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This is a file photo taken on January 2, 2009, showing thick smoke coming out of the chimney of a factory in Pietarsaari, Finland.
photo: AFP
Last year, Australian company NZ Steel was the biggest beneficiary of the government’s scheme to exempt exporters from carbon emissions charges, followed by Methanex.
New Zealand Steel reported to the Environmental Protection Agency (EPA) that in 2023, its Glenbrook steelworks emitted 1.3 million tonnes of carbon dioxide.
The company will apply to the government for 1.8 million free carbon credits in 2023 under the so-called industrial allocation system.
Even at a floor carbon price of A$37 per tonne in 2023, the free carbon credits given to New Zealand Steel (a Bluescope business) would be worth $66 million, based on an allocation of 1.8 million tonnes.
Free concessions under the emissions trading scheme are designed to protect emissions-intensive activities such as steel, methanol production and fertilizer manufacturing that may compete with overseas competitors that are not subject to carbon taxes. The scheme is intended to prevent these companies from moving overseas in pursuit of more lenient climate pricing or losing business to overseas competitors that do not pay the same pollution price.
In addition to declaring the value of most of their carbon emissions, companies can also claim the extra costs on their energy bills from carbon pricing. The idea is that electricity and gas suppliers pass these costs on to large energy users, such as manufacturers.
But in 2022, subsidies for the Tiwai Point smelter were cut by about $60 million because the government deemed the plant paid Meridian so little for electricity that it was not affected by the carbon price.
Electricity subsidies help explain why some companies claim more free credits in a year than they need to cover their direct emissions.
Companies can sell excess carbon credits to other emitters at the market price (currently around $50 a ton) or bank them for future use.
The EPA’s latest list shows how many free credits the government gave to businesses in 2023, and how many tons of emissions each company reported generating.
The nearly 1 million tonnes of free units allocated by Methanex are worth at least $36 million at the 2023 floor carbon price.
Fletcher Building received 600,000 tons, valued at at least $22 million.
The owners of the Tiwai Point aluminium smelter received roughly the same revenue as Fletcher Building, 600,000 tonnes.
“The story is not over yet”
Carbon policy expert Christina Hood said this year’s allocation was not the end of the story and Te Wai Point hoped to recoup some of the lost benefits.
“The Tiwai smelter will soon be able to receive an additional approximately 1 million tonnes per annum, valued at more than $50 million per annum, to offset the cost impact of the ETS on its electricity bill,” Hood said.
“It is difficult for the government to explain why $50 million in subsidies per year At a time when power supply is tight and prices are high, this makes sense for us, the largest user of electricity.”
Ed Miller, a researcher at the Center for International Corporate Taxation and Accountability, has been tracking the value of this subsidy over its lifetime.
He said the total value in 2023 would be about $359 million, based on the average carbon price for the year.
“This is a 26 per cent decrease from last year, driven by a drop in both total allocations and unit prices,” he said.
“Over the past decade, we estimate that the total value of industrial allowances has reached nearly $2 billion. As the price of emissions units increases, the value of these industrial allowances will also increase.”
In contrast to the millions of tonnes of carbon credits given away under the program, the government failed to sell any credits to other polluters at government auctions last year because demand was not strong enough to prompt companies to bid.
The Committee on Climate Change has warned that there are too many carbon credits circulating in the market and that the excess carbon credits could jeopardize the country’s chances of meeting its climate targets.
This year we are conducting a review of free allocations to address issues where too many free items were being given out due to outdated emission assumptions.
The results of the review will not be reflected in the company’s distribution until next year.
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