The enormity of the National-Maori Party changes to the ETS become apparent when you consider the case of Methanex, the Canadian-owned company that turns natural gas into methanol at several plants round the world, including two in Taranaki.
They were a very large user of NZ’s dirt-cheap Maui gas for many years, with peak annual production being 2.33 million tonnes. By 2004 the field had largely run down and further gas was being negotiated at a much higher price so they rapidly wound down their plant and stopped production altogether at the end of 2005. With new gas contracts in 2006 they reopened the smaller, Waitara Valley plant and last year announced some production would resume at their Motunui plant.
Last week, days before the Government announced their big ETS subsidies for carbon-intensive plants, they announced they will be moving to full production at both plants, even though they don’t have an assured gas supply.
This reminds me strongly of just how many fish fishing companies caught in the early eighties, which became the baseline year for allocating fishing quota.
Anyway, under last year’s ETS legislation, companies like Methanex, if they were competing with companies that didn’t face a carbon price on natural gas, would get 90% of their 2005 emissions for free, and have to pay full price for the rest, and for any future growth in emissions.
The curly bit for Methanex is that in 2005 they produced only 340,000 tonnes and this would form the baseline from which their free credits would be calculated. Assuming the same level of production and a carbon price of $25/tonne of emissions, the value of free credits to Methanex under the current ETS would be $12.7 million. However NZ Inc would have been liable for only a small part of this under our Kyoto obligations. If they grow their production, they would have to pay the full $25 for each extra tonne, as that is what the NZ government is liable for.
However under National’s new scheme, the more they expand their business the more free credits they get.
Assume the starting point is still 90% of 2005 levels for free, and then 90% of the emissions from each extra tonne of product; the price is still $25/tonne; and the plants are run at full production of 2.33 million tonnes. Methanex will get $87 million in free credits each year. Their increased production and emissions raises New Zealand’s total emissions and all of this increase has to be paid for by our government after 2012.
Under the Labour scheme Methanex would have paid for their growth. Under National’s scheme, taxpayers do.
However that’s only at the start. Under the existing ETS, the free credit subsidy phases out by 8% each year till in 2030 it is zero. Under National, it reduces only by 1.3% a year and by 2030 is still over $60 million!
Was it a coincidence that Methanex made that announcement days before the National-Maori Party announcement, or did they know what was coming? Just as business leaders whose press statements welcoming the deal appeared with unseemly haste appear to have done?