The New Zealand Emissions Trading Scheme is the Government’s main tool for reducing greenhouse gas emissions. The Government is seeking 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 does 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.
How to review the proposals
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.
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.
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.
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).
This document provides details on the previous EAF modelling.
Make a submission
You can submit your feedback during the consultation period using one of the following options:
- Use our submission tool. This is our preferred way to receive submissions.
- Answer the questions in the discussion document and email EAFreview@mfe.govt.nz
- Or you can post your answers to: Electricity Allocation Factor Review, Ministry for the Environment, PO Box 10 362, Wellington 6143.
The closing date for submissions is 20 December 2019 at 5pm.
Immediate next steps
Following a review of submissions the Ministry will commission electricity-market modelling in early 2020.
Key stakeholders will be invited to a workshop in late-February to discuss the modelling results to assist decisions on the preferred EAF value. The workshop will be of a technical nature. It will include discussions on the EAF modelling techniques, key parameters, scenarios and outcomes. The workshop will be of primary interest to stakeholders that are directly impacted by any change to the EAF value.