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Issues to resolve

Definition of obligation fuels

Obligation fuels have been defined in the draft of the regulations by reference to the Customs and Excise Act 1996 or the Tariff.  

Another option would be to define the fuels by way of a technical description, as has been done in the Petroleum Products Specifications Regulations. These regulations cover only petrol and diesel.  They have been defined as follows:

  • Premium grade petrol means petrol supplied as having a research octane number of 95 or higher.
  • Regular grade petrol means petrol supplied as having a research octane number of at least 91 but less than 95.
  • Diesel means a refined petroleum distillate having a viscosity and distillation range that is intermediate between those of kerosene and light lubricating oil, whether or not it contains additives, and that is intended for use as fuel in internal combustion engines ignited by compression.

There are two obligation fuels that are not defined in the draft regulations: these are bunker fuel oil and power station oil. These fuels need an appropriate definition. 

Complete list of obligation fuels

A complete list of obligation fuels is required to ensure the ETS captures all material sources of greenhouse gas emissions from liquid fossil fuels.  The list of obligation fuels should not include those fossil fuels that do not tend to be used in such a way that results in emissions (ie, are not combusted).

It should also not include fuels where the emissions from the fuel are negligible or the cost of collection of the necessary information about the fuel outweighs the benefit of including the fuel in the ETS. Thus, it has been determined that the ETS should not cover lightening kerosene, solvents (eg, napthna), chemicals (eg, methanol) and lubricating oils because the emissions associated with them are negligible (about 0.0235 tCO2 per year) and, further, they are often not combusted and therefore may not result in emissions.

Future fuels

At present the draft liquid fossil fuel regulations include a finite list of obligation fuels. If a fuel is imported or produced in New Zealand which is a fossil fuel but is not on the list, then it would not be captured by the ETS without amendment to the regulations. One possibility would be to amend the Bill to provide for such a situation and require the participant concerned to obtain a unique emission factor. Without a change to the Bill, it is effectively up to the government to keep abreast of what is happening in the market and add new fuels to the obligation fuels covered by the regulations (with default emission factor) as they come to market. 

It is not clear how likely it is that a fuel which is not listed in the regulations would be supplied in New Zealand. Also, the way in which the fuels are defined will influence whether a new fuel is more likely to be captured or not.

Fuels made from biomass

Biofuels are exempt from the ETS and are therefore not listed as an obligation fuel. Biofuel blends are managed through the use of the biofuel factor when calculating emissions from a particular fuel.  However, if a fuel is made by processing crude oil and biomass together, the biofuel factor may not enable a reduction in emissions from fossil fuels to be recognised. This situation needs to be clarified in the liquid fossil fuel regulations so that emissions from fossil fuels are not overstated (ie, so the ETS does not capture emissions from fuels made from biomass).