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Draft climate change regulations for stationary energy, industrial processes and liquid fossil fuels

Introduction

This bulletin explains the following regulations and should be read alongside them.

  • Climate Change (Stationary Energy and Industrial Processes) Regulations 2009

  • Climate Change (Unique Emissions Factors) Regulations 2009

  • Climate Change (Other Removals Activities) Regulations 2009

  • Climate Change (Liquid Fossil Fuels) Amendment Regulations 2009.

The Climate Change Response Act 2002 (the Act) creates obligations to report greenhouse gas emissions for the New Zealand Emissions Trading Scheme (NZ ETS) participants in the stationary energy and industrial processes (SEIP) sectors from 1 January 2010.

The Government wishes to apply the Act in a way that minimises compliance and administrative costs, and treats all participants fairly. The principles underpinning the methods for calculating emissions are that they should:

  • neither advantage nor disadvantage the Crown fiscally ie, result in a true reflection of New Zealand’s Kyoto liability

  • send a clear price signal, with no perverse incentives

  • minimise transactional costs for participants and the Government

  • provide for an accurate and verifiable statement of emissions.

These regulations therefore aim to establish practical and accurate methods by which participants can meet their reporting obligations under the NZ ETS. The requirements for data collection and verification are intended to provide the right balance between simplicity and the robustness of emissions returns.

The draft regulations

The draft SEIP regulations set out methods for participants to monitor and calculate their emissions from activities specified in Part 3 or 4 of Schedule 3 of the Act or part 4 of Schedule 4 of the Act. A first draft of these regulations was released for consultation in October 2008. Draft regulations are being released again for consultation so interested people have the opportunity to see how previous comments have been incorporated into the regulations and to provide further feedback on the updated regulations.

Draft unique emission factors regulations provide a process to enable certain participants in the SEIP and liquid fossil fuels (LFF) sectors of the NZ ETS to apply for approval to use a unique emissions factor (UEF) in place of a default emissions factor when calculating their emissions. The regulations outline the calculation and testing processes and standards that must be used to support an application to use a unique emissions factor. The regulations also outline a verification regime. The draft LFF amendment regulations enable the unique emissions factor regulations to apply to the LFF sector.

Draft removal activities regulations provide a process to enable participants to receive New Zealand units for activities that remove emissions, if certain conditions are met.

These regulations are being released together so participants can see how they interface. In short, if approved, a unique emissions factor can be used in place of a default emissions factor to calculate and report on emissions in accordance with the SEIP regulations, while the removal activities covered are removals from obligation fuels specified in Schedule 3 of the Act.

Your comments on the draft regulations

Comments on any or all of these regulations are welcomed from participants who have obligations under the NZ ETS and other interested people.

The final section of this bulletin outlines the process for making a submission on the regulations, and where to go for more information. The closing date for making a submission is 5pm on30 June 2009.

Cross-cutting issues

The following issues are relevant to the full package of regulations.

Methods for calculating emissions

This package of regulations provides a method for participants in the SEIP sectors to report their emissions. It should provide for individual variation of product or process, for consistency of measurement and fair treatment of participants.

The previous round of consultation on these regulations addressed two broad ways in which regulations might provide for participants to calculate their emissions:

  • specifying the data or other information that participants must collect, and setting out how that data is to be used to calculate actual emissions

  • providing default emissions factors by which each unit of production can be multiplied to determine obligations but allowing individual participants to apply for unique emission factors, if conditions are met.

Both these approaches have been used in the current package of regulations. For participants in the LFF, coal, waste and geothermal sectors, processes for calculating a unique emissions factor have been outlined. For participants in the gas sector and industrial processes sector, processes for calculating actual emissions have been outlined. Feedback on these two broad approaches is welcomed.

Point and unit of measurement

In a number of cases, the point of measurement has changed from the point of valuation to the point of sale. As this is central to the way in which emissions calculations are specified, comments are specifically sought on these approaches.

Comments were received from various submitters requesting further clarity on definition of units of measurement and other terms. In a number of cases, this has been done. In others, standards and guidelines will be developed in consultation with participants to provide consistency and guidance on these matters. These will cover issues such as the units of measurement for calorific value, and ensuring measurement of both tonnes and calorific value of coal are done on the same basis (whether this is an as-received basis, dry basis or dry ash-free basis). Details on how to participate in the process to develop standards and guidelines are outlined at the end of this bulletin.

