BRF 4954 Approval of ETS NZ Gazette notice for NZAS Redacted.pdf

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Approval of ETS New Zealand Gazette notice for
NZAS
1.  This briefing recommends you sign and agree to publish the attached New Zealand
Gazette ‘call-for-data’ notice. The notice seeks copies of the electricity contracts that
entered into force between New Zealand Aluminium Smelters Ltd (NZAS) and Meridian
Electricity Ltd (Meridian), Contact Energy and Mercury Energy in July 2024.
2.  The purpose of issuing this notice is to provide the Minister with the information
necessary to determine the appropriate allocative baseline for the activity, as per
161D(3)(a). Our policy objective is to ensure the allocations received by NZAS reflect
actual emissions trading scheme (ETS) costs incurred for electricity consumption.
3.  Section 161D(1)(e) of the Climate Change Response Act 2002 (the Act) enables you to
obtain copies of electricity-related contracts that affect the electricity cost or any
information relating to such contracts. This process is started by a call for data or contract
notice published in the NZ Gazette.
4.  This procedure calling for data to review NZAS electricity contracts was last followed in
2021. These contracts replace the 2021 contract with Meridian. We have been in contact
with NZAS who are expecting the notice.
5.  Aluminium smelting is one of twenty-six activities eligible for free allocation. NZAS has a
special process for its allocation because its large electricity contract modifies how ETS
costs influence its electricity price and has significant fiscal implications. Part of
implementing this process is our annual request for electricity consumption data from
NZAS. NZAS has had unique electricity allocation factors for each of its previous
electricity contracts.
6.  We provided you and the Minister for Energy with advice on indicative industrial
allocation outcomes after reviewing earlier versions of the contracts. NZAS progressed
the contracts following discussions with you about these indicative outcomes. It was
communicated to NZAS at every stage that the early process was indicative only and
Cabinet will make the final decisions.
7.  Without this work, it is likely NZAS will be required to use the default allocative baseline in
the regulations, which could increase their allocations by a factor of five from their current
entitlement (up to $200 million per year).
Next Steps
8.  NZAS are required to provide the Ministry copies of the electricity contracts within 30
working days of the Notice publication date.
9.  We will compare the final contracts against the conditional contracts we reviewed earlier.
If there have been material changes, such as to strike prices, it is very likely we will need
to repeat the engagement with NZAS and the generators to understand how emission
pricing has impacted the revised agreements. If there have been no material changes, as
we expect, then our analysis will be much simpler.
10. We will provide you with advice, including a draft Cabinet paper and regulatory impact
statement in due course.
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11. The amendments to regulations need to be in place before the end of the year to avoid
the default allocative baseline applying to any part of 2024.
Recommendations
We recommend that you:
a.  Sign and date the attached New Zealand Gazette notice that requires NZAS to provide
their 2024 electricity contracts with Meridian, Contact and Mercury
Yes | No
b.  Agree that Ministry staff will then arrange for publication of the signed notice in the New
Zealand Gazette
Yes | No
c.  Note that that this New Zealand Gazette notice is a disallowable instrument, but not a
legislative instrument, for the purposes of the Legislation Act 2012 and must be
presented to the House of Representatives no later than the 15th sitting day of the House
of Representatives after the day on which it is made.
d.  Note we may make minor wording changes to the New Zealand Gazette Notice for final
legal review prior to publication.
Signatures

Mark Vink
General Manager
Markets, Climate Change Mitigation and Resource Efficiency
4 July 2024

Hon Simon WATTS
Minister of Climate Change
Date

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Appendix 1: NZ Gazette notice
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Draft New Zealand Gazette Notice
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Call for the Provision of Electricity-Related Contracts (Aluminium smelting) Notice 2024
Pursuant to section 161D(1)(e) of the Climate Change Response Act 2002, I, The Honourable Simon
Watts, Minister of Climate Change, give the following notice.

Notice

1. Title and commencement (1) This notice may be cited as the Call for the Provision of Electricity-
Related Contracts (Aluminium smelting) Notice 2024.

(2) This notice takes effect from and including __ July 2024.

2. Interpretation (1) Unless the context otherwise requires:

Act means the Climate Change Response Act 2002.

Aluminium smelting has the meaning given to it in the Climate Change (Eligible Industrial
Activities) Regulations 2010.

NZAS means the company registered as New Zealand Aluminium Smelters Limited.

3. Electricity-Related Contracts Required to be provided (1) NZAS must provide this data to the
Ministry for the Environment, within 30 working days of the date of this notice, a copy of the
following:

(a) The current electricity agreement, without redactions, between Mercury Energy Limited and NZ
Steel; and

(b) The current electricity agreement, without redactions, between Meridian Energy Limited and NZ
Steel; and

(c) The current electricity agreement, without redactions, between Contact Energy Limited and NZ
Steel; and

(d) any information or explanation of matters relevant to the agreements referred to in paragraph
3(1)(a), (b) and (c) which will assist in a determination by the Minister of an allocative baseline or
baselines for NZAS pursuant to the Act (for the avoidance of doubt, this information may be provided
in summary form in a newly created document rather than providing all source documentation for the
calculations).

Dated at Wellington this ___ day of July 2024

Hon Simon Watts, Minister of Climate Change.

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