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Establishing Unique Emissions Factors for the Emissions Trading Scheme

Introduction

Discussion on issues with unique emissions factors

Mechanism for calculating unique emissions factors for liquid fossil fuels

Common elements applying to calculation of any unique emissions factor for the ETS

Discussion on issues with unique emissions factors

This section discusses various issues that were raised by officials as areas that may need to be addressed in regulations covering unique emissions factors. The discussion is general to any sector using UEFs rather than just for the liquid fossil fuels sector.

The regulations for UEFs need to be developed in the context of the relevant section of the Climate Change Response (Emissions Trading) Amendment Act 2008 (shown below). The regulations state that the Chief Executive has the ability to approve a UEF and that a process for applying for a UEF is provided. The governing agency for UEFs (the same organisation as administrating the whole ETS) will be responsible for processing applications.

Under Section 164 of the Act, the Governor General, on recommendation of the Minister, may make regulations -

1. providing for a process by which a participant may apply to the chief executive for approval to use a unique emissions factor:

2. prescribing the information that must be collected to support an application for use of a unique emissions factor;

3. prescribing the criteria for a unique emissions factor; which may include (but are not limited to)—

1. the percentage by which a unique emissions factor must vary from the default emissions factor, before an application for a unique emissions factor may be made;

2. the types of greenhouse gases to be reflected in the unique emissions factor;

3. how the unique emissions factor is to be calculated:

4. any criteria by which the default emissions factor has been set, that reflect the matters in section 163(4); or

5. a requirement that the unique emissions factor be verified by a recognised verifier.

To use a UEF process to obtain an emissions factor for calculating emissions, regulations would need to be in place at least three months prior to the calculation period (by the end of the third quarter for use in the following year). With stationary energy due for inclusion in the ETS from 1 January 2010, that means regulations will need to be in place (enacted) by the end of the third quarter 2009. This means a first draft of any regulations needs to be ready for consultation by the end of the first quarter 2009.

UEF regulations could be stand alone or could be included for each sector with those sector regulations (e.g. UEF process for liquid fuels included with other liquid fuels regulations).

Accreditation

Regulations covering the UEF process will need to cover who is accredited to measure or verify unique emissions factors. In some cases this may be laboratories testing product and then calculating emissions factors from the results; in others it may be verifiers checking that process emissions factors are developed correctly.

A suggestion is that the regulations could cover approved laboratories and verifiers by having a list of those accredited in a schedule of the regulations. However such a list is likely to be fluid which would make keeping it up to date difficult. The Engine Fuels Specifications Regulations 2008 and the Biofuel Obligation (Exempt Persons and Energy Content Values) Order 2008 both provide a model for how this might be done without a specific list. For example the Biofuel Obligation (Exempt Persons and Energy Content Values) Order 2008 clause 5 says (in relation to energy content rather than emission factors):

Persons credited to verify energy content values

The following persons are accredited for the purposes of verifying by statutory declaration the energy content value of a particular engine fuel determined under section 34O(1) of the ACT:

1. A person accredited to ISO/IEC 17025:2005¹ by this function by International Accreditation New Zealand; or

2. A person accredited to ISO/IEC 17025:2005 by this function by an overseas accreditation agency recognised under New Zealand’s mutual recognition arrangements.

Certainly such wording could cover suitable laboratories for testing and calculating emissions factors. It would need to be investigated whether it would cover process emission verifiers. Due to the relative complexity of the tests required to develop an emissions factor there are only likely to be a couple of laboratories that have suitable certification for each sector.

It was also questioned if the governing agency would need to do any checking of approved laboratories or verifiers. If the above approach is used (linking laboratories or verifiers to an external standard) then such checking will not be required. As part of the certification, regular audits of the laboratories take place. However the governing agency should retain the right to do its own testing if they chose to.

Testing and length of validity for UEFs

Questions were raised about what testing was required for a UEF and how long that UEF should then be valid for. In general (certainly for liquid fuels) the use of a single laboratory test and calculation is unlikely to be sufficient to establish a representative emission factor. The DEFs are based on measurement of the fuels over a reasonable period of time whereas a single sample may not be representative of the stream. The applicant should be required to demonstrate that the sample(s) are typical of the stream and put in place some methodology to ensure the calculated UEF remains valid (e.g. for a fuel stream perhaps quarterly testing to show the UEF is still representative or submission of evidence to show that the source of the fuel is the same as when tested).

Given a requirement to provide ongoing evidence of the suitability of a UEF, how long a UEF is valid for is not such an issue. Any review or ongoing testing required for UEFs should at least be annual as DEFs are going to be reviewed annually (at least for liquid fuels). [Note it is recommended DEF are reviewed annually to ensure they continue to accurately reflect emissions from the fuel they are covering].

Publication of UEFs

The Act required all UEFs to be published in the Gazette which means they will be available publically². In some cases participants may have wished to keep UEFs confidential to avoid the other participants ‘free riding’ on their work and protect against disclosing competitive activities (i.e. where an applicant has established a unique market solution which will becomes public knowledge once the UEF is published). While information has to be gazetted it might be able to be done in a way that only includes basic information to avoid giving competitive information where this is an issue.

Fees for application

There may need to be a fee for applying for a UEF and there is a question that this may be unfair to the first applicant for a UEF (they pay the fee and then others ‘free-ride’). However even once a UEF is published there is still a question as to whether it is applicable to another participant. Therefore any participant who wishes to use a UEF should have to go through the application process to demonstrate that the UEF is relevant to their fuel/process.

Therefore while the first applicant may pay for the specific testing, all users of a UEF should pay an equivalent application fee. However covering the first applicants testing cost is likely to be difficult to manage through an administration process. Some benefit may be able to be gained from early use of the UEF (see section 2.6).

Difference between UEFs and DEFs

As noted in the Act, criteria for UEFs may require there to be a certain percentage difference between a UEF and the DEF that would normally apply. However it may be that the amount of variation from DEFs allowed will be different for different fuels. The variation allowed should depend on the typical variation in the emission factor of the fuel covered by the DEF and the measurement accuracy of the emissions factor. For liquid fuels the DEFs will change where there is an ongoing shift (trend movement) of more than 0.5%, although the expectation is that there may be a year on year movement of up to 1.0% (note individual samples can vary more than that). Therefore for liquid fuels a variation of at least 2% may be required before a UEF factor is considered (i.e. the variation needed for a UEF is quite a bit more than the variation within the fuel covered by the DEF).

Suitable variations for different fuels should be subject for consultation with participants and may need to be included as a schedule in the regulations.

Should UEFs be forward or backward looking?

There is an option to allow a UEF, once approved, to only be used for future calculations or allow it to be retrospectively applied.

In some cases a participant will not be able to test the fuel until it is available in the country and testing may take some time. Therefore an element of retrospective application seems reasonable. However to put the onus on applicants to establish a UEF as early as possible, any retrospective application should be limited (e.g. from up to three months before the date of application). A limited retrospective application as suggested may also be a way of giving an advantage to the first company that establishes a UEF.

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