In a recent post I argued that the New Zealand emissions trading scheme industrial allocation policy exempts from emissions pricing twice as many tonnes of emissions than the total emissions counted in the Greenhouse Gas Inventory for the New Zealand industrial sector.
I have a thought experiment. Can I look at the emissions 'footprint' of the free emissions units of industry allocation through the lens of the provisional emissions budget?
The Climate Change Commission's recent recomendation on ETS settings describes how industrial allocation is treated within the emission budgetting process (page 36).
"Step 4: Account for industrial free allocation. Industrial free allocation refers to the amount of NZUs provided by the Government for free to entities whose activities are both emissions-intensive and trade-exposed (EITE). These units use up part of the emissions budget available to the NZ ETS and reduce the total amount of NZUs that the Government can sell at auction".
Therefore the emission units given to emitters have to be subtracted from the emissions budget to get to the amount of emission units available to auction.
Here is a chart of the provisional emissions budget for the years 2021 to 2025. The emissions budget calculation involves subtracting parcels of emissions to get to the amount of units to auction. For Industry Allocation, 43 million tonnes of emissions are deducted. In other words, these units are 'unpriced' or 'exempt' from pricing, the same treatment as for pastoral agriculture emissions.
What would the emissions budget look like if assumed all NZ industry emissions from the Greenhouse Gas Inventory are exempt from the emissions trading scheme?
There would be no subtraction of units for industrial allocation. Instead the emissions budget would subtract an amount of units equal to the industrial emissions from the Inventory.
This chart presents that scenario. An allocation of 27 million units is made from the emissions budget to account for all industry emissions being exempt from the emissions trading scheme. There is no allocation for industrial allocation.
Completely exempting industry from the emissions trading scheme results in a higher amount of emissions units to auction. Ninety seven million tonnes compared to 90 million tonnes over the period 2021 to 2025.
This bar chart compares the two auction volumes under industry exemption and under the status quo of industrial allocation.
As the units auctioned represents emissions priced under the emissions trading scheme, the industry exemption scenario is an unequivocally a better policy for reducing emissions than industrial allocation.