Another threat to close the Tiwai Point aluminium smelter. I better finish up my data project on the free gift industrial allocation of NZETS emissions units to the big high emitting industries.
Over nine years the Tiwai Point smelter alias New Zealand Aluminium Smelters/Rio Tinto Alcan received $82 million worth of free emissions units under the NZ emissions trading scheme
The Tiwai Point aluminium smelter, which is owned by New Zealand Aluminium Smelters Limited, which is majority owned by the multi-national corporate Rio Tinto Alcan, has been in the news over the last few days.
As welcome as a flurry of cold westerly fronts arriving from the Tasman Sea, the company's threat to close the smelter has consumed column inches of media coverage.
- 23/10/19; Rio Tinto considering closing Tiwai Aluminium Smelter
- 23/10/19; Bluff aluminium smelter could close taking power prices tumbling
- 24/10/19; Standard and Poor warns of potential risk to electricity generators in the event of a closure at Tiwai smelter
- 24/10/19; The Southland Times Editorial; Smelter review sets up an anxious wait for Southland
- 24/10/19; Rio Tinto's Tiwai Point aluminium smelter - should it stay or should it go?
None of the selection of articles I have read read mention the huge quantities of free emissions units gifted to New Zealand Aluminium Smelter Limited under our pointless and irrelevant emissions trading scheme.
So I better use the smelter news as a prompt to wrap up my data project on the industrial allocation of free emission units to emitters. And to do a couple of graphs.
Yes that's right. Instead of our emissions trading scheme requiring all emitters to buy and surrender emissions units - thus pricing the emissions, it gives some selected emitters free emissions units which they can then sell!
The industrial allocations have prompted some of my recent posts as well as this very detailed summary about New Zealand Aluminium Smelters Limited.
Over the nine years of the New Zealand Emissions Trading Scheme(from 2010 to 2018), New Zealand Aluminium Smelters Limited received 7,151,987 free emissions units. I estimate these had a market value of NZ$81,737,303.
Here is the graph of the unit allocations per year. What the fuck happened in 2013? 1,524,172 free units? It looks like they got an extra bonanza of free units to go with the $NZ30 million Bill English gave them.
Here is the graph of the estimated market value of the free units allocated per year.
Look how the market value sky-rocketed from 2016 onwards. That's just a reflection of the recovery in the emission unit prices once we were kicked out the international carbon markets after Tim Groser wouldn't sign up to a second commitment period of the Kyoto Protocol.
The price change and the consequent increase in market value isn't really a big deal. As I argued in this post about the smelter's free allocation, because the industrial allocation formula includes extra units to offset the fictitious ETS-related electricity costs, most but not all emissions units are surrendered back to the Government under the NZETS.
The industrial allocation certainly is a subsidy but the real function is to provide New Zealand Aluminium Smelters Limited a hedge or insurance policy that prevents them facing an actual emissions price under the NZETS. It's like a Clayton's emissions price!
All the calculations are documented on this Github repository I set up for the data project.
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