New Zealand Aluminium Smelters Ltd and their excessive free allocations of emission units

This post is sort of a 'review article' post synthesizing all my previous posts about New Zealand Aluminium Smelters Limited and how their overly generous free allocation of emission units under the emissions trading scheme shields them from a carbon price. NB also posted at Robin Johnson's Economics Web page..

In each year that New Zealand has had an emissions trading scheme, the trans-national company New Zealand Aluminium Smelters Limited was given a very generous 'free allocation' of emission units. First, back in 2010, and in the years following and, bringing us up to date, in 2015.

I have written several blog posts about these free allocations. In the very beginning, back on 7 October 2011, I wrote 150% Pure Subsidy which was also posted at Hot Topic as 120% Pure Subsidy.

In that post I argued that New Zealand Aluminium Smelters Limited, the operator of the Tiwai Point aluminium smelter, was being 'over-allocated' emission units under the New Zealand Emissions Trading Scheme (the "ETS"). That the company was being given more free emission units than the emission units it was required to surrender for it's emissions. And therefore the company was not 'facing a carbon price' under the emissions trading scheme. It was being shielded from the carbon price. In other words, the allocation of free emissions units acted as an 'insurance policy' against ever facing a carbon price.

The company was given an industrial allocation of 210,421 units for the six months from 1 July to 31 December 2010. I estimated that the smelter company was required to surrender between 143,000 and 172,000 emissions units for the six months to 31 December 2010. Therefore the estimated degree of over-allocation of units was between 120% and 147%.

The over allocation is obvious, I thought, when we compare the emissions factor (as used in our greenhouse gas inventories) of producing a tonne of aluminium, with the allocation 'baseline', the number of emission units allocated per tonne of aluminium produced.

In the CRF tables/spreadsheets (20MB zip file) released with New Zealand's Greenhouse Gas Inventory 1990–2014, the 2010 emissions factor for producing a tonne of aluminium is 1.67 tonnes of carbon dioxide with an additional 0.14 tonnes of carbon dioxide equivalent for perfluorocarbon (PFC).

In October 2011, the Climate Change (Eligible Industrial Activities) Regulations 2010 specified that New Zealand Aluminium Smelters Limited was allocated 2.556 emission units per tonne of aluminium produced in 2010.

That allocation 'baseline', 2.556 units per tonne of production, exceeded the 'inventory' emissions factor in carbon dioxide equivalent (1.67 + 0.14 = 1.81) by a factor of 1.4. As indicated in this bar chart, which you could say represents a mental model of how the free allocation works.

Then, on 20 October 2011, I wrote 120% Pure Subsidy: Part 2 which was also cross-posted at Hot Topic.

In that post, I was given feedback that the free allocation of units to emitting industries included extra units for "ETS electricity pass-through costs".

As the report "Development of industrial allocation regulations under the New Zealand emissions trading scheme: Consultation document, (MfE December 2009, ME 984) stated;

"A number of energy-intensive firms will face higher costs of production because of the electricity used in their production"

because, Q.E.D.

"The NZ ETS will increase the costs of generating electricity from fossil fuels and geothermal sources".

This was also explicit in the original Labour Government report "The Framework for a New Zealand Emissions Trading Scheme" of 2007.

It stated in the fourth bullet point to subsection '5.3.1 In-principle decision on levels of assistance through free allocation' (with my underlining), that;

“indirect emissions associated with the consumption of electricity, as well as direct emissions from ... industrial processes will be included in the concept of emissions from industrial producers ... The basis for allocation for electricity consumption will be one that compensates firms for the cost impact”.

However, the total free allocation for both direct emissions and the 'ETS electricity pass-through costs' "would operate within a total envelope of assistance to industry defined as 90 per cent of 2005 emission levels", (subsection 6.5.2.1 Free allocation Level of total assistance to industry).

This allocation 'envelope' (almost a 'cap') of 90 percent of 2005 emissions was dropped in the 2010 Cabinet Paper "EGI Min (10) 14/9".

For highly emissions-intensive trade-exposed emitters, the allocations would be based on actual production (i.e. an 'intensity' basis where allocation would increase if production increased) for the industry (Paragraph 14). The 90 percent (of historic emissions) became a "90% level of assistance" (Paragraph 20) which then became an input to the formula for calculating the allocation number; 'Allocation (in units) = Level of Assistance × Quantity of Production × Allocative Baseline' (Paragraph 32).

The 2010 Cabinet Paper "EGI Min (10) 14/9" established a proxy for the 'ETS electricity pass-through costs', the electricity allocation factor (to calculate ‘emissions’ per megawatt hour of electricity used, paragraph 8) as stated in paragraph 37:

An electricity allocation factor of 0.52 tCO2-e/MWh has been used to calculate proposed allocative baselines. This was the factor proposed in 2008 by the Stationary Energy and Industrial Process Technical Advisory Group (SEIP TAG) to offset the expected increase in electricity price as a result of the introduction of the NZ ETS. This factor was intended to reflect increases in electricity price to the end of 2012 and will need to be periodically updated.

So the counter argument is that New Zealand Aluminium Smelters Limited faces a carbon price through increased electricity costs rather than through the number of emission units surrendered for it's direct emissions.

