More than 6,000 New Zealanders have signed a petition asking Parliament to phase out the free carbon credits given to protect some high-emission industries.
Megan Woods, a former Energy Minister, accepted the petition on behalf of the Labour Party at Parliament on Tuesday and promised to consider the idea for the party’s 2026 manifesto.
The policy could help New Zealand reduce its emissions faster and possibly relieve some of the cost pressures on any households that are exposed to carbon costs more than average.
But it would also risk pushing some economic activity out of the country and significantly reducing the number of well-paid jobs available in some regions.
The Emissions Trading Scheme limits the amount of climate pollution permitted in the New Zealand economy and requires emitters to purchase and surrender one unit per tonne of C02.
It is intended to use market forces to find the most cost-effective ways to reduce emissions and meet internationally agreed targets, such as the Paris Accord.
However, some free units are allocated to businesses in emission-intensive industries that are competing with overseas rivals not subject to a carbon tax.
If emissions pricing pushed production into countries with looser rules and dirtier energy, New Zealand would lose economic activity and global emissions would increase anyway.
The free industrial allocation aims to protect businesses and jobs that might not have cost-effective ways to decarbonisation their production processes.
Phase out
The campaigners, Don’t Subsidize Pollution, want this free allocation to be phased out over the next six years, instead of at the current rate of 1% per year.
It then wants half those units to be used to reduce the total emissions cap and the other half to be added to the quarterly auctions to generate more revenue for other climate spending.
Co-director Alex Johnston said it wasn’t fair that everyday New Zealanders had to face the full cost of emissions pricing, while these multinational corporations were protected.
“We need an urgent end to free carbon credits and a plan in place to help these industries decarbonise, not prop up their existing production process,” he said in a press release.
The five
Christian social justice group, Common Grace Aotearoa estimated the five largest beneficiaries emit the same amount of pollution as half the entire country’s vehicle fleet.
They are: methanol maker Methanex, fertilizer firm Ballance Agri-Nutrients, Rio Tinto’s aluminum smelter in Southland, Bluescope’s steel mill in Auckland, and Fletcher Concrete.
While drivers have to pay for their emissions, these ‘big five’ businesses don’t. They were given a $280 million subsidy to cover the 5.6 million tonnes of C02 they produced in 2022.
Common Grace Aotearoa, and other members of the Don’t Subsidize Pollution campaign, have been collecting signatures asking Parliament to end the giveaway.
Labour’s Megan Woods said any changes in policy would need to consider the impact on the workers that are employed in places such as the Tiwai Point aluminum smelter.
“We must have climate action to save our planet but also find a way to preserve well-paid, skilled jobs,” she said.
Don’t Subsidize Pollution has lobbied to replace the subsidy with a Carbon Border Adjustment Mechanism, which would impose an import tariff on any goods not subject to a carbon tax.
A working paper, published by Motu in 2021, said the Government could explore a border carbon adjustment instead of the free allocation — but warned it would be complex.
It could include a rebate for the emissions price paid on goods manufactured in New Zealand that were being exported to a country that didn’t have its own carbon tax.
Corporate welfare
Don’t Subsidize Pollution also called for a return to the Labour Government’s policy of using the proceeds of the Emissions Trading Scheme to fund decarbonisation technologies.
Last year, NZ Steel struck a deal with the Crown to split the cost of building a $300 million electric arc furnace at its Glenbrook steelworks near Waiuku.
It was estimated to remove 800,000 tonnes of climate pollution each year, bringing the lifetime cost to about $16.20 per tonne when the carbon price was about $55 a tonne.
National criticized this arrangement as “corporate welfare” but it doesn’t have any plans to remove the free allocation or further incentivise these businesses to decarbonise.
NZ Steel said it wouldn’t have been able to make the investment without Crown support. The steelmaker also considered closing the plant in 2015 due to falling steel prices.
Businesses that receive free units are still incentivised to reduce emissions, as they are able to on-sell their carbon credits if they don’t need to surrender them in exchange for pollution.
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