New Zealand Emissions Trading Scheme: Modelling the electricity allocation factor

power transmission lines

The New Zealand Emissions Trading Scheme is the Government’s main tool for reducing greenhouse gas emissions. The Government sought feedback on parameters and values to support modelling of the electricity allocation factor (EAF).

The EAF affects participants within eligible emission-intensive and trade-exposed industries. It is used to calculate their allocation of emission units. The current EAF value was decided in 2013 from modelling over 2011 and 2012. The review is being undertaken because there have been significant changes to key variables used in the previous modelling.

This consultation did not propose changes to any industrial allocation setting. If there is a case for updating the EAF, there will be further opportunities to provide feedback.

This consultation closed for submissions on 20 December 2019. 

Update

The Government has decided not to progress this work further this year. The COVID19 pandemic has led to material changes in electricity demand including the closure of pot line 4 at the New Zealand Aluminium Smelter. These changes were not included in the modelling exercise and therefore the forward-looking modelling results are no longer accurate.

The Government will continue discussions with interested stakeholders on modelling methodological options for the electricity allocation factor. It will also continue a general review of industrial allocation policy.

Read the final report from Energy Link on a revised electricity allocation factor: The New Zealand Emissions Trading Scheme: Results from modelling the electricity allocation factor

What you told us

We would like to thank everyone who has taken the time to make a submission on the parameters for modelling the electricity allocation factor. We received 15 submissions.

Submissions

Ballance Agri Nutrients [PDF, 327 KB]

Christina Hood [PDF, 28 KB]

Contact [PDF, 6 MB]

Evonik Industries [PDF, 287 KB]

Fonterra Co-operative Group Limited [PDF, 89 KB]

Generation Zero  [PDF, 126 KB]

Major Electricity Group Limited [PDF, 167 KB]

Mercury [PDF, 158 KB]

Mike Currie [PDF, 67 KB]

Molly Melhuish [PDF, 31 KB]

New Zealand Steel Limited [PDF, 495 KB]

Oji Fibre Solutions [PDF, 48 KB]

Refining NZ  [PDF, 219 KB]

Transpower [PDF, 1019 KB]

Trustpower [PDF, 24 KB]

Information on publishing and releasing submissions

Review the proposals

Discussion document

The New Zealand Emissions Trading Scheme: Modelling the electricity allocation factor: Issues paper

The issues paper has background information and recommended modelling parameters and values from the Energy Link's report below. We are seeking feedback on these parameters and values.

Related reports 

Electricity allocation factor review background information - Energy Link

This report recommends a range of parameters and values for the proposed EAF modelling. It includes: a review of how the EAF is calculated, its key drivers and recommended methodology for its calculation; and a representation of key input parameters to the modelling. 

Electricity allocation factor estimates for 2016/17 - Scientia Consulting 

This report estimates the actual EAF in the wholesale electricity market over 2016 and 2017 using actual and counterfactual (not NZ ETS costs) spot prices. The EAF values that were calculated were lower than the current 0.537 tCO2e/MWh.

Electricity allocation factor assumptions review - Concept Consulting

This report compared input values used in the previous modelling of the EAF against reality. It found that if actual values had been used the EAF would be lower than its current level.

High-level review of approaches for estimating a standard electricity allocation factor report - Concept Consulting

This report reviews the 2011 electricity allocation factor modelling approach and identifies several potential issues, including exogenous specification of fleet composition, consistency of coal and CO2 prices, exclusion of some approaches and scenarios, Huntly retirement assumptions, and inconsistent EAF projections. It also includes a discussion on how CO2 prices are likely to flow through electricity prices, and proposes an alternative framework to estimate the EAF based on long-run marginal costs. 

Estimating an electricity allocation factor (EAF): Technical appendices - NZIER report

The Ministry for the Environment commissioned NZIER to interpret and provide commentary on the Concept Consulting report, High level review of approaches for estimating a standard electricity allocation factor (EAF). 

Development of an Electricity Allocation Factor recommendation for 2013 onwards [PDF, 238 KB]

This document provides details on the previous EAF modelling.