Tuesday, October 27, 2009

Climate change: $225,000 per job?

Carbon News this morning reports that the government's pollution subsidies to the Tiwai Point Aluminium smelter sum to an enormous $209 million - or $225,000 per job (more than an MP's salary) for each of the 930 workers the smelter employs. It's a massive indictment of the subsidy scheme. Or is it?

Delving into the figures, it seems they are based on not just the direct subsidy to Rio Tinto, but also the opportunity cost of their exclusive use of the power from Manapouri - power that could instead be used elsewhere, allowing the dirty inefficient coal-fired Huntly Power Station to be closed down. And unfortunately, the latter massively outweighs the former:

Replacing the emissions-intensive Huntly with Manapouri would result in a net decrease in liabilities to taxpayers of $209 million per annum, made up of the non-payment of the Rio Tinto subsidy ($14 million) and the non-payment of the Huntly subsidy ($195 million),” he said.
This is I think an unfair loading of costs when we're talking about a per-job subsidy. Besides, its not as if $15,000 per job in direct subsidies for Tiwai Point's emissions is anything to be sneezed at. So on that front I think Carbon News massively overstates the case. But they have made a very good argument for shutting down Tiwai Point entirely. After all, Rio Tinto's own figures show a maximum annual benefit to New Zealand of $121.2 million per year. With current carbon costs of $209 million per year - and it is fair to count the opportunity cost of running Huntly when we're looking at an overall cost-benefit analysis - we're looking at being at least $88 million a year better off if we close the place down, which increases to $100 million once you remove the "benefit" of deferred grid upgrades (which we are already paying). This rises to over $300 million a year post-2012 when carbon prices are expected to be higher and Tiwai Point's output lower.

What this shows us is that Rio Tinto are just leeches. Once the environmental costs are counted, their presence makes us actively worse-off as a society, and significantly so. We should not be paying these people pollution subsidies; instead we should be shutting them down. And the sooner that happens, the better off we will be.