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Draft Cabinet paper: Progressing updates to
industrial allocation in the emissions trading
scheme
1. We seek your feedback on the attached draft Cabinet paper (Appendix 1).
2. The paper has two key components:
i
Progressing updates to industrial allocation settings
ii A policy decision concerning NZ Steel’s industrial allocation.
Updates to regulations
3. The first half of the paper discusses general updates to industrial allocation settings.
This follows our data collection process and development of new emission factors, such
as for electricity.
4. A key part of that section is your recommendation that the updates are in force from 1
January 2025 but have effect from 1 January 2024. This is because every year, the EPA
uses final production data for the previous year to true up the provisional al ocation
already given to recipients.
5. Getting to this stage of the updating of industrial allocation settings has taken five years
and engagement with allocation recipients has been extensive and continuous. The
timing of when the updated industrial allocation settings are implemented is a formal
decision for Cabinet when it considers the amendment regulations, likely in November
2024.
6. Some allocation recipients, including some greenhouse growers, are requesting another
year of the status quo. This would avoid immediate change to allocations to their
cucumber, tomato and capsicum growing members.1
7. The paper notes that delaying implementation to next year would create another year of
over-allocations and, in some cases, under-allocation (such as to Methanex). Delay
would have a net fiscal cost of $8.8 million (150,000 NZUs at $58.35 each).
8. 9(2)(h)
9. 9(2)(f)(iv)
1 The al ocative baseline for growing cucumbers wil decrease by 78%, tomatoes by 43% and
capsicums by 17%. This is simply because such activities are being over-allocated. The average
cucumber grower faces emission costs of $40 for each tonne of cucumbers produced yet receives an
allocation worth $105.
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NZ Steel allocation issue
10. The paper discusses the current over-allocation to NZ Steel from its consumption of co-
generated electricity. It seeks Cabinet approval for change to be implemented from 1
January 2025, as was agreed between yourself and the Minister for Energy. The paper
contains a short summary of the advice we provided to joint Ministers on this issue,
including risks to the electric arc furnace project (paragraphs 33 – 42). We seek your
confirmation that we have accurately captured Ministers’ key considerations in making
this decision.
11. 9(2)(h)
12. We understand that NZ Steel have contacted with your office on changes to their
allocative baseline. You have previously agreed to go back to NZ Steel and update them
on progress. We have drafted talking points you can use if you decide to meet with NZ
Steel and provide them with an update (Appendix 2).
Next steps
13. We invite your feedback to be incorporated into the next version of the paper, which wil
be circulated for agency and, with your approval, Ministerial consultation. The paper is
timed for consideration at the ECO Commit ee on 28 August. This will allow time for
amendment regulations to be drafted and present to LEG Committee in November. That
process wil end the updating of industrial allocation settings.
14. The Ministry for Business, Innovation and Employment has reviewed the paper.
Comments were used to improve the NZ Steel section of the paper.
Recommendations
We recommend that you:
a.
Provide feedback
to officials on the attached draft Cabinet paper: Addressing over-
allocation of emission units to industry.
Yes | No
b.
Meet with officials for further discussion.
Yes | No
Signatures
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Mark Vink
Hon Simon WATTS
General manager
Minister of Climate Change
General Manager
Date
Date
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Appendix 2: 9(2)(g)(i)
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