Changes are coming to the New Zealand Emissions Trading Scheme (NZ ETS) to address over-allocation of New Zealand emission units within some industries.
The NZ ETS impacts almost every part of Aotearoa New Zealand’s economy by requiring companies to pay for climate pollution and rewarding those that sequester carbon.
The changes to the NZ ETS are designed to update decade-old industrial allocation settings that have resulted in some emitting firms receiving more New Zealand emission units (NZUs) than needed, at an estimated cost to Government of $60 million a year.
The changes will address over-allocation of NZUs, reduce costs to government, and align with Aotearoa New Zealand’s emissions reduction goals. Changes will also make it easier for emissions budgets to be met and make the NZ ETS more accurate.
The Government provides NZUs - covering the cost of one tonne of carbon dioxide equivalent emissions – to industry for activities that are both emission-intensive and trade-exposed, recognising the NZ ETS may affect businesses’ international competitiveness.
Some businesses are receiving an over-allocation of NZUs because the baselines used for this were set on old data. The energy and fuel profiles of some businesses have since shifted.
Allocative baselines will be updated using more recent data. Eligibility for industrial allocation will also be re-tested using updated emissions intensity thresholds to reflect recent emissions prices. Technical improvements will also be sought, including changes to eligibility for new activities, the ability to update allocative baselines when NZ ETS emissions factors are updated, and a new electricity allocation factor (EAF) methodology.
Industrial allocation changes will be progressed through a Bill amending the Climate Change Response Act (CCRA), scheduled to be introduced at the end of 2022.
While allocative baselines would be updated immediately, industries that are assessed to be 'less emissions intensive' and drop down an eligibility category would have two years from implementation before changes take effect.
Other updates to the NZ ETS include:
Minister's media release [Beehive website]