CLASSIFICATION
Background information on industrial allocation out
of cycle funding request
1. At your weekly meeting with Ministry officials on 16 September 2024, the Minister of
Climate Change requested more information about:
i. why an out of cycle funding request is necessary for the Cabinet paper
New Zealand
Aluminium Smelter electricity allocation factor update, and
ii. why the Ministry identified the need for a funding request – and consequently
informed you as Minister - only a short time before anticipated lodgement of the
paper.
2. The paper
New Zealand Aluminium Smelter electricity allocation factor update seeks
Cabinet’s agreement to set a new electricity allocation factor for New Zealand Aluminium
Smelter (NZAS), as part of the industrial allocation regime, based on new information
about the costs NZAS faces. The Treasury identified the need for an out of cycle funding
request of $36 mil ion per year to support the Minister’s recommendation in the paper
during Ministerial consultation, and the Ministry for the Environment informed the
Minister of Climate Change of that need at that point.
3. Previously, Ministry officials had expected that the fiscal impacts associated with this
decision would be recorded as reductions on the existing fiscal forecast, or part of the
standing appropriation
Al ocation of New Zealand Emission Units, and therefore would
not require an out of cycle funding request.
4. 9(2)(b)(ii)
5. Consequently, the policy decision in the Cabinet paper wil increase the allocation
expense compared to the forecast. If the fiscal forecast had used the correct allocation
rate, the policy decision would result in a reduced allocation expense.
6. The Treasury identified this fiscal impact during Ministerial consultation following receipt
of the draft paper. The Treasury vote team tested the appropriate accounting treatment
with its fiscal reporting team, which confirmed that the fiscal impact associated with this
particular proposal requires an out of cycle funding request.
7. The fiscal impacts of the proposal have been known for some time; the new information
is the need for associated funding. The Minister of Climate Change had an oral item on
the Cabinet agenda for 27 May 2024 at which we understand he intended to give an
overview of the proposal, including its fiscal impacts.
8. 9(2)(b)(ii)
9. Now that Ministry and the Treasury have identified this issue, the next step is for the
Minister of Climate Change to seek approval from the Minister of Finance for an out of
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cycle funding request, as set out in
Cabinet Office Circular (18) 2: Proposals with
Financial Implications and Financial Authorities (CO (18) 2). The Minister of Climate
Change wil send a letter to the Minister of Finance shortly, seeking that approval.
10. We recommend the Minster for Climate Change forwards this aide memoire to the
Minister of Finance, as context for the letter seeking out of cycle funding. The Treasury
has reviewed this aide memoire and has confirmed that the accounting treatment
outlined here, and associated funding request, is appropriate.
Signatures
Mark Vink
Hon Simon WATTS
General Manager, Markets
Minister of Climate Change
18 September 2024
Date
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