Zero-rating of certain transfers under Negotiated Greenhouse Agreements

2010 amendment to legislation zero-rates the transfer of emissions units between the government and a party to a negotiated greenhouse agreement (NGA).


The Crown entered into Negotiated Greenhouse Agreements (NGAs) with two major greenhouse gas emitters in 2003 and 2005 respectively.

NGAs were entered into at a time when the introduction of a carbon tax was thought to be the most likely response to growing international concerns about greenhouse gas emissions. Businesses which signed an NGA agreed to move to world’s best practice standards for emissions management in exchange for exemption from the proposed carbon tax.

The NGA participants have been exempted from obligations to surrender emissions units in relation to their emissions which would otherwise arise under the ETS, by Order in Council made under section 60 of the Climate Change Response Act 2002. However, side agreements are necessary to set out the mechanism for compensating these companies for the impact of the ETS on their input costs (such as the increase in their energy costs caused by their suppliers passing on the ETS costs they face).

The key element of these side agreements is the transfer of emissions units from the Crown to the companies to compensate them for the indirect costs of the ETS.

Key features

Legislation is amended to zero-rate the transfer of emissions units under a side agreement between the government and a party to an NGA.

Detailed analysis

Former section 11A(1)(s) and (v) essentially listed the transactions in emissions units which were zero-rated. These provisions have been replaced with a new section 11A(1)(s) which effectively states that all transactions in emissions units are zero-rated, with the exception of the two items listed in subparagraphs (i) and (ii).

The item listed in subparagraph (ii) leaves standard rating in place for those transfers which take place under the Negotiated Greenhouse Agreement itself (and one other transfer of emissions units under a historical arrangement), but this subparagraph does not apply to the transfers which take place under the side agreement.

Because of the interaction between section 11A(1)(s) and (u) and section 11(1)(o), this amendment has the unintended effect of extending the zero-rating of the contra supply of goods and services made in exchange for a supply of emissions units. This issue, and the proposed correction of it, is explained in detail in the item on dated 1 October 2010.

Application date

The amendment applies from 1 July 2010