About allocations

The Government is providing financial assistance to reduce the impact of the Emissions Trading Scheme (ETS) on some sectors by providing them with New Zealand Units (NZUs). This allocation of NZUs partially compensates eligible businesses for increased energy and fuel costs under the ETS and will help businesses make the necessary changes to reduce their greenhouse gas emissions and adjust to emissions pricing.

There are three main groups who are eligible for allocation:

  • firms whose activities are emissions intensive and who are exposed to international trade
  • fishing, and
  • forestry.  

Allocation is made according to eligibility criteria for each sector. Businesses that can pass on the costs of the ETS to their customers, for example fuel and electricity companies, will not be allocated any NZUs.

Those who receive allocated NZUs can use them to meet any ETS obligations they may have. Allocated NZUs can also be sold or traded, which will help establish a market for the units.

Industry

Allocation is being provided to certain industrial activities to protect their competitiveness against producers that do not face equivalent costs for emissions.  (For example their position could be weakened because if they passed the cost on to consumers to cover the impacts of the ETS, a competitor could import a similar product at lower cost.)  Allocation, which will gradually reduce over time as businesses adjust to the ETS, will be granted to those businesses carrying out eligible activities rather than on the basis of firms or sectors. An ‘activity’ is the chemical or physical transformation of a set of inputs into a given set of outputs.

There are two tests that activities must pass before they are considered eligible for allocation: a trade exposure test and an emissions intensity test based on the tonnes of emissions produced for every $1 million of revenue. The minimum threshold for eligibility is 800 tonnes of CO2 equivalent per $1m of revenue.

The annual allocation that each eligible business will receive will be made in advance, based on data from previous years. The process for determining who will receive an industrial allocation is currently underway.

Fishing

Fishing quota owners will be given some NZUs in a one-off allocation during 2010 to compensate for the effect of increased fuel costs from the ETS on the value of quota. People or organisations that were listed as holding quota on the quota register on 24 September 2009 can apply for an allocation of NZUs. A legislated formula sets out how many NZUs will be allocated to each eligible quota owner.

Forestry

Allocation is being provided as compensation to owners of pre-1990 forests for the impacts on land values of the ETS. This is because they face obligations under the ETS if the land use is changed from forestry. Forest owners are able to voluntarily enter the scheme and receive credits of NZUs for forests planted after 1989 because trees absorb carbon and reduce New Zealand’s international obligations.

Agriculture

A separate allocation plan for agriculture will be developed after consultation with the sector.  This allocation will help the sector adjust to its inclusion in the ETS from 2015.

Last updated: 16 December 2011