Thresholds for participation

The Act does not specify a threshold for becoming a participant in the NZ ETS for the following activities:

  • importing coal

  • using geothermal fluid for the purpose of generating electricity or industrial heat

  • combusting used oil, waste oil, used tyres or waste for the purpose of generating electricity or industrial heat.

It is proposed that thresholds for each of these activities be created under section 60 of the Act. Feedback on the level or type of thresholds that might be set, and the reasons for this, is welcomed. Further consultation on the development of thresholds will be undertaken with interested people.

Relevant criteria for assessing any such threshold include:

  • the overall compliance and administrative cost

  • the viability of monitoring and verifying emissions from sources falling below and above any proposed threshold

  • the need to maintain the environmental integrity of the NZ ETS, including consistency of thresholds

  • the prevention of double-counting or perverse incentives

  • the relative costs of the exemption created by such a threshold, including who bears these costs.

Emissions factors

The draft SEIP regulations contain a series of default emissions factors (DEFs) for each stationary energy or industrial process activity or, in some cases, subset of activities, for example mining different types of coal. These DEFs have been reviewed by independent parties and additional information provided in some cases.1 There are some changes to these emissions factors from the previous draft of the regulations. Further information showing the emissions factors and their derivation is provided in the appendices to this bulletin. Specific issues where comments are sought relating to DEFs are identified below in comments on each sector.

number of considerations have influenced the setting of DEFs.

  • Where there is a clearly identified emissions source, the default emissions factor is intended to reflect the actual emissions of that source, for example DEFs for specific electricity generation plants that use geothermal steam.

  • For industrial processes, DEFs are based on fixed chemical ratios arising from the reaction of two substances, for example the emissions factor for carbon used as a reducing agent in steelmaking has been set at 3.67, in accordance with the chemical equation in which all carbon forms CO2. Emissions equations outlined in the regulations are based on pure chemical content of inputs to reflect this. Guidance on methods for assessing the pure chemical content of raw materials will be provided in consultation with participants.

  • Emissions factors for coal and waste combustion will apply to multiple participants undertaking an activity. These emissions factors are discussed further under the specific sectors. In general, DEFs are based on those used in the New Zealand Greenhouse Gas Inventory,2 and may be New Zealand-specific or as outlined in the IPCC 1996 guidelines.3 Although the IPCC 2006 guidelines update the 1996 figures, they will not become part of the international reporting requirements which guide the New Zealand Greenhouse Gas Inventory until at least commitment period 2 of the Kyoto Protocol, starting in 2013. The 1996 IPCC factors will be used in the NZ ETS until the New Zealand inventory reporting is revised to report emissions on the basis of the 2006 guidelines.

  • Using a DEF may overestimate emissions from a participant whose observed emissions factor is lower than the DEF, so a process for seeking approval to use a unique emissions factor (UEF) has been included in the draft regulations. A threshold of divergence from the DEF has also been set before approval to use a UEF will be granted. This is intended to preserve a fiscally neutral outcome for the Crown and to minimise inequities for smaller participants who may find it difficult to bear the costs of applying for a UEF.

  • DEFs have been rounded in accordance with independent specialist advice on sampling and testing accuracy, and confidence intervals associated with average emissions factors. Feedback is welcomed on appropriate rounding.

Fees

No fees are proposed for emissions returns for SEIP activities and for removal activities, nor for applications for UEFs. However, participants seeking approval to use a UEF will be expected to meet the full costs of any sampling, testing and verification required in the regulations before an application is submitted for consideration.

 


1. The SEIP sector reports from independent specialists are currently in the final editing stages. These will be published on www.climatechange.govt.nz once the editing process is complete.

2. Ministry for the Environment. 2009. National Inventory of Greenhouse Gas Emissions and Removals. Submitted to the United Nations Framework Convention on Climate Change. 15 April 2009. Ministry for the Environment, Wellington.

3. IPCC. 1996. Houghton JT, Meira Filho LG, Lim B, Treanton K, Mamaty I, Bonduki Y, Griggs DJ, Callender BA (Eds). IPCC/OECD/IEA. Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories. UK Meteorological Office: Bracknell.