Stationery Energy and Industrial Processes (SEIP) Technical Advisory Group (TAG) Notes of 4th meeting held on 4 March 2008 9:30 – 12.30

at Ministry for Environment, 23 Kate Sheppard Place, Wellington

Present: Mark Storey (Co-Chair), Chris Baker (Co-Chair), Carmen Blackler, Hans Buwalda, John Carnegie, Ray Deacon, Roger Fairclough, David Fletcher, James Flexman (conference call), Stuart Frazer, Ewan Gebbie, Phillip Millichamp, Craig Palmer, George Riddell, Michael Rynne, Doug Watson.

Officials: Tim Denne, Sara Arhaim, Robin Brasell, Megan Taylor, Jan Catley (meeting secretary).

Apologies: John Carnegie

Notes of the previous meeting on 12 February 2008 were accepted as a fair and correct record. Agreed unanimously.

Agenda was approved with the addition of an item on Supply and Demand of Units, brought forward from previous meeting.

Paper from the Eligibility for Free Allocation sub-group

Hans reported on progress in the sub group on Eligibility (SEIP/10). The sub-group comprises of Hans, Stuart, Doug and Mark with support from Tim and Robin. The sub group has met on one occasion prior to this TAG meeting and the focus had been on determining the objective or rationale for providing assistance in the form of free allocation.

Key issues identified were; avoiding economic regrets, emissions leakage, dealing with stranded assets, and social impacts. The sub group’s recommendation was that the main objective be to avoid economic regrets, noting that the key issue around regrets is generally one of economic leakage.

There was discussion about the term leakage and whether the primary concern is economic leakage or environment leakage (definitions provided in the paper SEIP 10). Economic leakage is defined as any loss of productive capacity to another a country with less stringent climate policy measures than apply in New Zealand and it was agreed that economic leakage is likely to be the primary concern in the context of economic regrets arguments.

The TAG agreed to a preliminary recommendation that primary objective of the assistance package is to prevent economic regrets.  Some members requested a caveat that stranded assets and social impacts may warrant further attention by the TAG  when we have clearer idea on the details of the  allocation package  .

Note: it was agreed all decisions by the TAG at this stage are provisional

Because of the focus on economic regrets it was generally agreed that some measure of trade exposure should be a key criteria for the allocation plan. There was brief discussion on criteria that can be used for determining trade exposure, and what issues were relevant to determining a threshold. The Sub group was asked to report back with recommendations on these issues to the next Tag meeting.

Measuring impacts on sectors was also discussed - such as a cost test. The sub group had only limited time to discuss this issue. Looking at the three criteria that had been used in the NGA process the sub group made some preliminary comments noted in the paper.

Action: It was agreed that the sub group seek to advance work on this issue prior to the next TAG meeting in April.

Report back from the Progressive Obligation sub-group (SEIP/11)

A sub group to work on the progressive obligation option was established at the last TAG meeting. The group comprises Craig, George  as well as  John Scott, Tim Denne  and Megan Taylor (from the ETG).  The group met on two occasions prior to this meeting.   Their preliminary analysis shows a progressive obligation model could be a better choice for smaller firms. One of the issues that has been discussed by the sub group is some design variations around the progressive obligation model including a more targeted model. There was some discussion about whether a progressive obligation could apply for some sectors alongside a free allocation model for others.  Inferring anything from the initial progressive obligation analysis (SEIP 11) is premature at the moment. The methodologies and potential approaches are still being developed and the data analysis is not advanced enough as of yet to infer any outcomes.

Action: The sub group was asked to continue its work. It intends to investigate data more critically for modelling the impacts of a progressive obligation and to evaluate and report back to the TAG on design variations of the progressive obligation model

Data requirements/MEUS survey group

A brief progress report on the options for accessing information from the MEUS was presented by Roger (SEIP 12) .  Option 1 allowing nominated “researchers” to access the datalab is being pursued. Further details are in the summary paper SEIP 12

Number of units expected in the system

Tim Denne (ETG) spoke to the paper (SEIP/8) presented at previous TAG meeting. The figures given indicate what the size of the pool might look like. A comment was made by a member that they had serious concern that these numbers are being presented to the CCLF and others to suggest that demand and supply for units in the market was broadly balanced. Industry members commented that they would be forced to go to the market earlier than the table indicated. Officials responded that is has not been the intent to suggest that the market will be in balance, rather officials have often reiterated that the market will be short overall and the government fully expects that some participants will have to go offshore to acquire units. The intent with the numbers presented is to show the timing of expected domestic supply of units and demand for units

There was brief discussion of the commitment period reserve. It was noted that there was interest to discuss issue related to the CPR at a later meeting.

