Climate Change: Ending Tiwai's subsidies

The Tiwai Point aluminium smelter is one of New Zealand's biggest climate scammers. Under the ETS's industrial allocation provisions, it receives far more carbon credits than it actually emits, which it can then sell to other polluters for profit. The core of its scam is a thing called the "electricity allocation factor" (EAF), which is meant to compensate heavy electricity users for the effects of the ETS on the electricity price. Tiwai receives over 900,000 tons of carbon credits free every year under this scheme, despite paying below-market prices for power, and being subsidised $350 million a year by the rest of us. But now, that scam is over. back in December, Climate Change Minister James Shaw took a paper to Cabinet arguing that Tiwai's EAF be reduced to zero:

I recommend setting NZAS’s EAF for the main contract at zero. This means there are no emissions costs passed on to NZAS under this contract. Should Cabinet agree to this recommendation, NZAS will not receive emission units for its electricity consumption under this contract.

While there's no corresponding cabinet minute in today's proactive release, Shaw clearly got his way, because the regulations have now been changed, reducing Tiwai's allocation by 60%. The emissions impact is 934,000 tons per year - over 1% of our entire national emissions. And because industrial allocation is accounted for before ETS auction volumes are set, that will be a real reduction: polluters won't have access to these permits anymore, so they'll either have to pollute less now, or use stockpiled credits (meaning they pollute less later).

The paper notes that there's a wider review of the EAF and industrial allocation, as well as of ETS volume settings, so hopefully this will become a permanent reduction. And it would certainly be one way of compensating for both past CCR releases and the massive stockpile of carbon credits built up by past government stupidity. If we don't want that stockpile to threaten our future targets, we need to force it to be used by ratcheting down annual supply. And cracking down on pollution subsidies is a great way of doing this.

The decision will also apply more pressure on Tiwai's decision on whether to stay after 2024. This has a significant impact on renewable electricity supplies, and the government's plan for decarbonising industry depends on them leaving. Cutting their subsidies will send a message that the free ride is over, and force them to make that decision on the basis of actual costs, rather than what they can milk out of the government. And that can only be a good thing long-term.