The Act provides for the use of unique emissions factors (UEFs) in place of a default emissions factor (DEF) in completing an emissions return. A UEF is a participant-specific factor by which each unit of production (eg, input or output) of a participant’s activity is multiplied to calculate emissions.
Using a DEF may overestimate emissions from a participant’s activities where actual emissions are less than emissions calculated using the relevant DEF. Such a participant will then be required to surrender more emission units than actual emissions. If a DEF for a specific activity was set at the average of emissions data for an activity, approximately half of participants could be overcharged in this way.
In addition, use of DEFs does not provide an incentive for participants to reduce emissions by using lower-emission inputs or production processes. These issues can be overcome by allowing participants to apply for a UEF to use in place of a DEF when calculating their emissions. Opt-in participants will be able to apply for a UEF.
UEFs coverage: classes and thresholds
The Climate Change (Liquid Fossil Fuels) Regulations 2008 and the draft Climate Change (Stationary Energy and Industrial Processes) Regulations 2009 contain default emissions factors for each liquid fossil fuels (LFF), and stationary energy and industrial processes (SEIP) activity.
The UEF regulations provide for UEFs for all LFF sector activities, and the coal, geothermal and waste combustion sectors.
The UEF regulations do not provide for UEFs for refining petroleum or producing gold, because only one firm will be subject to NZ ETS obligations for each activity so the relevant DEF should accurately reflect emissions. No provision for UEFs is necessary for the gas sector as the method of calculating emissions is based on continuous measurement. Similarly, the UEF regulations do not provide for UEFs for producing steel, aluminium, clinker or burnt lime, or glass. This is because emissions from these activities are linked to a process where each tonne of a specified input results in a fixed volume of emissions, for example for steel production, one tonne of carbon in a reducing agent will result in 3.67 tCO2-e of emissions.
Furthermore, data upon which DEFs are based is standardised by measuring inputs without impurities. For example, for steel production the reducing agents’ DEF is based on the amount of carbon in reducing agents rather than the amount of a reducing agent. Standardised data for emissions linked to processes mean there will be no variance between actual emissions and emissions calculated using relevant DEFs.
The UEF regulations restrict the class of fuel to which a UEF may apply. Restrictions on UEF classes are necessary to ensure the data on which a UEF is based, and ongoing testing, is representative of the whole UEF class. It is also necessary so that UEFs can be used for international reporting in New Zealand’s Greenhouse Gas Inventory. UEF classes are restricted by prescribing maximum subsets of a fuel to which a UEF may apply (eg, coal from a designated mine). A UEF class may be smaller than a prescribed maximum subset (eg, it may be coal from one part of a mine), but must have well-defined parameters.
The UEF regulations require that a participant’s proposed UEF is less than a prescribed threshold for eligibility to apply for a UEF. The rationale for thresholds in each sector is as follows.
For the LFF sector, a proposed UEF must be more than 2 per cent below the relevant DEF. It is not expected there will be a wide variation in the emission factor for each obligation fuel supplied by each participant and the DEFs have been set to reflect the average emissions arising from the use of each fuel. Therefore, the threshold is intended to restrict UEFs to new types of fuel. The obligation fuel entitled ‘any other liquid fossil fuel’ is intended as a catch-all category in case a fuel is supplied that does not fit into any of the other obligation fuels. While its DEF has been set deliberately high, it is proposed that the 2 per cent threshold should apply to be consistent with other liquid fuels.
- For the coal sector, UEF thresholds have been set in tandem with DEFs as outlined above. Further detail surrounding the setting of coal DEFs and UEF thresholds is contained in Appendix 4.
For the geothermal sector, UEF thresholds have been set on the basis of sampling and testing accuracy. This is intended to ensure a UEF applies only where actual emissions are less than those calculated using the DEF.
For the waste combustion sector, UEF thresholds have been set on the basis of confidence intervals associated with DEFs. These thresholds have been used because insufficient data exists on the uncertainty associated with the sampling and testing regime for calculating a UEF for waste combustion. This is intended to ensure a UEF applies only where actual emissions are materially less than those calculated using the DEF.
Framework: sampling, testing, calculation and verification
Officials have obtained independent technical advice on appropriate sampling, testing and calculation requirements for applying for a UEF for each sector. To obtain a UEF, participants must comply with specified sampling and testing standards for that sector. Once sampling and testing has been undertaken by a participant, testing results must be used to calculate a UEF in accordance with prescribed calculation methods for each sector. Finally, compliance with sampling, testing and calculation requirements must be verified by a recognised verifier.
The draft regulations specify a number of standards for sampling and testing to determine a UEF. All such material proposed to be incorporated by reference is available for inspection free of charge during the consultation period. Details of how to access this material is outlined at the end of this bulletin.
The draft UEF regulations prescribe a verification regime for applications for approval to use a UEF. This regime specifies that such an application be accompanied by a statement – which is signed by a recognised verifier – certifying that the sampling and testing regime prescribed in the regulations has been adhered to and that the calculations have been made correctly and in accordance with the prescribed equation.
The regulations also specify a process by which a verifier may be recognised to provide such a statement. As the verification requirements are largely paper-based, it is proposed that a recognised verifier must be either a chartered accountant or chartered professional engineer, with five years’
post-qualification work experience in accounting or engineering. These provisions are intended to provide both robustness of verification and a pool of verifiers who can be used by applicants seeking approval for a UEF. It is not proposed to charge a fee for applications to become a recognised verifier.
Comments on the proposed verification regime, including the qualification and experience requirements of verifiers, are welcomed. Particularly sought are comments about whether additional or specified qualifications would be necessary to meet the verification requirements for particular sectors.