Industrial over allocation - why were there 55 million free emission units when total industry sector emissions were 53 million tonnes?

How does it make any sense that the 55 million free emission units gifted to big emitters under Industry Allocation exceed the total emissions of the industry sector, 53 million tonnes, from 2010 to 2020?

In my last post I noted that 55 million free emission units had been allocated to industries over the eleven years from 2010 to 2020.

I presented a barplot of the 'Industrial Allocation' of free emissions units given to emitting industries by the Environmental Protection Authority under the New Zealand emissions trading scheme.

I left open the question "is 55 million free emission units (over eleven years) a big number?"

The Ministry for the Environment doesn't seem to think so. Their website page on Industrial Allocation states the following

Industrial allocation contributes to unit supply in the NZ ETS

Industrial allocation is a relatively small proportion of unit supply in the NZ ETS. In 2016, the total number of units provided through industrial allocation in the NZ ETS was 4.3 million.

The total number of units surrendered from sectors other than forestry was 19.5 million (i.e. industrial allocation amounted to about 22 per cent of annual unit demand).

I call this the consultants fallacy. It has the form "put small number next to big number" and therefore "effects are minor" and grant me my resource consent.

You have a number you wish to defend; 4.3 million free units allocated in 2016. You compare it to a related bigger number; in 2016 emitters surrendered 19.5 million emission units under the emissions trading scheme. Premises then conclusion: 4.3 million is smaller (only 22 per cent of) than 19 million. A relatively small proportion therefore it's a small number of units being given away for free to dirty polluting emitters.

Wouldn't the actual emissions from the industry sector as recorded in the Greenhouse Gas Inventory be a better comparion with the actual free allocation of units? The inventory tells us the actual emissions from industries were 4.6 million tonnnes in 2016.

How does that fit with my theory that industrial allocation is over allocation? Fewer units were allocated (4.3m) than the 2016 actual industry emissions! (4.6mt) Well at least 300,000 tonnes of industry emissions were in some sense 'priced' by the emissions trading scheme in 2016.

What's the result if we add up the inventory emissions from industry for the same period as the Industrial allocation spreadsheet from the EPA (11 years 2010 to 2020).

The result is that the industry emissions (from the inventory) were 53 million tonnes and the emissions units given away under Industrial Allocation were 55 million.

So to make it simple. The emissions trading scheme makes New Zealand industry liable to surrender emissions units for it's emissions.

Okay we get it. It's "polluter pays". But the Industrial Allocation rules have given some industries more emission units than the emissions of the entire industry sector! It's almost equivalent to exempting the whole industrial sector from the emissions trading scheme.

But it's worse than that. The allocations of emissions units are heavily weighted towards the highest quantity emitters. The top ten recipients received 89% of the units. The other 152 recipients got 11% of the units. New Zealand Aluminium Smelters Limited and New Zealand Steel Limited received about 45% of all the allocated free units.

There is a little bit more to tease out. I will put that in a separate post.