Consultation on setting an Electricity Allocation Factor
In June/July 2012, the Government consulted on whether to revise the Electricity Allocation Factor (EAF) to apply from 2013 onwards. In 2010, the EAF was initially set at a level of 0.52 tCO2e/MWh. At that time the Government acknowledged the EAF would need to be reviewed before the end of 2012.
Two of the EAF options consulted on originated from a contact group which was established by the Ministry for the Environment to review the EAF, along with the status quo. These options were:
- leave the EAF at 0.52 tCO2e/MWh or
- increase the EAF to 0.537 tCO2e/MWh or
- increase the EAF to 0.606 tCO2e/MWh.
The contact group’s report (PDF, 238 KB) provides the background rationale for its two options.
Guidance on the consultation, the consultation questions and a reference table showing how allocation baselines for eligible industrial activities would be affected are provided in a factsheet, An Electricity Allocation Factor for 2013 and beyond (PDF, 186 KB).
Background analysis for the contact group’s recommendations is provided in two documents:
In scoping its recommendations, the contact group considered, and made comments on, the EAF Scoping Report by Concept Consulting.
The Government also sought feedback on the durability of the EAF and circumstances which might trigger future reviews. This will allow affected parties to have their views considered before the Minister decides on an appropriate setting for the EAF.
What is the EAF?
The EAF represents costs associated with the NZ ETS that are expected to flow to eligible firms through electricity prices. The EAF is expressed in emission terms as the assigned allocation is received in emission units.
The EAF is an important element of the allocation of emission units (NZUs) to those undertaking eligible emission-intensive and trade-exposed activities. It is given effect in regulation 6(a) of the Climate Change (Eligible Industrial Activities) Regulations 2010. It is required for estimating baselines for activities and reflects the indirect NZ ETS costs incurred via the electricity market and is expressed as tCO2e/MWh of electricity used.
Who may be affected?
The EAF is relevant to the allocative baseline for any eligible industrial activity that receives an allocation of units. The degree to which a change in EAF affects each activity depends upon the electricity intensity of that activity. If the EAF is increased then allocative baselines will correspondingly increase and the converse should the EAF decrease.
On average, about 32 per cent of the units allocated to eligible activities are attributable to electricity use.
How will your allocative baseline be affected by a new EAF?
The allocative baselines for eligible industrial activities are listed in the Schedule to the Climate Change (Eligible Industrial Activities) Regulations 2010. The allocative baselines for each activity were estimated based on information supplied by businesses on the use of eligible inputs such as coal, gas and electricity.
Should the EAF be changed, then the allocative baselines in the schedule will be changed accordingly. The existing allocative baselines from the schedule, based upon an EAF of 0.52 tCO2/MWh, are listed in a table at the end of the consultation factsheet. The table also shows what the baselines would be if the EAF increases to 0.537 tCO2/MWh or 0.606 tCO2/MWh.
Consultation – have your say
The first four questions of the consultation concerned the EAF level:
- Do you support EAF option (a) or (b) or (c) [refer to factsheet or above]?
- What are the reasons for your preference?
- Should the EAF be set at some other level?
- If so, what level and why?
The final three questions concerned the EAF duration and process:
- Should the EAF be durable until significant events occur warranting a reassessment?
- What variables do you consider key to the durability of an EAF?
- Do you have any comments on the contact group advice, as outlined in part 2 of its recommendation, on how future EAF revisions are undertaken?
Submissions
Submissions are now closed.
Last updated: 6 August 2012
