Industrial allocation in the New Zealand Emissions Trading Scheme

The Climate Change Response (Emission Trading Reform) Amendment Act (the Act) has now been passed into law. It makes a number of changes to the New Zealand Emissions Trading Scheme (NZ ETS). Read about changes related to industrial allocation.

Phasing out industrial allocation from 2021

The Government gives New Zealand units to some businesses to recognise that the NZ ETS could impact their international competitiveness because of emission costs. This is known as industrial allocation. The Government has decided to phase-out industrial allocation from 2021.

The phase-out will occur through two complementary approaches. 

  • A general phase-out rate will apply equally for all industrial activities.
  • A legislated process which can set decreased or increased phase-out rates for one or more activities.

The general phase-out starts at an annual rate of 1 per cent for both moderately emissions-intensive activities (0.6) and highly emissions-intensive activities (0.9) for the period 2021-2030.  

Base phase out rate for all industrial allocation activities from 2020 to 2050

An annual reduction of the base phase out rate by one percentage point (0.01) means that levels of assistance would reduce from 0.9 to 0.89 and from 0.6 to 0.59 in the first year of the phase-out – then to 0.88 and 0.58 in the second year and so on.  The rate increases to 0.02 for the years 2031-40, and to 0.03 for 2041-50.

The Government has decided that the general phase out rate is set at a low level so that cost impacts can be managed as industry adapts to the reduced allocation. 

Over time this phase out will provide a strong incentive to highly emission-intensive firms to continue reducing their greenhouse gas emissions.

For more background on industrial allocation, and emissions leakage see Industrial allocation: NZUs for industry.

Ability for Minister to decrease or increase phase-out rates

A new legislated process will enable the Minister for Climate Change to decrease or increase the base phase out rate for one or more industrial activities.

The activity specific approach is to accommodate activities that are at a differing risk of emissions leakage. The activity specific rates approach is supported with advice from the Climate Change Commission. This approach is to provide flexibility in cases where activities are at differing risks from emissions leakage.

The process will require that there is a recommendation from the Climate Change Commission before any increase or decrease can be made. A number of considerations need to be met including the risk of emissions leakage, and meeting of emissions budgets.