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Draft Cabinet paper - Amendments to emission
trading scheme industrial al ocation regulations
1. We seek your feedback on the attached draft Cabinet Legislation Commit ee paper and
agreement to the following three matters for drafting amendment regulations:
i
industrial allocation updates, including updating allocative baselines
ii approval of the updated Electricity Al ocation Factor (EAF) recommended by the
Electricity Authority in July 2024
iii a specific decision on industrial allocation baselines for the activity of producing clay
bricks and field tiles.
2. The Cabinet paper asks Cabinet to authorise the submission of the set of amendment
regulations to the Executive Council. This Cabinet paper is the final decision required to
implement the updates to industrial allocation baseline updates and completes the
regulations updates required to the NZ ETS for 2024.
3. The amendment regulations themselves wil be lodged by the Parliamentary Counsel
Office (PCO) alongside the Cabinet paper when complete. The amendments update NZ
ETS regulations for industrial allocation.
Industrial allocation updates
4. You gave your approval to issue drafting instructions to the PCO on 14 October 2024
[our briefing BRF-5270 refers]. The updates are in three groups:
i
Updates to allocative baselines, using the data collected in 2023 from all firms
carrying out eligible industrial activities, including the 2024 electricity allocation
factor
ii Remove industrial allocation eligibility for the production of gelatine and newsprint
iii Update activity descriptions for the production of carbamide (urea) and protein meal
5. The Cabinet paper describes the statutory tests that must be met for you to recommend
the making of the amendment regulations. Al statutory tests have been met, as follows:
i
Section 161(4A) of the Act allows the making of regulations prescribing an electricity
allocation factor only if that factor was reported to the Minister under section 161FA.
You received the Electricity Authority’s report on the 2024 electricity allocation factor
on 25 July 2024. The report has been published on the Electricity Authority’s
website.
ii Section 161A(3) of the Act allows the Minister to make regulations that remove an
activity from the regulations if the Minister is satisfied the activity is no longer
moderately or highly emissions intensive, or trade exposed, or both. We received no
historical or projected data for producing any of the gelatine or newsprint products.
This is despite both PWC and of icial conducting separate and extensive searches
of companies records and communications with importers. The emissions intensity
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of those activities are zero and therefore are no longer moderately or highly
emissions intensive.
iii Section 161A(5)(a) of the Act requires regulations that revoke an activity’s eligibility
to come into force two years after publication or at a later date set by the
regulations. The revoking of eligibility for producing gelatine and newsprint wil
consequently come into force from 1 January 2027.
Drafting approval for electricity allocation factor
6. This briefing also seeks your agreement to issue drafting instructions to the PCO for
updating the electricity allocation factor in the regulations. This approval was
inadvertently omitted from the list of approvals sought in our 14 October briefing [BRF-
5270 refers]. The 2024 value of 0.554 tCO2e/MWh was recommended to you by the
Electricity Authority on 27 July 2024. This value has already been incorporated into the
updated baselines as approved for drafting.
Drafting approval for producing clay bricks and field tiles
7. Further, this briefing seeks your agreement to the final allocative baselines for two
products from the eligible activity of producing clay bricks and field tiles and the issuance
of drafting instructions. Data from the two producers was only recently submitted by the
firms. We have supported the firms to ensure the final submissions are accurate and
meet requirements.
i
W D Boyes (Canterbury Clay Bricks) is the only domestic manufacturer of product A
(facing bricks and pavers primarily used for facade and landscaping). With an
allocative baseline of 0.0726 for 2024, t9(2)(b)(ii)
ii Banna Strand (Marton Brick and Tile) is the only domestic manufacturer of product
B (field tiles and other clay-based products related to the fit ing and joining of field
tiles and drainage). With an allocative baseline of 0.4156, 9(2)(b)(ii)
8. No firm was found to be producing product C (fire bricks). Consequently, the
recommended allocative baseline is zero.
Next steps
9. After incorporating your feedback on the Cabinet paper, we will consult with other
agencies at the same time as Ministerial consultation. We do not expect material
feedback from agencies given no policy decisions are sought. A final version of the
paper wil be provided for approval for lodgement in the week of 18 November.
10. We are discussing options with your office to progress this paper alongside your
international travel commitments over the coming month. Notification of the amendment
regulations made by Order in Council must be published in the NZ Gazette before the
end of November to meet Cabinet’s 28-day rule for secondary legislation. Should you
wish to present these amendment regulations to Cabinet in December, a waiver from
that rule wil need to be sought.
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Recommendations
We recommend that you:
a.
note that a draft Cabinet paper
Amendments to emission trading scheme industrial
allocation regulations is attached for your feedback
b.
agree to instruct Parliamentary Counsel Of ice to draft amendments to the Climate
Change (Eligible Industrial Activities) Regulations 2010 to set the electricity allocation
factor for 2024 as 0.554
Yes | No
c.
agree to instruct Parliamentary Counsel Of ice to draft amendments to the Climate
Change (Eligible Industrial Activities) Regulations 2010 to set the allocative baselines for
the production of clay bricks and field tiles as follows:
a. Product A: 0.0726
b. Product B: 0.4156
c. Product C: 0.0000
Yes | No
d.
agree the statutory tests for the prescribing of the electricity allocation factor and the
revoking of eligibility for producing gelatine and newsprint on 1 January 2027 are met
Yes | No
Signatures
Mark Vink
Hon Simon Watts
General Manager, Markets
Minister of Climate Change
Date
Date
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