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Stationary Energy and Industrial Processes and Liquid Fossil Fuels Regulations – 2010 guidance update

This factsheet takes affected participants through the effects of the 2010 changes to the Stationery Energy and Industrial Processes (SEIP) Regulations and the Liquid Fossil Fuel (LFF) Regulations.

The proposed changes are set out in the Climate Change (Stationary Energy and Industrial Processes) Amendment Regulations 2010, and the Climate Change (Liquid Fossil Fuels) Amendment Regulations 2010.

The original guidance for the SEIP and LFF regulations, (Emissions Trading Bulletins 13 and 9 available on www.climatechange.govt.nz), will also be reviewed and updated as regulations are amended.

Additional regulations have been developed for reporting emissions associated with the use of synthetic greenhouse gases. Some of these have been added to the SEIP regulations. A separate guidance document has been prepared for the synthetic greenhouse gas participants.

The Ministry consulted on these changes in July and August 2010. Twelve submissions on the proposed updates were received and considered before final regulation changes were submitted for Cabinet approval and then publication in the New Zealand Gazette.

The original proposal 6 consulted upon (amending the gas storage regulation for LNG importers) was not included in the final changes because more analysis was required than time allowed. This may be included in a future regulations update.

Purpose of the changes

The changes:

  • update default emission factors where appropriate
  • correct some technical errors in the regulations
  • provide greater certainty for participants
  • improve the workability of the regulations.

Who will be affected?

The changes affect those who:

  • combust used oil, waste oil, used tyres or waste
  • use geothermal steam at the Wairakei power station site
  • purchase (opt-in) natural gas
  • mine gas, especially if not connected to a sales network
  • mine coal that is exported by a third party
  • are involved in exporting coal
  • purchase or import coal and plan to use a coal stockpile adjustment
  • supply liquid fossil fuel that is on‐sold by a third party (or broker) for international marine or aviation uses.

Backdating of the changes

Both the SEIP and LFF sectors have reporting obligations from 1 January 2010 and emission responsibilities from 1 July 2010. The Act permits changes to certain regulations to be backdated within the year that they are made. Both the changes to the SEIP and LFF regulations have been backdated to have effect from 1 January 2010 and 1 October 2010 respectively. This will make it easier to accurately and efficiently report emissions for the 2010 calendar year, while minimising complexity to pre-existing commercial arrangements.

The web-based emission reporting tools in the Emission Unit Register will be updated with the changes, before participants have to report their emissions.

Summary of the changes

1. Waste combustion – calculation of DEFs

Location: SEIP Regulations, Schedule 2, Table 7.

Change: The error in the waste combustion DEFs has been corrected to avoid the overstatement of emissions obligation. The reporting tool will be updated accordingly.

Reason: A technical error in calculating the original DEFs would have resulted in participants’ obligations being overstated by about 11 per cent.

2. Waste combustion – definition of “t”

Location: SEIP Regulation 24(1)(e).

Change: This regulation was amended to correct two errors: removing an extra summation sign and correcting the definition of the variable ‘t’ in the formula used to estimate waste combustion emissions using the continuous monitoring option. The reporting tool will be amended accordingly.

Reason: The variable ‘t’ was incorrectly defined and another error in the equation was then identified by a participant. Correction of these errors was needed for the emissions equation in 24(1)(e) to yield meaningful results.

3. Geothermal steam – classes associated with the Wairakei field

Location: SEIP Regulations, Schedule 2, Table 6 Part A.

Change: The DEFs for two existing classes of geothermal steam associated with the Wairakei field have been amalgamated into a single class.

Reason: The distinction was unnecessary as it is the same input steam.

4. Natural gas – updating DEFs

Location: SEIP Regulations, Schedule 2, Table 10.

Change: Amendments to the field-specific natural gas and national average DEFs involve updating the natural gas DEFs based upon the latest available (2009) data reported to the Ministry of Economic Development. It is intended that, subject to Cabinet approval, this will occur on an annual basis.

Reason: These DEFs are used by gas purchasing (opt-in) participants in reporting emissions and if using a gas storage facility. Because field-specific gas emission properties vary with time, the intention is to update the natural gas DEFs each year. This is to align the NZ ETS obligation reported using DEFs as closely as possible with actual emissions. The changes to the DEFs in the table are generally small, with some increased and some decreased.

5. Gas purchasing – gas storage facilities

Location: SEIP Regulations 49(3) and 50(7)

Change: SEIP regulations 49(3) and 50(7) have been amended and a new Schedule 3 has been added to facilitate the use of an underground storage facility.

The changes specify that:

  • gas placed in storage before 1 July 2010 or before the person became a participant can be subtracted from the participant’s obligation when extracted
  • a participant who owns stored gas must report a gas storage adjustment
  • on ceasing to be a participant, a gas owner must include a final calculation of stored gas in their emissions return
  • third party operation and use of a gas storage facility is enabled.

Reason: This addition to the regulations was necessary because gas purchased before 1 July 2010 had been injected into a geological storage facility for later use. In addition, such a facility might be operated and used by third parties. Reporting use of a storage facility was also made compulsory to ensure use of such facilities was transparent.

6. Gas mining – clarification for miners not connected to a sales network

Location: SEIP Regulation 16.

Change: SEIP Regulation 16 has been amended by inserting a new sub-clause to clarify the reporting requirements for natural gas miners unconnected to a sales network (such as an off-shore oil production facility) who flare, vent or directly use natural gas from the facility. It confirms these facilities must report their flaring, venting and own-use emissions.

