The overly generous treatment of New Zealand Aluminium Smelters Limited under the New Zealand emissions trading scheme has been in the news lately. The subsidy of free emission units has been reduced by the Government. Some data exploration shows that New Zealand Aluminium Smelters Limited were given 12 million emissions units worth $220 million since 2010. Here is the data and some charts.
I have just been doing some charts of the latest data of 'industrial allocation' of free emission units to New Zealand Aluminium Smelters Limited.
I have previously posted a few times about the generous over allocation of emissions units to New Zealand Aluminium Smelters Limited. There is a good summary in this post.
Back on Thursday 24 March 2022, New Zealand Aluminium Smelters Limited and their emission unit allocations were again in the news.
Amazingly, the degree of the over-allocation of emissions units has just been reduced by Minister for Climate Change James Shaw and the Ministry for the Environment who have released a Cabinet paper on the issue.
The Nick Smith National Government narrative in 2011 for the free allocation is that New Zealand Aluminium Smelters Limited are "emissions intensive trade exposed" and they therefore qualify for a 90% "level of assistance". As indicated on the EPA webpage on Eligibility for industrial allocations.
Which implies that the company still pays a 10% obligation when surrendering units under the emissions trading scheme.
But that doesn't happen as the allocation of units also includes compensation for fictitious emissions trading scheme electricity pass-through costs.
Which means that the free allocation of units has always exceeded the amount of units liable to be surrendered under the emissions trading scheme.
That means that NZ Aluminium Smelters has always been a net seller of emissions units. My initial calculations were that the over allocation ranges from 120% to 146%.
The key point of the latest media attention is that James Shaw got a paper through Cabinet which set the "ETS carbon cost", of the recently renegotiated electricity supply contract with (100% renewable hydro powered) Meridian Energy and the company, at zero. That reduced the annual free allocation to the smelter company by 934,400 emissions units (see paragraph 38 of the Cabinet paper). At a 24 March carbon price of 73.10 that's a market value of $68,304,640. Yes, $68 million dollars!
That makes the decision probably the most effective single decision ever taken to reform the woeful emissions trading scheme into a real emissions-reducing policy.
Idiot/Savant posts at No Right Turn on 25 March 2022 that: "Under the ETS's industrial allocation provisions, it [NZ Aluminium Smelters Limited] receives far more carbon credits than it actually emits, which it can then sell to other polluters for profit."
Henry Cooke at the Dominion Post 25 March 2022 says; "The Government has removed a complex, subsidy worth about $60m, from New Zealand Aluminium, which runs the Tiwai Point Smelter in Southland"
Marc Daalder of Newsroom reported on 26 March that "...the smelter receive around 600,000 New Zealand Units (NZUs) - carbon credits used in the Emissions Trading Scheme (ETS) - each year for the next four years, down from around 1.5 million that it would have otherwise been granted".
My analysis is on its own github repository along with the data, the 'R language' script and a couple of charts.
Here is the chart showing that New Zealand Aluminium Smelters Limited received 11,946,759 emissions units from 2010 to 2021. Lets call that 12 million emission units.
My understanding is that New Zealand Aluminium Smelters Limited will have an application for a 'provisional' allocation of units approved after April each year by the EPA. The EPA timeframe/deadline for these applications is 1 January to 30 April of each year.
I have therefore assumed that the transfer of emissions units on the New Zealand Emissions Trading Register happens in May of each year. So I valued the annual allocations with a mean mid May NZU price from Theecanmole. (2016). New Zealand emission unit (NZU) monthly prices 2010 to 2016: V1.0.01 [Data set]. Zenodo.
Obviously the NZU price has varied enormously from less than $3 in 2013 to $86 in mid February 2022. The sum of all the annual values is $220,533,810. Lets call that $220 million.
Here is the chart of the annual values of emissions units gifted to New Zealand Aluminium Smelters Limited.
