CLASSIFICATION
3. You had four questions:
i. What is the statutory phase out of industrial allocation?
• Firms in eligible highly emissions intensive industries such as producing steel
and cement products wil receive allocations equivalent to 86% of emissions
costs in 2024 (56% to firms in moderately intensive activities such as
glasshouse horticulture). The percentage of emissions costs covered will
decline 1 percentage point per annum until 2030 (ie, emissions costs covered
will be 80% and 50% respectively in 2030). The phase out rate increases to 2
percentage points from 2031 to 2040, and to 3 percentage points from 2041 to
2050. At these statutory rates, firms in highly emissions intensive activities will
receive 30% of emissions costs in 2050, and firms in moderately emissions
intensive activities will receive 0%.
• The Act allows the Minister to recommend increases to phase out rates from 1
January 2026 on an activity-by-activity basis. Under the Act, the Climate
Change Commission must provide recommendations on a phase out rate
change for an industrial activity following referral by the Minister. The Act does
not require the Minister to follow the Commission’s recommendations but must
table a report in the House on reasons for any dif erences.
• There is no cap to the phase out rate that can be applied. For example, it would
be possible to remove all industrial allocation to a highly emissions intensive
industry in 2026 by setting the phase out rate at 84% in 2026.
• We aim to seek Minister decisions on which industrial activities to refer to the
Commission before the end of May 2024. Those decisions wil be informed by
our new data on production, revenue, and emissions from all allocation
recipients. The data allows us to identify industrial activities that phase out rate
changes could be considered for.
ii.
What would the unit supply and fiscal implications of increasing the statutory
industrial allocation phase out rates to 3, 4 or 5 % per annum be versus the current
phase out?
• The existing phase out rate is 1% to 2030. Al else being equal, allocations wil
have reduced from 6.1 mil ion NZUs in 2025 to 5.3 mil ion under the status quo.
The total emission cap in 2030 is forecast to be 10.3 mil ion NZUs using Climate
Change Commission data.
• If the phase out rate was adjusted to 3% per year from 2025 then total
allocation in 2030 would be 4.5 mil ion NZUs. If the reduction (of an additional 2
percentage points) in industrial allocation in 2025 alone was auctioned, this
could raise $10.4m. There would be no change to the emissions cap.
• These changes are shown as calendar year impacts in the tables below as that
is consist with NZ ETS auction settings. Fiscal year impacts would be very
similar:
BRF-4330
3
CLASSIFICATION
CLASSIFICATION
Signatures
Mark Vink
General Manager
Climate Change Mitigation and Resource Efficiency
Date
Hon Simon WATTS
Minister of Climate Change
Date
BRF-4330
5
CLASSIFICATION
CLASSIFICATION
Attachment
Date
CORM-2282
John Carnegie
Chief Executive - Energy Resources Aotearoa
By email: [email address]
Dear John
Thank you for your letter of 21 March 2024 about industrial allocation in the New Zealand
Emissions Trading Scheme (NZ ETS). I appreciate your comments on this matter.
I would like to clarify that the core purpose of industrial allocation is to mitigate the risk of
emissions leakage by reducing competitive disadvantage, and not to compensate incumbent
firms for the impact of the NZ ETS on their existing property rights.
As you are aware, there is no defined industrial allocation volume in the same way that there
is a defined NZ ETS auction volume. Because annual industrial allocations are proportional to
firms’ annual production and there is no cap on the total amount, allocations fluctuate from
year to year. Additionally, as you note in your letter, the level of assistance rates are being
phased out which wil impact the size of annual al ocations. As a result of these factors, it is
not possible to guarantee that industrial allocation volumes wil not change.
Further, as per the Climate Change Response (Late Payment Penalties and Industrial
Al ocation) Amendment Act 2023, allocative baselines in regulations wil be updated with new
data later this year. These wil impact final 2024 al ocations, which are applied for between 1
January and 30 April 2025.
Current legislation allows activity specific phase-out rates to be set after requesting advice
from the Climate Change Commission. Commencing this process is at the discretion of the
Minister of Climate Change. If this is called for, the government is required to publicly consult,
and I would welcome your input should the situation arise.
Thank you again for writing to me on this important issue.
Yours sincerely,
Hon Nicola Willis
Associate Minister of Climate Change
BRF-4330
6
CLASSIFICATION
