Why does New Zealand's emissions trading scheme (ETS) involve twelve years of subsidies to businesses to keep fossil fuel heat sources before the Government can provide a subsidy to replace the same fossil fuel heat sources with carbon-free renewable heat sources?
The curious case of the third round of grants under the Government Investment in Decarbonising Industry Fund.
Have you seen the Minister for Energy the Hon Dr Megan Woods' media statement of today?
"Helping some of New Zealand’s highest energy users slash their emissions"
It's about the third round of grants under the Government Investment in Decarbonising Industry Fund. This is a subsidy to encourage energy users to move from fossil fuel thermal to renewable thermal energy sources. To help the recipient companies replace coal, oil or gas in their thermal boilers with renewable fuels. Fair enough! Great! What's not to like?
The "elephant in the room" level policy inconsistency is that three of the recipients Minister Woods mentions have also been receiving free allocations of emissions units since 2010 - which are an incentive to keep the same fossil fuel boilers that they are now getting grants to replace!
We can see which businesses from the Government Investment in Decarbonising Industry Fund grant scheme have also been receiving free emissions units by cross referencing the the Environmental Protection Authority spreadsheet of final industrial allocations.
The three are:
- Southern Paprika Limited, GIDI grant; $4,979,520, ETS free emissions units 83,061 2010 to 2020 worth $1,374,001, 14233 units in 2020.
- Blue Sky Meats (N.Z.) Limited, GIDI grant; $377,250 ETS free emissions units 6134 units 2010 to 2020, 1122 units in 2020.
- Gourmet Paprika Limited, GIDI grant; $575,250, 43962 units 2010 to 2020, 6909 units in 2020.
We know from the Government Investment in Decarbonising Industry Fund third round of grants that:
Southern Paprika is NZ’s largest single site capsicum grower near Auckland , privately owned by the Alexander and Levarht families. Over the last 22 years, the site has grown to 26 hectares of glass houses, and employs around 160 people locally and from the Pacific Islands.
Southern Paprika's project is to install New Zealand’s first CO2 recovered biomass boiler.
Here is a barchart of the 83,061 emission units allocated to Southern Paprika Limited.
Each of the three companies has probably received a 'provisional' allocation in 2021 and may still be eligible for another provisional allocation for 2022. So each company has been receiving free emissions units for the last twelve years because they have fossil fueled thermal boilers as a part of their operations. Usually as a heat source.
Two of the three companies are exporters of 'hothouse' grown vegetables. They are deemed to be at a competitive disadvantage as in theory their energy costs have increased and as there is the very distant prospect that they have international competitors in a country with no emissions pricing.
They are not even participants in the Emissions Trading Scheme who have an obligation to report emissions and an obligation to surrender units to the Government.
The free allocation of emissions units is not balanced out by any return of emissions units back to the Government under the ETS. It is a straight-out transfer of economic value to the companies. It's a subsidy.
Here is a barchart of the market value of the emission units allocated to Southern Paprika Limited. I used a mid May spot price as that is the approximate date the EPA transfers the provisional allocation. The sum of the May priced allocations is $1,374,001.
It is possible that Southern Paprika Limited has not sold any of it's 83,061 emission units and that they are part of the 'stockpile' of 158 million surplus emissions units recorded on the Emissions Units Register.
In that case the market value of the units is 83,061 x $76.60 equals $6,362,473.
I will just clarify what I mean by saying the emissions trading scheme rewards the maintenance of fossil fueled heat sources. If any of the three companies replaced a fossil thermal boiler with a renewable thermal boiler they would no longer be eligible for the free emissions units. They would lose the allocation of units and be worse off financially.
The freeby emissions units are in fact an incentive to keep the fossil thermal boilers. Yes, the emissions trading scheme is subsidizing the use of a fossil fueled industrial heat source by the three companies.
A question I might email the Minister is to ask is "how is it good emissions reducing policy to provide an incentive for keeping thermal boilers for 11 years then immediately move to a subsidy for replacing the thermal boilers with renewable energy?"
Or "will any of the three companies receive in the same year a subsidy of free units (incentivising keeping the fossil thermal boilers) and a subsidy to replace the boilers with renewables from the GIDI fund?"
Why couldn't the Government have gone straight to a subsidy to install renewable energy boilers in 2010?
Sometimes I can't believe how badly coordinated some of our climate change policies are.