The New Zealand Emission Trading Scheme

Consultation on extending the Synthetic Greenhouse Gas Levy to cover hydrofluorocarbons used as foam blowing agents

About this consultation

The Government is seeking your views on a proposed extension of the Synthetic Greenhouse Gas Levy (SGG Levy). This extension would mean the levy would be charged on hydrofluorocarbons (HFCs) imported as a component in formulated polyol, used in the manufacture of polyurethane foam. We are seeking views of affected parties on:

• the potential consequences of doing this
• how a levy rate could be set for this product.

This extension would directly affect importers of polyol that contains HFCs as a foam blowing agent. Foam-blowers and formulators of foam that do not contain HFCs at import will be affected indirectly. The information from this consultation will be used to inform policy recommendations. If a decision is taken to extend the SGG levy, this may be implemented in the second quarter of 2017.

This consultation closes at 5.00pm Friday 20 January 2017.

Background on the SGG Levy

The SGG Levy is a measure that sits alongside the New Zealand Emissions Trading Scheme (NZ ETS) in the Climate Change (Synthetic Greenhouse Gas Levies) Regulations 2013. Bulk SGG importers are mandatory participants in the NZ ETS, while the SGG Levy places a price on imported goods that contain SGGs (including HFCs). The list of SGG Levy goods does not currently include polyol containing HFCs.

Why does the levy need to be extended?

This proposed extension seeks to address an issue where HFCs contained in imported polyol do not face an emissions price, unlike HFCs that are imported separately. The exclusion of imported polyol containing HFCs from emissions pricing raises two issues:

1. competitiveness between polyol which is formulated in New Zealand using imported HFCs, and imported polyol containing HFCs
2. the lack of a price incentive for importers of formulated polyol, and foam blowers using their product, to move to low emissions alternatives.

The HFCs contained in imported polyol contribute to New Zealand’s greenhouse gas emissions but are not currently captured by the NZ ETS or SGG Levy. We believe there are low-emissions alternatives to HFCs as foam-blowing agents (including for insulation foam). A price signal would affect the relative economics of HFCs vs low-emissions alternatives. Pricing greenhouse gas emissions where possible, and doing this consistently across a sector, is in line with the intended outcomes of the NZ ETS.

Options being considered

The two broad options being considered are:

Option 1: Extend the SGG Levy to include polyol containing HFCs

This approach would require a tariff classification specifically for polyol that contains HFCs. When clearing the importation of this substance through the New Zealand Customs Service, importers would need to declare this tariff classification and pay a levy. The SGG Levy price would be based off the approximate global warming potential of HFCs contained in the substance, and would track the NZ ETS price. The cost to a business would reflect the mass of HFCs imported, the global warming potential of those HFCs, and the effective carbon (NZ Unit) price. This approach would improve the consistency of pricing between mandatory NZ ETS participants in the sector, and importers of polyol containing HFCs. It also provides a price incentive to move to low-emissions alternatives where economic to do so. This would provide a more level playing field between emitters in the sector, while giving a price incentive to move to low-emissions alternatives.

Option 2: Status quo

In this case no action is taken. HFCs contained in imported polyol would continue to sit outside of emissions pricing measures. This would mean the problems identified would not be addressed.

Preferred option

The Government’s initial preference is to use option 1. This would address the problems identified above, and improve the overall coverage and consistency of the emissions pricing regime in New Zealand.

Impact assessment

Based on greenhouse gas inventory figures we believe the total cost to the sector could be up to $150,000–$200,000 per annum. This would be borne by an unknown number of importers of polyol that contains HFCs. It is likely this cost increase would be passed through to consumers.

Implementation timetable

The proposed timetable for implementation, subject to a policy decision being made, is:

Consultation	5 December 2016 – 20 January 2017
If a decision is made to extend the SGG Levy, implementation could occur as early as 3 months following the policy recommendation (eg, as early as June 2017).

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