How does industrial allocation work?

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About industrial allocation

Industrial allocation provides assistance to the parts of the economy most heavily affected by the New Zealand Emissions Trading Scheme (ETS). Allocation is given to businesses whose activities are considered emissions intensive and trade exposed.

It does this by allocating New Zealand Units (NZUs) to persons carrying out eligible industrial activities.

Industrial allocation is provided on the basis of ‘activities’, not on the basis of sites, businesses or facilities. An ‘activity’ consists of the physical, biological or chemical transformation of inputs into a given set of outputs (eg, the chemical transformation of hydrocarbons into methanol, or the physical and chemical transformation of silicon dioxide to produce glass containers).

Who can get an allocation?

Businesses carrying out Eligible industrial activities can apply for an allocation of NZUs. New activities will be added to the list as they are made eligible. 

If you think your activity might be eligible for industrial allocation, please see the information on the New activities for industrial allocation page.

Calculating your allocation entitlement

The information below explains how to calculate your entitlement. If you prefer, you can use a calculation worksheet.

Three inputs

The number of NZUs you can get for an eligible activity depends on three things:

  • the level of assistance (LA) for your activity. Expressed as a percentage, this depends on the emissions intensity of your activity. Emissions intensity of an activity can be either moderate or high. The level of assistance for activities with:
    • high emissions intensity is 90 per cent, and
    • moderate emissions intensity is 60 per cent.
  • the amount of prescribed product (PDCT) – produced from that activity. Prescribed products are defined exactly in the regulations – it’s important to read this definition carefully to make sure you are accurately measuring the correct product.
  • the allocative baseline (AB) for that product. This number is fixed in the regulations and depends on the emissions intensity of your product. 

See Eligible industrial activities for levels of assistance, prescribed products and allocative baselines for each eligible activity.

Formula

Your allocation of NZUs is then calculated using formulae from the Climate Change Response Act 2002. These are detailed below. Separate calculations must be made for each eligible activity.

Note: NZUs can’t be divided. Less than half an NZU is rounded to 0, half or more is rounded to 1.

Transition measures

At present, persons with obligations under the ETS are only required to surrender one NZU for each two tonnes of CO2-equivalent of their actual emissions.  While this transition measure is in place, the number of NZUs allocated is also halved to reflect the lower costs that businesses experience.

Allocation = (LA × ∑ (PDCT × AB)) ÷ 2

That is, to find the number of NZUs you are entitled to you:

  1. Multiply the amount of specified product you produce by the allocative baseline for that product.
  2. If you produce more than one specified product, repeat step 1 for each, then add these numbers together.
  3. Multiply this figure by the level of assistance for that activity.
  4. Divide the number by two.

The number you are left with is the number of NZUs you are entitled to.

What can I do with the NZUs I receive?

The NZUs you get can be:

  • used to meet your obligations under the ETS to surrender NZUs to cover your emissions (if you are required to do this)
  • sold to people or organisations with a holding account in the New Zealand Emissions Unit Register.  These people might be those who have obligations under the ETS, or are actively participating in carbon trading
  • transferred to your suppliers as part payment if you reach a contractual arrangement that allows this.  You can only transfer your units to people or organizations with a holding account in the New Zealand Emissions Unit Register
  • retained in your NZ EUR account, as NZUs do not expire.

At present, the NZUs received through industrial allocation cannot be sold overseas.

Disclaimer: These web pages are intended to provide general information in summary form. The contents are not a substitute for getting your own advice on the provisions in the Climate Change Response Act 2002 or the Climate Change (Eligible Industrial Activities) Regulations 2010.

Last updated: 3 December 2012