Proposed changes to regulations for the NZ ETS 2022

I agree that the use of Kyoto-era emission units is no longer relevant. However, there is a lack of clarity around what involvement looks like under the Paris Agreement.

In order to improve alignment with the goal of reducing greenhouse gas emissions, we must have a clearer understanding of what voluntary market participation looks like under the Paris Agreement and how we can better encourage companies to participate in it.

There needs to be more incentive for voluntary actions. Every tonne reduced within Aotearoa reduces the need to purchase offshore to meet our NDC. People who want to go further and do more should be rewarded for that.

I agree that Option 2 improves accuracy by standardising emissions currencies. Kyoto NZUs are not relevant in the Paris period.

Destruction of potent greenhouse gases is of course required. However, I strongly disagree with the choice to export the emissions and recycling of destruction of such chemicals. It is unacceptable to 'pass the buck' on to other countries rather than taking responsibility for our own waste. We must consider the potential negative externalities from exporting potent greenhouse gases to other countries. We all live on the same planet; we can't pretend the problem has gone away just because it leaves our shores.

I also strongly disagree with removing the product stewardship scheme requirements. To say that this is unlikely to increase the risk of undesirable environmental outcomes seems wildly disingenuous. History tells us that decreasing regulation inevitably results in poorer environmental outcomes. That is why we make regulations in the first place!

I note that a regulated product stewardship scheme is currently under development for refrigerants. Rather than remove any link to product stewardship, I urge you to strengthen this requirement.

I strongly disagree. Option 2 fails on alignment and accuracy. It does not align with global efforts to accurately reduce emissions, nor does it align with the international goal of reducing greenhouse gas emissions globally. This regulation change could inadvertently cause the offshoring of harmful waste gases to countries which do not include this type of gas in their target, which could then be left off greenhouse gas registers internationally. Climate change will not be mitigated by cheating at our accounting.

We should not export our emission waste, but instead focus this incentive only around recycling and destruction within Aotearoa. I suggest amending Option 2 to:
- limit this new incentive to only the destruction, not exportation, of HFCs or PFCs; and
- make participation in the new regulated product stewardship scheme for refrigerants compulsory.

At a bare minimum, I urge you to review Option 2 and apply further conditions restricting export to certain countries.

I agree that the schedule of emissions factors should be updated. However, the current schedule of emissions factors and the analysis on which it is based both have considerable deficiencies and omissions.

The primary requirement for any changes to DEFs is that all pre-combustion emissions should be included and accurately reported. This should also apply to Unique Emissions Factors (UEFs).

Natural gas miners and NZ ETS opt-in participants use the methodologies and emissions factors in the Climate Change (Stationary Energy and Industrial Processes) Regulations 2009 (SEIP 2009) to calculate their emissions.

​​A key question is whether, in line with international literature, ‘fugitive emissions’ include emissions that leaked unintentionally during the process of extracting, distributing, and storing natural gas (i.e. not from combusting for miner’s own use, intentional flaring, and venting at the production platform).

Two key principles for an effective Emissions Trading Scheme are that:
(1) Emitters should pay for their emissions, whether those are intentional or unintentional.
(2) Those emissions should be accurately measured.

It is essential that all fugitive emissions be included in emissions factors, whether these are DEFs or UEFs. Therefore, as part of updating the DEFs, the SEIP criteria should be updated to ensure that unintentional leakage during the process of extracting, distributing, and storing natural gas should be included, in addition to intentional flaring, venting, and combustion.

The net gas production for each field is the appropriate basis for establishing the distribution of natural gas for each field between:
- own use of gas for on-site energy purposes (including compression)
- direct sales to the non-energy purposes in Taranaki (methanol and urea production)
- direct sales to power generation in Taranaki
- dispatch to and recovery from the Ahuroa gas storage facility
- delivery to the high-pressure gas distribution pipeline

Provision in the carbon accounting system should be made for the addition of gas manufactured for non-fossil sources (e.g. biodigesters). There are also proposals to use the natural gas transmission network for delivering surplus electrolytic hydrogen to consumers, mixed with the reticulated gas.

The high-pressure gas transmission network and the downstream lower pressure gas distribution network lose via leaks about 0.4% of the gas carried.

An extraordinary natural gas discharge to air occurred on January 29th 2022 when maintenance work on the Maui gas pipeline, by First Gas, involved the release of 400,000 cubic metres (0.016 PJ) of natural gas with a methane content of 240 tonnes. That is 2% of the annual transmission and distribution leakage in the space of 2 hours. Using a global warming potential of 25, that single event contributed 6,000 tonnes of CO2e. It appears that there is currently no mechanism for that large greenhouse gas emission to be accounted for under the ETS. This is obscene. A mechanism should be created to cover this.