Report back from Climate Change Leadership Forum

Dave Brash reported to the TAG on the latest meeting of the CCLF. Ministers Cullen and Parker had both participated in this latest meeting.  This meeting of the CCLF had more of an international focus than previous meetings, with reports back from developments in Bali and an outline of the international negotiation process going forward. The CCLF was also presented with papers on border adjustment measures and an update on work being undertaken by MfE on abatement costs information. On this latter point it  was noted by industry stakeholders that they were expecting to be consulted with by MFE on this information but no consultation has taken place to date. Mark undertook to follow up on this. Dave informed the group that the role of the three TAGs  was discussed by the CCLF and the need for sharing of information between the CCLF and the TAGs was noted.

Action: Mark to follow up MfE abatement cost consultation.

Report back from Canberra

Mark reported on a visit by ETG officials to Canberra the previous week.  Copies of a speech from Penny Wong (Australian Minister for Climate Change) and the interim report from Professor Garnaut had been circulated.The speech from Penny Wong is the first public statement by the new Government outlining where they heading with their ETS. Key features of the Wong speech are that it sets out that the design will be a cap and trade, and secondly that they want to have “maximal coverage of greenhouse gases to the extent that this is practical. The speech also outlines that a major concern of the Rudd government is the impact on low income households.

The discussion between officials covered the spectrum of design features of an ETS. The Autralians are working to a timetable to having an ETS in operation by 2010 and are expected to have a green paper prepared by mid year. The Australian officials were interested to hear about NZ TAGs and we agreed to share more information on approaches to allocation when the Australian government has worked through to a design proposal.

Future Work Programme

Mark presented a work sheet that was a product of discussion between the co chairs on key tasks to be done by the TAG and timeframe for delivering them. .

Members asked for update on timing of Select Committee process; Hearings begin on 1 April and report back process is due to begin 10 June. This is a self-imposed deadline, not set by Parliament.

It was agreed that four sub groups were now required.  Appointments to the new Sub-groups were agreed. These are

Methodological issues: Sub group to consist of Carmen, Ewan, Craig, Sara (ETG) and Robin (ETG).-

Eligibility sub-group: Hans, Doug, Stuart, Ray, Mark, Tim (ETG). Next meeting is provisionally 25 March.

Progressive obligation: Craig, George, Megan (ETG) and Tim (ETG). Date of next meeting to be confirmed.

Allocation Methodologies: Ray, Stuart, Michael, Doug, Hans, George, Mark, Tim (ETG)  and Robin (ETG).  To meet prior to next TAG.

Proposed that each sub-group schedule a meeting before next TAG and provide report back to next meeting. Chair noted that the papers provided on bench-marking referred to output based methodology and absolute cap.

The Co-chairs asked to be kept in the email loops for each sub-group and advised that they may possibly attend some of the sub-group meetings.

Action: Sub-groups leaders to keep co-chairs informed and in the email loop.

Other items:

Submissions: Officials advised industry of the process and that as they are serving the Select Committee, individual submissions may not be discussed with TAG members. If it was relevant to do so to support the work of the TAG, then officials would need to approach the Select Committee to receive permission.

Design of Registry Systems: Those designing the registry System would like input from interested members of the TAG regarding some registry design issues. Stuart, Chris and Ray agreed to do this.

Action: Mark to inform ETG/MED of the above names.

Action; Mark to confirm circulation of CCLF papers to SEIP TAG.

Bruno van der Borght will be visiting New Zealand in the first week of April.

Next meeting: Thursday 10 April at Treasury

Meeting closed at 12.15pm.

Last updated: 15 September 2008