Hon James Shaw
Minister of Climate Change
Contact Email j.shaw@ministers.govt.nz
Dear Minister Shaw,
I am writing to you to express my strong disappointment with your policy announcement "Emission trading reforms another step to meeting climate targets" of 2 June 2020.
This policy is a complete failure in terms of correcting the flaws in the New Zealand emissions trading scheme so that it prices emissions instead of insulating emitters from them.
The proposed "reforms" do not end the near-permanent excessive free allocation of emissions units to industrial emitters that the National Government introduced into the emissions trading scheme in 2012.
The reform proposed that I particularly object to is the Phase down of industrial allocation from 2021;
"Phase-out of industrial allocation at a rate of 1 per cent each year would start from 2021 and continue until 2030. The annual phase-out rate would increase to 2 per cent from 2031-2040 and to 3 per cent from 2041-2050."
Frankly this rate of phase out is a joke. It is not consistent with the Zero Carbon Amendment Act's 'Net Zero by 2050' goal.
Given that the free allocations are based on actual production, the quantity of units given to the biggest emitters like NZ Steel Development Limited and NZ Aluminium Smelter Limited, will in fact continue to increase out to 2050, in spite of the diminutive phase out rates you propose.
Let me estimate the phase out on an assumption of constant production at 2018 volumes.
I estimate that NZ Steel Development Limited (who were allocated 1,782,366 units in 2018 and if they maintain production at 2018 quantities) would still be allocated over 1 million units in 2048. They would still be allocated 942,202 units in 2050. That is only a reduction over the 30 years of 47%.
I estimate that NZ Aluminium Smelter Limited (who were allocated 1,324,556 units in 2018 and if they maintain production at 2018 quantities) would still be allocated over 1 million units in 2037. They would still be allocated 707,410 units in 2050. That is only a reduction over the 30 years of 47%.
As the free allocation of units (under Section 81 "Entitlement to provisional allocation for eligible industrial activities") is based on actual production quantities, emitters like NZ Steel and NZ Aluminium only need to increase annual production by 1% per annum in order to cancel out the 2021 to 2030 "phase down".
That seems quite likely as the free units allocated to NZ Steel Development Limited from 2011 to 2018 increased by 793,062 units. That equates to a growth rate in production of 6.35% per annum.
NZ Aluminium Smelter Limited's free allocation grew over the same period by 886,875 units or a growth rate of 9.56% per annum.
So to conclude, the proposed phase out rates of free allocation are not even likely to produce an absolute reduction in the free allocations to big emitters. As a policy for reducing emissions, this is completely perverse.
I also remind you that free allocations were only meant to be 'transitional' arrangements. That is to say, of a temporary nature. Of a finite duration. If the 2008 Labour Government version of the emissions trading scheme had been left as enacted, the industrial emitters would only be two years away from 0% free allocation. That scheme as you no doubt recall had a linear phase out of free allocations over a 12 year period. Transitional free allocations should not be 'phased out', they should just end.
I consider it completely egregious that you are proposing the continuation of free allocations to the big industries out to 2050.
It just completely undermines the good reputation you have earned with New Zealanders over your success in enacting the Zero Carbon Amendment Act and the Climate Commission. Frankly, what is the point of having either the Net Zero goal or the Climate Commission if the free allocations to industries continue to grow out to 2050?
Yours sincerely
