What is Industrial Allocation?
The Ministry for the Environment says Allocations of New Zealand Units are given to businesses carrying out certain activities.
I prefer what Motu Research say. That one (out of five) ways of allocating emissions units in an emissions trading scheme is industrial allocation; which Motu define as
"Receiving them (emissions units) for free"
(See Leining, Catherine and Suzi Kerr. 2018. A Guide to the New Zealand Emissions Trading Scheme. Report prepared for the Ministry for the Environment. Wellington: Motu Economic and Public Policy Research)
I have posted in detail about industrial allocation to New Zealand Steel and to New Zealand Aluminium Smelters Limited
In both cases I argued that both companies were being over-allocated units. That these transnational corporates were given far too many emission units, well in excess of their direct (or Scope 1 emissions). And that such excessive allocations of units not only removed any price signal, they insulated the emitter from any emissions trading scheme price signal.
This over allocation is because the emissions factors used to calculate the unit allocations (allocation baseline) include overly generous compensation (extra units) for upstream energy cost increases caused by the NZ emissions trading scheme.
This concept of emissions trading scheme costs embedded in energy or electricity supplies is called the "Electricity Allocation Factor".
The Ministry for the Environment explicitly states that Industrial Allocation does not remove the price signal or result in over-allocation of units.
Businesses still face NZ ETS costs for a proportion of the emissions stemming from the activity. For example; highly emissions intensive firms face NZ ETS costs of 10% of their emissions
That statement asks you to ignore the extra emissions units allocated for these upstream ETS related energy costs. In the cases of NZ Steel and NZ Aluminium the ETS energy cost calculations result in far more units than 10% being allocated. Both NZ Steel and NZ Aluminium receive more emissions units than they surrender. They are almost always net sellers of units and not net buyers.
However, I want to look at Industrial Allocation in the round. How many emissions units have been given away since 2010? Is it a big number?
The Environmental Protection Authority annually publish data on the final industrial allocation of emissions units. So some analysis can be done.
How many units? The answer is fifty five million or 55,001,914 emissions units have been given away from 2010 to 2020.
This bar plot shows the 55 million emissions units year by year.
I will come back to the question 'is 55 million a big number?' in another post. Another question raised by the bar plot is 'why does the annual allocation increase after 2016? I will come back to that too.
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