Wednesday, November 2, 2011

New Zealand Minister Nick Smith fails the smelter spin test

Robin Johnson's Economics Web Page cross posts about New Zealand Climate Minister Nick Smith's spin over emissions trading subsidies to an aluminium smelter.

What does New Zealand's Minister for Climate Change Issues, Nick Smith, say when the New Zealand Green Party accuses him of subsidising greenhouse gas polluters?

Well it seems he denies it and he produces instructive soundbites of spin. I am informed that at Wellington's Oxfam election and climate change debate he said that New Zealand's sole aluminium smelter at Tiwai Point is the only aluminium smelter in the world exposed to a carbon price.

He has said this soundbite a few times. For example, in response to NZ Green MP Kennedy Graham on 29 September 2011:
"..the aluminium smelter in Bluff is the only aluminium smelter in the world to face any price at all for its greenhouse gas emissions".
On TV One's 'Q and A' programme:
"the New Zealand Aluminium Smelter in Bluff, it is the only one in the world that pays any face at all for carbon pricing." (1)
In Parliament in September 2009,
"...the Bluff smelter, on 1 July next year, will be the very first to face a carbon price for its pollution. The European scheme excludes aluminium smelters until 2013..."
Does Dr Nick's soundbite stand up to scrutiny? Not really. The European Union Emissions Trading Scheme, which started in 2005, excludes the European aluminium smelters until 2013. But it included electricity generation from 2005. And aluminium smelting is very electricity intensive. As the International Energy Agency says: "Although the primary aluminium sector is not directly covered by the (EU) ETS, the impacts of the CO2 price are felt through increases in electricity prices" (p 8). (2)

So, Europe's smelters are exposed to a carbon price through their power bills.

Another example of a Smith soundbite is saying that the overly-generous free allocation of emissions units to industry in the NZ ETS is not a cost to the taxpayer. For example: Parliament on 29 September 2011:
"This member and other members make the gross error of trying to claim that not exposing industries or consumers to the full price of carbon over all their emissions is somehow a subsidy. A subsidy implies that there is a cost to taxpayers. That is not true.."
Unfortunately for Dr Nick, that's not what the New Zealand Auditor General, Lynn Provost, says in her accounting and auditing advice for emissions units in the public sector
"NZUs have a market value and the issue of NZUs without charge to participants is an expense to the Government and creates a liability".
Sorry Dr Smith, the Tiwai Point smelter is not the only aluminium smelter exposed to a carbon price in an ETS. And the European smelters probably pay a higher carbon price through their electricity costs as the Tiwai Point smelter owner is compensated for electricity costs as well as emissions through excessive free allocation of emissions units.

Sorry Dr Smith, you can't just create and give away a permit to emit greenhouse gases that has a clear market value and say there is no cost to taxpayers as Treasury did not write out a cheque. The Auditor General confirms what we taxpayers already know that there is a real cost to taxpayers of giving emissions units away to big emitters.

(1) NB By 'pay any face' I think he means 'face any price'.)
(2) IEA, 2008,'Climate Policy and Carbon Leakage - Impacts of the European Emissions Trading Scheme on Aluminium'

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