Carbon Match: Carbon market update

Wednesday 30 Mar 2022

Big changes to industrial allocation for smelter ~ Late last week, the Ministry for Environment proactively released a Cabinet paper which sought agreement to set a new electricity allocation factor for the New Zealand Aluminium Smelter (NZAS). This will reduce its emission unit allocation under the NZ ETS.

To date the NZ ETS has imposed direct (emissions from aluminium smelting) and indirect (emissions from electricity consumption) costs on NZAS. But industries that are emissions intensive and trade exposed (EITE) receive free allocations from the government each year to mitigate these costs.

In 2020, NZAS accounted for 1.56 million NZUs of a total free allocation to industry of 7.7 million NZUs (20%). However, NZAS and Meridian Energy Ltd renegotiated the main electricity contract in 2021, and following on from that Cabinet has now agreed to set NZAS’s electricity allocation factor to 0.0 tCO2-e/MWh for the electricity consumed under this contract.

So NZAS will no longer receive emission units for its electricity consumption under the contract - perhaps a 60% reduction based on details in the cabinet paper. NZU prices have firmed slightly following this proactive release, last trading at $74 on Carbon Match.

While the impact on supply is not enormous, it is still significant, and the bigger question for NZU holders is what this might herald for other recipients of the industrial allocation.

To that end, the Ministry for the Environment has also today released a its summary of submissions received during the public consultation on proposed reforms to industrial allocation in the New Zealand Emissions Trading Scheme, which you can find here.

Watch this space - there's more to come.

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Source: Carbon Match

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