Monday, June 10, 2019

Climate Change: End pollution subsidies now

When National gutted the ETS in 2009, one of the ways they did it was to hand out huge subsidies to big polluters. Now the climate crisis is here, but the polluters want their subsidies to continue:

The latest climate pleaders to Government are seven of our largest manufacturers. Under the auspices of Business New Zealand, Fonterra, NZ Steel, Rio Tinto, NZ Refining, Golden Bay Cement, Methanex and Pan Pac Forest Products are arguing for more subsidies and an even easier ride in the Emissions Trading System than they have enjoyed over the past decade.


The seven big industrial emitters are the prime beneficiaries of a decade-old fudge of policies designed to minimise the impact of the ETS on companies that are emissions intensive and trade exposed, or EITE for short.

From the companies’ perspective, the policies were a triumph. The ETS has been essentially meaningless to them. The reductions they have made in energy use and emissions would have been good business practice and commercially beneficial anyway.

The highly favourable treatment they have received has come at a considerable cost to many other businesses and the country at large. In 2017, 82 emitters out of the 300 companies with direct obligations in the ETS qualified for free credits under the EITE rules. They received 5.6 million free credits, equal to 20 percent of the 28.6m units all companies surrendered to meet obligations.

This isn't just a huge financial cost and distortion to the ETS - it also means those polluters have no incentive to reduce their emissions (in fact, its the opposite: the more they pollute, the bigger the subsidy). And this in turn has significantly reduced the effectiveness of the scheme. When a huge chunk of the market just gets handed free credits, it reduces the value for everyone.

As for what to do about it, the answer is clear: we need to end these subsidies now. These polluters have had a decade of special treatment, and that's a decade too long. And if they can't survive without this government subsidy, they deserve to go out of business and be replaced by more efficient producers who can.