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Proposed approach to further understand the
surplus stockpile
Purpose
1. This briefing responds to your request for advice regarding options to substantiate the
stockpile, including the possibility of asking holders of New Zealand Units (NZUs) to
validate their holdings. In preparing this advice we have focussed on distinguishing the
‘surplus stockpile’ from the units held by New Zealand Emissions Trading Scheme (ETS)
participants to meet future surrender obligations.
Background
1. The total supply of NZUs held in the New Zealand Emissions Trading Register (the
Register) is commonly referred to as the ‘stockpile’. The ‘surplus stockpile’ is the number
of units above what is considered necessary to meet surrender obligations.
2. Because units within the surplus stockpile are an excess holding, they are, in theory, an
available source of supply to the secondary market (NZU market). Understanding the
nature of these holdings and the holders’ motivations is important, as too large a surplus
could pose a risk to the stability and efficiency of the NZU market and impact the ability
of the ETS to support achievement of emissions budgets.
3. ETS analysis produced by the Climate Change Commission (the Commission) and MfE
officials incorporate assumptions about the portion of the NZU stockpile considered to be
surplus. These models inform key Government decisions, such as the annual ETS
auction settings and the development of emissions reduction plans.
4. Stakeholders, including forestry specialists, ETS specialists, and the Commission, have
noted that it may be useful to do more to test the assumptions in the ETS analysis about
the portion of the NZU stockpile considered surplus. Some stakeholders have suggested
an annual declaration process or survey to better understand the intentions of all NZU
holders for their units.
Analysis and advice
5. We agree that additional measures may be useful to test and inform the assumptions in
the ETS analysis about the portion of the NZU stockpile considered surplus. We
anticipate that Government and non-government stakeholders could support such an
exercise. However, careful design would be important to ensure that it is effective and
efficient.
6. We have considered conducting a survey of all NZU holders. This would likely be
inefficient as several thousand accounts in the Register are inactive and we expect
response quality and response rates to be low.
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7. Instead, before conducting a wide-ranging survey, we could begin by undertaking
engagement to gather more information to test and inform current assumptions in the
ETS analysis about the portion of the NZU stockpile considered surplus through a series
of qualitative interviews.
8. We envision this engagement taking place in two phases:
I.
During an initial design phase, we would gather information from a discrete group of
stakeholders, both inside and outside of Government, to identify what information to
seek, how to ask for it, and which entities we should substantively engage with.
II.
After this, we would undertake the implementation phase, completing a targeted
substantive engagement, and feeding the results into our understanding of the
surplus stockpile.
9. Once completed, we intend making some of the results of the engagement exercise
public. We would anonymise and aggregate responses to ensure confidentiality. We
expect that public circulation of results will assist in informed decision making and
therefore improved liquidity.
10. To complete the initial design phase, we would like to engage with a discrete group of
key government agencies, forestry specialists, ETS specialists, emitters and financial
institutions. We will also source ETS data from the Environmental Protection Authority
(EPA).
11. We propose the following timing for this work:
• November 2024 – January 2025: complete the design phase, reporting back to you
in late January.
• Commencing February/March 2025: begin the implementation phase in tandem with
ETS Unit Settings and Annual Regulatory Updates (ETS Settings) consultation. The
outcome of the implementation may be able to assist the 2025 final policy decisions
on ETS settings, but information may not be available in time for the initial discussion
document.
12. Following the exercise, we will review its success and utility. Depending on the outcome,
we may consider improving and repeating the exercise.
13. This work will require material time and resources. There will also be limitations as, for
example, it will be dependent on the willingness of respondents to assist. We welcome
your feedback on the value of the work, and on your preference for engaging in it.
Recommendations
We recommend that you:
a.
endorse the Ministry’s proposed next steps for this work, including the preliminary design
phase, followed by an initial report back on the results of that phase, currently anticipated
to be in late January 2025
Yes | No | Discuss
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b.
agree to
:
i.
either engage with officials on the results of the design phase before the
implementation phase commences, in which case the implementation phase may
commence somewhat later
Yes | No
ii.
or simply receive a further report back after the implementation phase is
completed
Yes | No
Signatures
Mark Vink
Hon Simon WATTS
Executive Director
Minister of Climate Change
Markets
31 October 2024
Date
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