New report warns against subsidising possible gas price hikes
A dry winter in 2025 or beyond could enable our largest gas user – Canadian company Methanex – to push up gas and electricity prices, according to a new report, titled “Methanexit: should NZ be subsidising our largest gas user?”
The report – released by 350 Aotearoa, Common Grace Aotearoa and the Centre for International Corporate Tax Accountability and Research (CICTAR) – argues that tightening gas supplies and declining production margins are increasingly shifting Methanex’s business model from methanol production to gas on-selling, at a significant mark-up.
Here are some key findings of the report:
The report highlights that Methanex’s Taranaki plant is 34% more polluting than the company’s global production, and yet our government is propping up their pollution with free carbon credits.
Last year Methanex received $60 million worth of free carbon credits from the government to subsidise their pollution, which they can sell to cover their profit margin. We estimate Methanex's free carbon credits over the last decade add up to about $300 million.
As the profitability of producing methanol has declined, the subsidies it receives and its massive gas contracts enables it to speculate on gas prices. This year when the dams were running low and power prices were high, the company was able to on-sell their gas for an estimated 400% markup to electricity retailers.
And when it comes time to pay tax, conveniently a lot of their profit is shifted on to their Hong Kong based owner. Our report reveals they have engaged in activities could have had the effect of reducing income tax expense by more than $46 million over the last decade.
December 2024: Methanexit: Should NZ be subsidising our largest gas user?
December 2024: Reaction to the Second Emissions Reduction Plan
Don’t Subsidise Pollution campaign spokesperson Alex Johnston, of Common Grace Aotearoa, comments on the Government’s Second Emissions Reduction Plan finalised today:
"It's disappointing that the plan doesn't address the massive subsidy we give to multinationals through free carbon credits so they can continue carbon-intensive business as usual.
Policies in the Emissions Budget 2 period are expected to only achieve 3.2 million tonnes of emissions reduction, while the government in that time plans to give away 28 million emissions units for free via industrial allocation.
"The Climate Change Commission and other experts agree that changes to industrial allocation in the ETS are urgently needed. Such a huge subsidy props up multinationals’ production processes whose emissions account for nearly 10% of the country's emissions. While the rest of NZ must reduce emissions to meet our reduction goals, these companies are largely exempt at a huge cost to ordinary households."
“The Plan also ignores the fact that over half of submitters called on the government to deal with the problem of free carbon credits to industrial polluters.”
Policies in the Emissions Budget 2 period are expected to only achieve 3.2 million tonnes of emissions reduction, while the government in that time plans to give away 28 million emissions units for free via industrial allocation.
In an email to submitters, the Ministry reported that there were 1800 submissions, and the Don’t Subsidise Pollution campaign was responsible for 962 submissions from individuals.
Said Johnston: “Removing free credits and replacing them with targeted investments to support trade-exposed industries to decarbonise could achieve much greater and more certain emissions reductions than relying on speculative carbon capture technology.
“The ERP stresses the need to create investment certainty. But because these free allocations are so costly to NZ and do not align with our climate targets, it is inevitable that significant changes will need to be made down the road. The ERP creates the illusion that it is possible to continue business as usual, when it will in fact expose investors and businesses to shock adjustments later.”
“The better approach would be for the government to show leadership and commit to phase out the free credits by 2030 and introduce a Carbon Border Adjustment Mechanism. It should develop a range of policies to support these businesses to decarbonise rather than subsidising business as usual at the expense of taxpayers and the planet.”
We celebrate the inclusion of an end to free carbon credits and embrace of a Carbon Border Adjustment Mechanism in He Ara Anamata - the Green's Party alternative Emission Reduction Plan announced on Sunday, and invite other political parties to follow suit with their own ideas for how to stop subsidising the pollution of large industrial emitters.
The proposed Ministry of Green Works to facilitate a just transition presents a strong opportunity to unlock a green industrial transformation in Aotearoa where no one is left behind.
Our Don't Subsidise Pollution campaign - with a petition signed by thousands and hundreds making submissions on the government's draft Emissions Reduction Plan - has been calling for an end to free carbon credits and policies to unlock green jobs in Aotearoa's industrial sectors, and now these ideas are really starting to stick!
09 December 2024: Green Party supports ending free carbon credits and a Carbon Border Adjustment Mechanism
For more detail, download our full policy briefing provided to MPs in July 2024 - Reforming industrial allocation: How ending free carbon credits can cut emissions and unlock green jobs in New Zealand’s industrial sectors
Image credits:
Parliament petition handover - Luke Pilkington-Ching
Methanex Motonui plant - Fiona Clark
Te Whanganui-a-Tara climate strike 2023 - Elliot Blyth
Auckland floods image - Aaron Montrose
All other images from iStock
