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Meeting with Fletcher Building Limited โ 26 March
2024
Purpose
1. This aide memoire gives you background information on Fletcher Building Limited (FBL)
and its views and concerns on industrial allocation policy that it is expected to raise in a
meeting with you on 26 March 2024.
2. You will be meeting with FBL on
Tuesday 26 March 2024 from
4:15 PM to 4:45 PM. In
attendance from FBL are: Nick Traber (Acting CEO of FBL), Thornton Williams (Acting
CE, Concrete Division), and Christian May (General Manager, Group Corporate Affairs).
3. Talking points to support you are contained at the end of this note, and the Appendix
contains a brief background on industrial allocation policy.
Context
4. FBL have written to you and the Minister of Finance raising concerns about the changes
that were made to industrial allocation policy last year via the Climate Change (Late
Payment Penalties and Industrial Allocation) Amendment Act (the Amendment Act).
5. FBL own and operate New Zealandโs only fully integrated cement manufacturing plant โ
Golden Bay Cement (GBC) โ in Portland Northland. GBC is eligible for industrial
allocation, and it received 663,120 units in 2022 (~$36 million per annum at $55 NZU
price). 9(2)(b)(ii)
Fletcher Building Limited agree with some parts of industrial
allocation policy but have significant concerns about two areas
6. As stated in its letter to you, FBL support some parts of industrial allocation policy such
as the current update to allocative baselines, the mandatory review of baselines once
every 10 years, and the gradual phase-out of industrial allocation over the next three
decades.
7. They have raised significant concerns about two areas of allocation policy 9(2)(b)(ii)
9(2)(f)(iv)
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9(2)(f)(iv)
9(2)(f)(iv)
9(2)(b)(ii)
9(2)(f)(iv)
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9(2)(g)(i)
Signatures
Kate Whitwell
Manager
ETS Policy
25 March 2024
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Appendix: Background on industrial allocation
policy
1. The NZ ETS prices emissions across the economy, with emitters surrendering an
emissions unit (New Zealand Unit or NZU) for every tonne of emissions. Some industries
are more impacted by the NZ ETS where they have high levels of emissions and operate
in international markets (referred to as emissions intensive and trade exposed industries,
or EITE).
2. There is a risk that EITE industries shift offshore (partial production movement, entire
firms, or investment) to countries with weaker climate policy to reduce compliance costs.
This is known as emissions leakage and could increase global emissions. The closure of
these industries would also have implications for employment and regional economies.
3. The Government provides support in the form of free NZUs. This policy is known as
industrial allocation and it mitigates the risk of emissions leakage by supporting firms in
eligible industries to meet some of their emissions costs and reducing competitive
disadvantage with offshore firms.
4. There are currently 26 eligible activities which received almost 6.2 million NZUs for the
2022 calendar year (~$340 million at $55 NZU price).
Calculation of allocation
5. Allocation is calculated according to:
๐จ๐ฅ๐ฅ๐จ๐๐๐ญ๐ข๐จ๐ง = ๐๐ซ๐จ๐๐ฎ๐๐ญ๐ข๐จ๐ง โ ๐๐ฅ๐ฅ๐จ๐๐๐ญ๐ข๐ฏ๐ ๐๐๐ฌ๐๐ฅ๐ข๐ง๐ โ ๐๐๐ฏ๐๐ฅ ๐จ๐ ๐๐ฌ๐ฌ๐ข๐ฌ๐ญ๐๐ง๐๐
i.
Allocation is the total number of emissions units (New Zealand Units or NZUs) for a
single product provided to a particular firm that carries out the eligible activity.
ii.
Production is the total amount of production of a single eligible product โ typically
this is in tonnes. Firms provide production amounts to the Environmental Protection
Authority each year to calculate its allocation entitlement.
iii.
Allocative Baseline is the โcost impactโ emissions intensity of production of the
eligible product (ie, the rate at which a firm receives free units). These baselines will
be updated later this year with new data. Baselines are designed to be a national
average, however, because many of New Zealandโs larger industries are carried out
by a single firm, these are often firm specific.
iv.
Level of Assistance is the percentage of support the government provides to the
activity. In 2024 this is 56 percent for moderately emissions intensive activities, and
86 percent for highly emissions intensive activities. These rates are currently being
phased out by one percentage point per annum, and will increase to two, and three
percentage points in the following decades.
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