Geothermal participants in the NZ ETS currently have individual DEFs that are calculated based on the gas composition of their geothermal reservoirs. These DEFs are set out in table 6 of Schedule 2 of the SEIP Regulations and require updating periodically (most recently in 2024) to:
- include new geothermal participants who have begun operation since the previous update
- account for changes in the volume of greenhouse gases held in the geothermal reservoirs.
In addition to DEFs, many geothermal participants apply for and use UEFs. This is because they may be re-injecting at least part of the geothermal fluid back into the reservoirs, to reduce emissions, or otherwise have had a change in emissions since the DEFs were last updated. In 2024, the calculation methodology for UEFs in regulations 14 to 17 of the UEF Regulations were updated after consultation.
Most participants apply for a UEF each year, rather than using their DEF, because the UEF is more accurate, resulting in lower NZ ETS costs. Cabinet has previously agreed (following consultation in 2024) that, in the future, DEFs would be calculated based on a three-year rolling average of past UEF values where available (and the current DEF value set in regulation where not). This approach will reduce costs and administration for both the Government and participants because it removes the need for annual UEF applications unless a participant has a significant shift in their practices.
The problem: We intend to implement the rolling average approach to calculate DEFs, with changes to table 6 in Schedule 2 of the SEIP Regulations. An important decision is what date range to use for the first instance of this calculation. The date range decided will set the precedent for the calculation of DEFs in future years.
Proposal: We have two options for how we calculate the DEFs.
- Option 1: Apply a rolling average based on the past three years of UEFs and current DEFs available at the time of this consultation. This means we can clearly show the proposed DEF values through consultation. The most recent UEF would be from the year prior to consultation, with the result that improvements in efficiency would take an additional year to be reflected in DEFs. For this year, that means setting 2026 DEFs based on data from 2022 to 2024. Table 4 outlines what the 2026 DEF values would be under option 1.
- Option 2: Apply a rolling average based on the DEFs and UEFs from the year of this consultation and the two previous years. This approach would consist of more up-to-date DEFs and UEFs. Because this year’s UEFs will not be known until after consultation, we cannot provide a list of DEFs in the consultation material. For this year, option 2 would mean setting 2026 DEFs based on data from 2023 to 2025.
Table 4: Proposed 2026 geothermal DEF values using option 1 date range
Class – Geothermal fluid used by: |
Type of value |
2022 |
2023 |
2024 |
Proposed DEF value for 2026 (option 1) |
Part A |
|
|
|
|
|
Kawerau II |
UEF |
0.0152 |
0.0156 |
0.0143 |
0.015033 |
Kawerau Industrial |
Current DEF |
0.0174 |
0.0174 |
0.0174 |
0.0174 |
Kawerau KA24 |
UEF |
0.0119 |
0.0119 |
0.0119 |
0.0119 |
Miraka Milk |
Current DEF |
0.0053 |
0.0053 |
0.0053 |
0.0053 |
Mokai I and II |
UEF |
0.00418 |
0.00382 |
0.00382 |
0.0039 |
Ngā Awa Purua |
UEF |
0.0087 |
0.0087 |
0.0087 |
0.0087 |
Ngā Tamariki |
UEF |
0.0073 |
0.0073 |
0.0069 |
0.0072 |
Ngāwhā I and II |
UEF |
0.0442 |
0 |
0 |
0.0147 |
Ngāwhā III |
UEF |
|
|
0 |
0.0437 |
Current DEF |
0.0655 |
0.0655 |
|
Ohaaki |
UEF |
0.0333 |
0.0333 |
0.0333 |
0.0333 |
Poihipi Road |
Current DEF |
0.0051 |
0.0051 |
0.0051 |
0.0051 |
Rotokawa I |
UEF |
0.0119 |
0.0119 |
0.0119 |
0.0119 |
Te Ahi o Maui |
UEF |
0.0106 |
0.0113 |
0.0119 |
0.0113 |
Te Huka |
UEF |
0.0073 |
0.00358 |
0.00061 |
0.0038 |
Te Mihi |
UEF |
0.0044 |
0.0041 |
0.0045 |
0.0043 |
Topp 1 |
UEF |
0.0102 |
0.0088 |
0.0088 |
0.0093 |
Wairakei Station site |
UEF |
0.0022 |
0.0023 |
0.0022 |
0.0022 |
Tauhara |
UEF |
|
|
0.0056 |
0.0237 |
Current DEF |
0.0300 |
0.0300 |
|
Any other plant or process using geothermal steam to produce electricity or industrial heat |
Current DEF |
0.0300 |
0.0300 |
0.0300 |
0.0300 |
Part B |
|
|
|
|
|
Mokai Greenhouse |
Current DEF |
0 |
0 |
0 |
0 |
Tauhara Tenon |
Current DEF |
0 |
0 |
0 |
0 |
Any other plant or process using geothermal fluid to produce electricity or industrial heat through a process other than the production of geothermal steam |
Current DEF |
0.0009 |
0.0009 |
0.0009 |
0.0009 |
There is a trade-off between these two options. Option 1 provides more transparency, making clear what the next year’s DEF will be. Option 2 is more responsive, reacting faster to changes in participants’ UEFs. Table 5 summarises these two options and the assumed impact of each one.
Table 5: Options for calculating DEFs
Option |
Description |
Assumed impact |
No change
|
DEFs are not updated and over time may become out of date.
|
Because DEFs are most likely to overestimate emissions, most NZ ETS participants continue to apply for UEFs annually, which is an additional cost to them.
|
Option 1: DEF averaging using data from 2022 to 2024
|
Implement the 2024 decision to move to rolling three-yearly averages for DEFs.
Use the years 2022, 2023 and 2024 to determine the 2026 average.
This is a regulatory change.
|
Is more transparent and provides certainty about the 2026 values to be set (information for the proposed averaging period is available now).
Will allow some geothermal participants to avoid applying for UEFs or have less frequent need to do so. Allows updating of DEFs at no extra cost to the regulator.
Reported emissions and associated NZ ETS costs are more consistent with actual emissions (but less so than option 2).
No notable cost to implement.
|
Option 2: DEF averaging using data from 2023 to 2025
|
Implement the 2024 decision to move to rolling three-yearly averages for DEFs.
Use the years 2023, 2024 and 2025 to determine the 2026 average.
This is a regulatory change.
|
More reflective of current practice, reflects the three years immediately prior to determine the following year’s average.
Will allow some geothermal participants to avoid or reduce the need to secure UEFs as frequently. Allows updating of DEFs at no extra cost to the regulator.
Reported emissions and associated NZ ETS costs are more consistent with actual emissions.
No notable cost to implement.
|