Climate Change: The problem of free allocation

The government's new Emissions Trading Reform Bill would continue the existing system of free allocations. While it would accelerate phase-out rates, it would reset the base year for phase-out from 2012 to 2020, undoing all previous progress and potentially allowing polluters to claim a "refund". So who benefits from these pollution subsidies? Stuff has crunched the numbers, and discovered that 75% of them go to just four companies. And you can guess who they are:

[Image stolen from Stuff]

Three of those recipients are New Zealand subsidiaries of hugely profitable multinationals, companies which are in no need of a subsidy. It just seems to be a handout, a bribe to try and stop them from criticising the scheme or shutting down (which, ironicly, means bribing them to keep polluting - the exact opposite of what we need). The cost of the scheme has been relatively low so far, due to artificially low carbon prices. But if carbon prices rise as expected, then it could easily exceed a billion dollars a year by 2030. And that's a billion dollars a year we could spend on reducing emissions rather than maintaining them.

But the real problem is that, when combined with free pollution for agriculture, the free industrial allocation is basicly going to eat the entire 2030 carbon budget, leaving no room for anything else. Which, given that these polluters are only responsible for 6% of national emissions, suggests they are significantly over-allocated (again: bribes and handouts). So if nothing changes, what we're going to see in 2030 is these polluters making huge windfall profits from that over-allocation. And in some cases, they'll be making more money from carbon bribes than they do from their actual busines activity. For example, BlueScope Steel, the biggest recipient, made a profit of A$71.9 million last year, off revenue of A$463 million. In 2030, they'll be getting NZ$300 million worth of carbon credits a year. Tiwai Point made $207 million last year. In 2030, they'll be getting $260 million of carbon a year. Methanex's NZ plants produced 22% of its volume last year, or about US$125 million of their half-billion dollar profit. In 2030, they'll be getting NZ$165 million of carbon credits every year. In other words, these companies are going to go from producing products, with pollution and carbon credits as a side effect, to milking carbon credits, with products as a side effect. And the more they pollute, they more they'll get - the exact opposite of the incentive we need to set.

This is simple unsustainable, environmentally, financially, and politically. New Zealanders are not going to stomach seeing their tax dollars going to subsidise climate-destroying pollution by hugely profitable foreign multinationals. This system of free industrial allocation needs to be ended, and the sooner, the better.