. On 18 March 2024 the EPA provided you and Minister Simmonds with the briefing
attached as Appendix 1: Update on New Zealand Emissions Trading Register. You are
the Minister responsible for the Emissions Trading Scheme (ETS) related
appropriations. Minister Simmonds is responsible for the EPA.
4. The EPA’s briefing notes that:
a. The Emissions Trading Scheme (ETS) Register (the Register) is the key tool
used to administer the ETS. The EPA has a statutory responsibility to maintain
the Register, and the EPA Chief Executive has been appointed as the Registrar,
an employee of the EPA who under the Climate Change Response Act 2002 (the
Act) is responsible for the Register.
b. The current register was developed in 2013. While the register is currently stable,
it is aging and there are several factors contributing to increased risk. The EPA
does not have sufficient funding to implement any changes proposed to the
current Register resulting from policy changes. As the technology is aging, such
changes may also not be technically possible. Minor technical changes wil be
assessed on a case-by-case basis. However, the Registrar has implemented a
freeze on any new major changes.
c. The existing support contract with Datacom expires in 2029. A register
replacement wil require significant government investment, and this wil take time
and require resourcing. It is likely that a series of Budget bids wil be required.
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• The independent risk assessment being carried out by a third-party technical
expert will assist the EPA with quantifying the risk and providing the Registrar
with advice on the scope and scale of any freeze, should that continue to be
warranted.
9. Potential future funding requirements: if the decision is made to initiate a project to
replace the Register with a like for like solution, the EPA is likely to need to make a bid
in Budget 2026 for funds to develop a business case, followed by a bid in a later budget
for the new Register.
10. Potential next steps: we anticipate that the meeting wil provide an opportunity to
discuss the issues and answer your questions. We recommend that MfE and the EPA
provide you and Minister Simmonds with advice on options for the Register after the
EPA receives and considers the third-party’s technical risk review of the Register. If
Minister Simmonds does not attend the meeting, we recommend that you discuss it and
the next steps with her.
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Appendix 1: Copy of the EPA NZETR Briefing
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•
difficulty for users to interact with it due to the bespoke nature of the Register.
3. The contract with Datacom to support the current Register expires in June 2029.The development
of a new Register wil take significant time and government investment.
4. 9(2)(j)
This increases the likelihood that the Register can continue to operate and continues to
be compliant with current legislation.
Background
5. The Register is the key tool used to administer the ETS and is maintained by the EPA.
6. The Climate Change Response Act 2002 (the Act) and related regulations set out the purpose,
operational requirements and content of the Register, and the responsibilities of the Registrar.
The EPA has appointed its Chief Executive as the Registrar.
7. The purpose of the Register is to:
•
Ensure the accurate, transparent, and efficient accounting of the issue, holding, transfer,
and cancellation of New Zealand units (NZU).
•
Ensure the accurate, transparent, and efficient exchange of information between the
Registry, overseas registries, and international transaction bodies.
•
Facilitate the exchange of information between the persons with functions, duties, and
powers under this Act to enable al of them to perform their functions and duties and
exercise their powers.
8. The Register is the authoritative source for NZU ownership; it is currently the only place where
NZU can be held in New Zealand.
9. The Register also supports the reporting functions that allow ETS participants to report their
emissions, apply for Unique Emissions Factors, and meet compliance obligations - including
through the surrendering of NZU, and appling for Industrial Al ocations.
10. The EPA Chief Executive has been appointed as the Registrar by the EPA Board. The statutory
functions of the Registrar include:
•
Responsibility for the operation, on behalf of the Crown, of the Register.
•
Issuing NZU at the direction of the Minister of Finance.
•
Giving effect to any direction by a Minister or the EPA in accordance with the Act.
•
Al ocating unique account numbers, upon application closing and opening holding
accounts, transferring units and other, similar Register actions as set out in more detail in
the CCRA.
Current ETS Register
11. The current Register was developed by Datacom in 2013, based on existing products that were
already in use. It was fully implemented in 2016 with a seven-year support contract through to
June 2023.
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12. In late 2023, the EPA and Datacom negotiated a further extension of the contract for continued
support through to June 2029.
13. The Register has been stable during the seven years of its operation, with few outages and no
successful intrusions. While the EPA has made some changes to the Register, these have mainly
been in response to legislative changes. No significant investment in the technology platform or
components had been made until 2022/2023, when the EPA began the upgrading of servers to
address out of date software issues.
14. As of 31 December 2023, the value of privately held NZU was in excess of $11 billion. This does
not include the value of trading that occurs as NZU are moved between parties prior to surrender.
There are approximately 13,000 accounts and 12,000 users in the Register and in 2023 over
9,000 transactions were completed.
15. 9(2)(d)
Risk Landscape of the Current Register
16. While the Register is currently stable, there are a number of factors contributing to increasing risk.
Technology risks
17. The Register was built on Windows 2012 servers and contains several third-party software
components, which are used to run specific areas of the Register.
18. Recent investment from 2022/2023 has seen the upgrading of the operating system servers to
Windows 2019, as the 2012 version was no longer supported by Microsoft.
19. Replacing or upgrading further components and servers between now and June 2029 will be
expensive due to the bespoke nature of the Register. Considerable work would be needed to
assess compatibility and the flow-on impact to other components before any further upgrades can
be done.
20. To build and implement future policy changes the Register needs a stable platform. This is not
only an issue of funding; there are limits to the amount of change the system can handle at any
one time.
21. Currently there are no known vulnerabilities, but this is continually assessed. The EPA is in the
final stages of completing its biennial security Certification and Accreditation process. The EPA is
also assessing the status of key third-party components in relation to the overal system stability.
Policy uncertainty
22. 9(2)(f)(iv)
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23. Any changes to how the Register integrates with other systems (for example, the auctioning system
run by NZX, and the Forestry system run by the Ministry for Primary Industries (MPI) or any other
third-party system such as trading platforms) will be challenging to accommodate.
24. 9(2)(f)(iv)
25. We will continue to work closely with MfE as future policy is developed. However, the limitations of
the current Register mean we are unlikely to be able to support any complex future policy
outcomes, 9(2)(f)(iv)
, within the existing technology.
Financial Limitations
26. The EPA is significantly underfunded and is unable to deliver further changes to the Register.9(2)(d)
We believe that this wil be sufficient if the Register
remains unchanged.
Limited User Support
27. The custom-built nature of the Register means we do not have flexibility to make simple changes
to make it easier for users and encourage compliance. Al changes must be made by the supplier
rather than the participant.
Managing Risk
9(2)(j)
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Register Replacement
32. The existing support contract with the external provider has been negotiated through to 2029. 9(2)(j)
33. Before the contract ends the EPA will have to consider options in respect of maintaining or
replacing the Register.
34. A Register replacement will require significant investment from the government and will need to go
through the Treasury’s Better Business Case process. This process will take time and require
resourcing. The EPA does not have the resources or capability to do this.
Conclusion
35. The EPA’s priority is to ensure the current Register is stable and continues to comply with the
current legislative settings.
36. 9(2)(j)
37. It would be optimal for a decision on the future of the Register to be known well in advance of the
end of the current support contract in 2029.
38. The EPA will continue to work with MfE, along with MPI and the Treasury as necessary, to support
the development of options to address the issues raised in this briefing.
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Recommendation
We recommend that you:
a.
Note the contents of this briefing.
Yes/No
b.
Note that the EPA will continue to work with
Yes/No
MfE to support the development of options to
address the issues raised in this briefing.
Michel e Ward
Hon Simon Watts
General Manager
Minister of Climate Change
Climate, Land and Oceans
Date:
Date: 15 March 2024
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