Industrial allocation 2024 NZ Aluminium Smelter and NZ Steel

Allocative baselines are used to determine the number of free New Zealand Units (NZUs) firms receive each year through industrial allocation. 

For New Zealand Steel, the new allocative baselines implement the Government’s decision last year that it will no longer receive allocation for its use of cogenerated electricity. 

The documents include information about the new Electricity Contracts Allocation Factor (ECAF) for the New Zealand Aluminium Smelter, which reflects the Smelter’s electricity emissions costs under its new electricity contracts. The factor is an input, amongst others, used to calculate NZAS’s allocative baseline every year and is intended to be unchanged for the duration of the contracts (20 years).  

A new ECAF for the NZAS was needed as their contract with an existing electricity provider ended in June 2024. Modelling what the ECAF should be is highly complex and Cabinet considered different options. 

The papers associated with the Government’s decision and other proactively released papers regarding industrial allocation are below.  A Gazette notice and the new regulations were published online on 20 March.   

Why we have industrial allocation

The purpose of industrial allocation is to balance the cost-competitiveness of high emitting businesses and keeping jobs and economic returns in New Zealand, while still incentivising emissions reductions.  

It supports New Zealand companies to be cost-competitive with counterparts in countries with less stringent climate policies and no emissions pricing schemes. 

Businesses receiving industrial allocation are still incentivised to reduce their emissions. They face NZ ETS costs for all their emissions, including electricity. Industrial allocation recognises that some firms are less able to pass on all these costs to consumers. 

Industrial allocation is being phased down over time

In New Zealand, industrial allocation is being phased down over time. This further incentivises emission reduction.  

In 2024, the Government updated industrial allocation baselines that hadn’t been updated since 2010. This update ensures firms are receiving more accurate allocations for their emissions costs. These new baselines took effect from January 2024.