CLASSIFICATION
Approval to lodge LEG paper for industrial al ocation
amendment regulations
Purpose
1. This briefing provides you with a final draft paper,
CAB-481: Amendment regulations for
industrial allocation in the emissions trading scheme (Appendix 1), along with the
accompanying draft regulations for your information,
Climate Change (Eligible Industrial
Activities) Amendment Regulations (No 2) 2024 (Appendix 2).
2. The purpose of this briefing is to:
i
seek your approval to lodge the attached Cabinet paper (Appendix 1) by 5
December for consideration at the Cabinet Legislation Commit ee (LEG) meeting on
12 December 2024
ii confirm the final set of allocative baselines included in the draft amendment
regulations (Appendix 3)
iii lay out the bespoke process for setting allocative baselines for NZ Steel in
accordance with Cabinet’s decision to remove its allocation for cogenerated
electricity, including an emerging risk we have identified
iv notify you of further mat ers relating to these amendments, including the need to
seek Cabinet approval for a waiver from the 28-day rule, and concerns from the
Major Electricity Users Group (MEUG).
Cabinet paper updating allocative baselines is attached for
your approval
3. You approved the issuing of drafting instructions for amendments to allocative baselines,
activity descriptions and the eligibility of two activities on 8 October 2024 and 3
November 2024 [BRF-5270 and BRF-5488 refer].
4. The full set of amendments wil update the basis for calculating the industrial allocation
for all firms receiving industrial allocation. This is the first comprehensive update to these
regulations since they were introduced in 2010.
5. We seek your agreement to lodge the Cabinet paper attached at Appendix 1. We also
attach draft regulations (Appendix 2). The Parliamentary Counsel Office (PCO) will
supply the final copies of these regulations to the LEG Commit ee separately. The
regulations include the final allocative baselines for 2024, as set out in Appendix 3. We
now seek your formal agreement to these allocative baselines.
6. The allocative baselines have increased relative to the values previously set out in BRF-
5270 for two reasons:
i
We have now used the Electricity Authority’s notified general electricity allocation
factor, which is rounded up to three decimal places. Our previous work used an
BRF-5636
2
CLASSIFICATION
CLASSIFICATION
unrounded value, but you have a legal obligation to use the notified EAF when
setting allocative baselines. This change has increased the allocative baselines by
less than 0.01 percentage point on average. No recipient wil be disadvantaged by
this decision.
ii 9(2)(b)(ii)
Process for setting NZ Steel’s allocative baselines
A bespoke process is needed for NZ Steel’s use of cogenerated electricity
7. Cabinet agreed that NZ Steel wil not receive allocation for consuming electricity that is
generated from waste gases [ECO-24-MIN-0201 refers]. This can be implemented by
using your existing powers in the Climate Change Response Act 2002 (the Act) to
require NZ Steel to inform you annually of how much electricity it consumed in the year
and how much of this was generated from waste gases.
8. The collected data wil be used to determine the final allocative baselines for NZ Steel’s
products each year, to specify in the regulations. The specified baselines wil overrule
the default baselines for NZ Steel’s products included in Schedule 2, which do not
account for the separate treatment of co-generated electricity.
9. In order to provide a provisional allocation to NZ Steel at the start of each year, the
previous year’s data wil be projected forward. This means each February, you wil
approve the final allocative baselines for the previous year based on the collected data,
as well as the provisional allocative baselines for the next two years.
10. This is the same annual process that is used to ensure allocations to the New Zealand
Aluminium Smelter (NZAS) accurately reflect the firm’s sources of electricity over the
year, either sourced from the grid (which has a higher electricity allocation factor) or from
contract (which currently has a zero-electricity allocation factor).
11. Cabinet agreed that the change in approach to NZ Steel’s industrial allocation will take
effect from 1 January 2024. To implement this, we have planned to mirror the usual
process for NZAS and issue a call for data on NZ Steel’s 2024 sources of electricity. The
data will be provided in early 2025 and will be used to set NZ Steel’s final 2024 allocative
baselines in March 2025 (forthcoming BRF-5639 wil provide further detail). We will seek
your agreement to issue drafting instructions to PCO to achieve this in early 2025.
9(2)(g)(i)
BRF-5636
3
CLASSIFICATION
CLASSIFICATION
9(2)(g)(i)
17. 9(2)(h)
18. 9(2)(g)(i)
Other related issues
9(2)(g)(i)
BRF-5636
4
CLASSIFICATION
CLASSIFICATION
9(2)(g)(i)
There is likely to be media and/or stakeholder interest in these regulatory amendments
23. Al firms receiving industrial allocation have been informed of the changes to allocative
baselines and how they wil be applied. Horticultural firms have approached Ministers
and officials several times since, expressing concern about the possible financial
impacts the updates may cause.
24. These concerns may escalate and/or be picked up by the media when the regulations
are passed. 9(2)(g)(i)
25. We consider that concerns can be managed by reiterating the positive impacts of limiting
overallocation, and that the changes to allocative baselines bring the industrial allocation
system more in line with its purpose. We will work with your office to prepare reactive
communications messaging as appropriate.
Consultation
26. No feedback was received from Ministerial and agency consultation on the Cabinet
paper.
Next steps
27. The Parliamentary Council Of ice (PCO) has completed the drafting of the Climate
Change (Eligible Industrial Activities) Amendment Regulations (No 2) 2024 (Appendix 2).
These wil be lodged by PCO for consideration at Cabinet Legislation Commit ee on 12
December 2024. Talking points wil be provided next week.
1 Climate Change Response Act 2002 s161A(4A)
BRF-5636
5
CLASSIFICATION
