Stationery Energy and Industrial Processes (SEIP), Technical Advisory Group (TAG), Notes of 9th meeting held on 1 July 2008 , 9:30 – 12.30 at The Treasury, Wellington

Present: Mark Storey (Co-Chair), Chris Baker (Co-Chair), Carmen Blackler, Hans Buwalda, Ray Deacon, David Fletcher, Stuart Frazer, Phillip Millichamp, Craig Palmer, George Riddell, Michael Rynne, Doug Watson.

Officials: Tim Denne, Mark Dean, Robin Brasell, Catherine Leining, Megan Taylor, Sara Arhaim, Jan Catley & Amanda Huff (meeting secretaries).

Apologies: John Carnegie, Roger Fairclough, James Flexman,

Main changes to the Bill as reported back to Parliament

Presentation from John Scott and Catherine Leining (ETG) identified major changes to the Bill as reported back to parliament, these being:

  • Commencement and purpose
  • Dates unit obligations commence
  • New sectors
    • The inclusion of fugitive methane from coal mining into the Bill
  • Opt-in provisions have been expanded in the Bill
  • Allocation and allocation process changes - including the extension of phase out, the option of intensity based allocation within a cap and elaboration of forestry allocation.
  • Unit of Trade  -  Restriction on carry over (banking ) of imported AAUs
  • Review and future development of ETS – the independent review panel
  • The possibility for future forestry offsetting is now allowed for in the Bill but in CP1 at least limited by Protocol rules. 
  • Renewable preference (essential design retained, some changes made by Select Committee) were noted.

Discussion followed on a number of issues including:

  • A query over wording of expanded purpose regarding “NZ’s net emissions”
  • A request for a meeting  to discuss issues around urea manufacturing and their treatment concerning embedded emissions and possible subsequent removals
  • Provisions relating to mined and fugitive methane from coal mining
  • Allocation and allocation process changes were discussed including the extension of phase out, the option of intensity based allocation within a cap and elaboration of forestry allocation
  • Units of trade issues were discussed. A question was raised as to whether party A (a trader) could hold AAUs in the registry and transfer units to parties B, C & D’s accounts to enable them to comply with ETS obligations

It was agreed that there is a need to seek some guidance on this

  • Information released on Registry accounts was discussed - the position is a balance between providing market information and protection of individuals’ commercial interests.  Aggregate information is proposed to be released promptly and individual account information after a delay

It was agreed there was a need for a meeting with Registry people to discuss Registry operation

  • There was a discussion around  voluntary and mandatory reporting provisions relating to:
    • The need for standards of reporting (not clear at present) and concerns about penalty provisions if reporting is deficient
    • Noted that the self-assessment model appear to diverge from expected approaches in the EU and the US, and there needs to be a high level of guidance.

Actions

  1. Mark S to speak to Shirley Flaherty (MED manager responsible for the Registry) to set up a meeting inJuly.
  2. Mark S to identify experts on reporting requirements to attend next TAG meeting (5 August).

Report from last CCLF meeting

Report back from Dave Brash (ETG) regarding discussions at CCLF meeting on 24 June.

The leakage case studies under preparation for the CCLF were advised as being work-in-progress – and the CCLF are still awaiting sign-off on the final drafts. It is expected they would be available in time for discussion at Cluster B and then the next CCLF meeting (6 August).

There was a discussion of how CCLF sees their ongoing role in climate change policy:

  • Contributing to NZ’s international negotiation position
  • Keeping a focus on business opportunities
  • Providing an overview on the ETS design and implementation (note this is not the formal independent review role of the ETS outlined in the Bill)

It was noted that any guidance from CCLF on allocation issues would most likely emerge from discussions of the leakage case studies. 

Actions

  1. Minutes from the last Cluster B meeting to be circulated to the TAG once finalised
  2. The SEIP TAG interim report is to be tabled and presented at next CCLF meeting on 6 August; and
  3. Suzi Kerr (Chair Cluster B) to be invited to report back to the next Allocation/Eligibility sub-group meeting – on 22 July.

Report from sub-group on Methodologies

Carmen reported back on work to date speaking to SEIP 25 and the table of draft formulae.

The need to address methodological issues around fugitive coal seam methane (now covered by the ETS) was identified – This will be addressed by officials initially through some side discussions and then considered in more detail when the exposure draft regulations are consulted upon.

The view of the sub group is that they have gone as far as they can at this stage.

The meeting agreed to the two key recommendations from the sub group:

  1. Agree that the sub group’s report and attached tables be passed on to the ETG.
  2. Agree to the sub-group reviewing the exposure draft regulations when released.

The Co-Chairs (supported by the meeting) acknowledged the effort and good progress made in this area by the sub-group.

Report from joint sub-group on Allocation & Eligibility

Ray Deacon reported on the 19 June sub-group meeting (SEIP 24), noting progress being made with the data issues while emphasising that there is a need to move forward and assess approaches to allocation using data that is available.

The sub-group considered how the FEC recommendations impact on the sub-group’s work and allocation methods generally.  Illustrative numbers were used to tease out what level of allocation an exposed firm might receive given assumptions about industry growth new entrants. 

The revised allocation paper was considered at the sub-group meeting, under three headings. 

  • Defining trade exposed firms in particular whether the focus is on: firms, plants, processes or products. 
  • The importance of having projections of output (and emissions) in considering the impact of different allocation models and new entrant reserves
  • Issues around different benchmarking approaches (generally international and off-the-shelf or more locally focussed like the world’s best practice model used for NGAs)

There was a question as to the symmetry (or otherwise) of the rules applied to determining the size of the pool and the rules determining allocation from the pool and this led to a discussion of the merits or otherwise of different allocations to highly versus mildly vulnerable firms. 

The discussion concluded by noting that the sub-group work needs to consider changes to the Bill by Select Committee – in particular changes enabling a new entrant reserve and intensity based approaches within an overall cap (in particular clause 74). 

Next steps

  • Summary paper on the trade exposure test (late July)
  • Draft paper on issues relevant to the design of a New Entrant Reserve (late July)
  • Further evaluation of the link between allocation methodologies and choice of eligibility criteria e.g.  whether allocation should be on the basis of firm / plant / sector / product / process
  • Road testing of allocation methodologies (late July)
  • Day meeting of the eligibility/allocation sub group on 22 July

Actions

  • Tim Denne to revise the allocation methodologies paper;
  • The Co-Chairs, Ray, Hans and Tim to correspond (by email) regarding sub-group work priorities.

Discussion of draft interim report

The group agreed that the primary purpose of the Interim Report is to report on progress made by this group to date to ETG and the Minister, and also to industry and to the public through the Climate Change website.

The interim report was then discussed page by page – pointing to particular wording or matters of fact and clarification.   The Co-Chair noted the comments and indicated that a revised draft would be circulated late in the afternoon for finalisation on Friday if agreement could be reached.  The hope was to get the report to the Minister for weekend reading and potentially released on the web-site next week.

There was also a discussion as to the issues around and the feasibility of getting an interim allocation report out by the end of August. 

Other business:

Draft regulations are due out at the end of July.

Next meetings: 
Tuesday 5 August 2008
Tuesday 2 September
Tuesday 30 September

Last updated: 15 September 2008