There is a significant discrepancy between the amount of gas supply reported and the amount of gas consumption reported in the MBIE gas data file. The consumption exceeded the supply by an average of 2.5% over the last 4 years. This points to either over-reporting of consumption or under-reporting of supply.

Therefore, I propose the following:

Before accurate carbon accounting can be carried out, it is essential that effective auditing of the data returns from the gas production and retailing companies is carried out. An accurate mass and energy balance of the gas production, supply, and distribution network, perhaps on a quarterly basis, is an essential prerequisite for effective greenhouse gas accounting.

A good definition of the carbon accounting boundaries is required. The units of the emission factors are tCO2=e/TJ, where TJ refers to the energy content of gas. The point in the gas processing train that that energy term refers to needs to be clarified. It appears to be based on the gross input of gas to each gas production station. It would be preferable for the emission factor to be related to the net product from each gas production station, which is the unit of energy that is sold either directly to a customer or into the high-pressure gas transmission network.

The applications of the emission factors should be clearly defined. If the field-by-field emission factors are to be used to define the emission trading liabilities of the direct purchasers of the gas from a field, then the emission factors need to define whether the upstream emissions are included in the emission factors or not.

If the upstream emissions from gas processing, venting, etc. are not to be included in the gas product emission factor, then the emissions from gas production activities would need to be assessed to provide a greenhouse gas emission liability for each field operator. That is particularly important for the operator of the Kapuni gas production station with the Benfield plant to define where liability for the CO2 emissions would fall.

It may be preferable for the emission factors for natural gas sources to include an allocation for the consequential greenhouse gas emissions arising from the gas production activities. In that case, the purchaser of natural gas would also become liable for the full greenhouse gas consequences of producing that gas. For example, if the full greenhouse gas consequences of producing natural gas products from Kapuni gas were to be included in the Kapuni gas emission factors, it would be seen that the greenhouse benefit of using Kapuni gas instead of coal would be marginal.

The application of the national average emission factor needs to be clearly defined. If it is to be used to calculate the greenhouse gas emission liabilities for consumers of reticulated natural gas, then it should be based on a weighted average of all the sources of net natural gas that contribute to the reticulated supply.

Furthermore, the national average emission factor must be adjusted to allow for the methane emissions arising from the losses and leakages from high-pressure natural gas transmission and distribution. Assessment of these losses should not be based on reported figures from industry. Their measurement should be carried out independently. Likewise, methane losses from the Ahuroa gas storage facility must be assessed and factored into the national average emission factor.

I would prefer the DEFs to be updated, provided the matters listed in my answer to Question 8 are taken into consideration.

I agree that the issue warrants a law change to enable importation and opt-in participants’ supply to be included in emissions returns.

However, I have concerns that are not addressed in the document, namely:

1) This does not take into account full lifecycle emissions of biofuels. In fact, it dangerously treats biofuels as if they have zero emissions, which is completely untrue and could set a dangerous precedent as well as perverse incentives.

Biofuel synthesis generates GHGs in every step in the supply chain, from the raw feedstock production, to transport, to conversion, to biofuels distribution and end application.
https://www.energy.gov/sites/prod/files/edg/media/BiofuelsMythVFact.pdf

Lifecycle assessment (LCA) must be addressed in the calculation of deduction of ETS. I recommend pursuing a net energy balance approach, as documented here: https://www.sciencedirect.com/topics/engineering/net-energy-balance

If no LCA analysis can be provided, it would also be possible to determine fixed ranges for emissions per fuel source, with zero emissions reserved for local production from non-food sources, like landfill biogas.

2) This policy may create perverse incentives, for example by encouraging importation over purchase of locally produced biofuels and by encouraging the use of biofuels synthesised by displacing land used for food. Both of these directly negate the Paris agreement goals.

New Zealanders have already petitioned against the use of palm oil in Cadbury chocolate in light of its rainforest-destroying origins. The importation of palm oil-based biofuel would be both unpopular and, in supporting rainforest destruction, a source of unacknowledged climate harm.

I suggest adding regulation around the sources of biofuels permitted to be imported to ensure that food production is not harmed, and auditing to ensure the carbon emissions for transportation are accounted for within New Zealand’s carbon ledger.

I support Option 2, provided the matters listed in my answer to Question 11 are taken into consideration.

As soon as possible. The faster aviation - one of our highest-emitting industries - transitions to less harmful fuels, the better.

The real solution to our aviation emissions is for everyone to fly significantly less. While biofuels are less damaging to the climate, this does not make them 'sustainable'. In modifying the ETS, it is crucial that it incentivises a dramatic reduction in flying across the board, regardless of what fuel is used.