Reason: This change improves alignment of the regulations with the Act which (following an earlier amendment to the definition of natural gas) makes clear that mining natural gas includes residual gas remaining after the extraction of condensate from wet gas. In these circumstances, mined gas is not sold and there is no sales meter. The gas is flared, vented or used for own-use energy.

7. Coal mining – exports undertaken by third parties

Location: SEIP Regulations 10 and 11.

Change: SEIP Regulation 10(1)(c) and item B of Regulation 11(1) have been amended by omitting the words ‘by the person’. The amendment creates alignment with the Act and enables coal miners to subtract coal that is mined and on-sold for export by another party from their obligations.

The Act specifies that it is the miner’s obligation to document the evidence behind the claim in the emission return and to keep that record for seven years for audit purposes.

Regulations do not specify the records to be kept. However, participants will need to be able to demonstrate the validity of emission returns. In the case of coal on-sold for export, the records need to track the sales of the coal and clearly show that it was exported.

Reason: Coal miners subtract export coal from their emissions as part of their reporting. Before the amendment, the regulations only explicitly allowed them to subtract emissions associated with coal exported directly by the miner. Section 207(a) of the Act states that a participant who carries out the activity of mining coal under Part 3 of Schedule 3 of the Act is not required to surrender units for CO2 emissions from any coal that is exported.

8. Coal importing and purchasing – definition and use of stockpile adjustment

Location: SEIP Regulations, 47(1) and Schedule 1.

Change: The amendments are as follows:

  • a new sub-clause requiring the participant to calculate a final stockpile adjustment accounting for all coal that remains in the stockpile at the time that the person ceases to be an opt‐in participant
  • a definition of stockpile added to Clause 1, Schedule 1
  • a new sub-clause 4 added to Clause 3, Schedule 1, outlining how coal added to and removed from a stockpile is recorded
  • addition or amendment of definitions in Clause 1, Schedule 1 of base date, base stockpile, and first stockpile adjustment year
  • some minor consequential changes in Clause 3, Schedule 1.

Reason: To increase certainty for participants in response to Act changes (introduced in 2009) that delay when the SEIP sector assumed emission obligations. Addition of the stockpile definition accommodated the notion of an aggregate stockpile covering all purchased coal held by the participant – it will not all need to be held in one place. The addition to Regulation 47(1) is to remove an ambiguity about treatment of the stockpile when the person is no longer a coal-purchasing participant.

9. Liquid fossil fuels – allowing liquid fossil fuels sold for international use to be excluded from a return

Location: LFF Regulation 5(c)

Change: Regulation 5(c) of the Liquid Fossil Fuel (LFF) Regulations has been amended by replacing ‘to any person’ with ‘by the participant or a third party’ and adding a definition of third party as a new sub-clause 2 to the existing Clause 5. This change applies from 1 October 2010, (rather than 1 January 2010 as for the SEIP Regulation updates).

Because of the nature of the transactions, the participant will need to provide clear evidence that the fuel sold was put to an international maritime use. This requires the parties to transactions to co-operate and share information so that the participant retailer can subtract the emission obligation associated with that fuel sold for international maritime use (to their mutual benefit). How any resulting commercial benefits are shared between the parties is a commercial matter between the parties.

It is not possible to specify precisely in regulations what documentation is acceptable, because not all business practices will be the same and the NZ ETS only applies to the participant (and not their customers). The participant should endeavour to provide information of a similar standard to the information that they collect for their own sales for international journeys.

When fuel is delivered into a ship for an international journey a bunker delivery note is signed by the ship’s captain or representative. Such transactions are also zero-rated for GST purposes. The above documentation, along with sales records, should enable the participant to demonstrate their claims in emission reporting are well founded. Records should be kept and available for seven years and support the quantities reported.

Reason: To allow obligation fuel sold by a participant to a third party (eg, a fuel retailer) and then on-sold, either by the third party or a person who had purchased from that third party for use on an international aviation or maritime trip (other than a fishing trip), to be subtracted from the emission calculation of the participant.

Future updates

There are several reasons that the NZ ETS reporting regulations will need regular updates. Ministers have noted the proposal (subject to Cabinet agreement in each case) for the natural gas DEFs to be updated annually and the LFF DEFS to be reviewed annually, and if significant criteria are met, then updated. Subject to Cabinet agreement, it would be possible for other DEFs to be updated at any time if they diverge from actual emission trends.

Questions of clarification from participants concerning the operation of the reporting regulations could also lead to changes to the regulations to improve certainty. Any changes to the Act, say arising from the 2011 review (which must include methodologies for calculating emissions and removals), are likely to require consequential changes to regulations.

The process of NZ ETS regulations annual updating first requires natural gas and liquid fossil fuels data from the Ministry of Economic Development. This data is usually not available until April. If the scope of any other changes are clear at that point, the proposed changes can then be developed and consulted upon in late May or early June and then drafted and considered by Ministers. While the changes are generally minor and technical in nature, it is desirable to complete any changes as early as possible in the year to increase certainty for participants. Subject to Cabinet agreement, this process in future is likely to be completed by late July or August depending on the scale of the changes required.

Disclaimer: This document explains the 2010 amendments to the Climate Change (Stationary Energy and Industrial Processes) Regulations 2009 (SEIP Regulations) and the Climate Change (Liquid Fossil Fuels) Regulations 2008. These updated guidelines are intended as general guidance material only and are not legal advice. For more comprehensive guidance on the SEIP and LFF regulations see Emissions Trading Bulletins 13 and 9 respectively. If you require information about your legal compliance obligations we recommend that you consult your legal advisors.

Further information

 

Last updated: 26 October 2010

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October 2010
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