We may say the allocation baseline has two parts; a direct emissions baseline and and an electricity/(energy) baseline. The free allocation of additional units for the ETS electricity costs lessens the impact of that carbon price (without removing it entirely). This bar chart, where the allocation baseline is less than the sum of the various emissions costs, is the mental model for this narrative for the free allocation.

However, the bar chart isn't the last word. I just made up the numbers to show the idea.

Free allocation to the smelter includes ETS electricity costs. What could possibly go wrong?

Back in the mid-2000s, when the ETS was being developed, what else did we know about the New Zealand Aluminium Smelters Limited electricity contract with Meridian?

We knew it was secret, controversial and far too cheap. Brian Fallow in 2004 estimated the electricity price to be just over 5c a kilowatt hour. Another 2008 cost estimate was $52-$54 a MWh (5.2c - 5.4c a kilowatt hour. CAFCA thought the cost in 2007 was 4.7 c a kilowatt hour.

Brian Fallow also points out the pre-2013 contract exposed perhaps 10 per cent of the supply to the floating wholesale price and that New Zealand Aluminium Smelters were very sensitive about varying wholesale costs when the hydro lakes had low storage levels.

The design of the generous free allocation regime moved the 'discounted' (but apparently still real) ETS 'carbon' price away from the direct emissions and to the ETS electricity pass through costs of an aggressive transnational company with the largest volume, cheapest and most secretive electricity contract in New Zealand. It would be harder to think of a policy more likely to result in regulatory capture (See Internet Archive) and rent-seeking.

The fact that unit allocations include indirect energy costs may make emitters net sellers of units

There is one other important implication of upstream (ETS-related) energy costs being included in the 'allocation baseline'. The total allocation may well be greater than 100% of their direct emissions. But that doesn't matter if the emitter still faces some reduced electricity ETS cost pass-through.

The big 'emission intensive' and 'trade exposed' emitters will always be net sellers of emission units. It very hard to see how a net seller of emission units is, as Nick Smith liked to say, "facing a carbon price".

As an example, there wasn't much doubt that New Zealand Steel's direct allocation of units exceeded their emissions liability.

As Jan Wright observed in her submission on the electricity allocation factor:

"The pertinent question, then, is how much electricity prices will increase as a result of carbon pricing. But electricity price increases are very hard to predict, due to the complexities of the New Zealand electricity market and the need to cater for rising electricity demand. Despite the difficulty, it is imperative the number of credits given to industry to offset electricity price increases should be accurately - and transparently - determined."

The critical questions are therefore "What are the extra costs to the smelter of thermally generated electricity caused specifically by the emissions trading scheme? How are these extra costs measured? Are the costs and method of measurement transparently disclosed?"

It's not classic cap and trade its a double-dip

Let's just be very clear that this idea of the allocation base including upstream ETS energy costs is conceptually a departure from the classic 'cap and trade' model of emissions trading. In strict cap and trade, with a real cap on emissions, and with 'grand-parented' free allocation of the 'capped' units to emitters, the energy sector would be allocated a share of the cap to reflect their direct emissions from energy generation. That allocation, being a part of the finite cap, could not go to both the energy companies with thermal fossil-fuel generation and to the 'downstream' industrial emitters.

In other words, the allocation of extra units to industries because of additional 'up-stream' carbon-intensive energy costs caused by the emissions trading scheme, is the allocation that would have gone to the energy companies in the classic model. That would not be possible in true 'all-sectors' emissions trading scheme with a real cap. It's only possible in our emissions trading scheme because it only applies to parts of the economy and as it is uncapped.

But lets get back to the issue of the 'ETS electricity pass-through costs'. At the time of 120% Pure Subsidy: Part 2 I argued that it was a nonsense for the free allocation of units to a smelter to include a compensation factor for upstream carbon-intensive electricity costs, when that smelter owed it's existence to a dedicated source of hydroelectric generation from Lake Manapōuri. Also the generator the smelter contracts it's electricity from is the 100% renewable Meridian Energy.

The counter argument is that that the contract (or contracts) with Meridian prices some proportion of the electricity supplied at the whatever the wholesale price is at a point in time. And as explained by Brian Fallow, the wholesale price may include an ETS component when coal generation is setting the marginal price.

Then, on 2 November 2011, I wrote Nick Smith fails the smelter spin test, also cross-posted at Hot Topic.

In that post, I argued that the then Minister for Climate Change Issues Nick Smith was incorrect in saying that New Zealand Aluminium Smelters faced a carbon price and that European aluminium smelters did not. Even though the European smelters were not (at that time) participants in the European emissions trading system, the (upstream) electricity sector was and therefore there was a carbon price passed 'downstream' to the smelters from the more carbon-intensive European electricity generators.

On 23 April 2012, I reported that New Zealand Aluminium Smelters Limited had won the 2011 Roger Award for being the worst transnational company operating in New Zealand.

On 9 September 2012, I wrote Power to the smelter? New Zealand Aluminium Smelters Limited wants to pay less for electricity for the Tiwai Point aluminium smelter. That post noted that New Zealand Aluminium Smelters Limited was renegotiating the electricity supply contract with Meridian Energy.

I concluded that New Zealand Aluminium Smelter Limited had breathtaking audacity in threatening to close the Tiwai Point Smelter if they didn't get lower electricity costs, when they already enjoyed the lowest electricity cost of any sector in New Zealand. In 2011 New Zealand Aluminium Smelter Limited paid the very lowest average rate for electricity in New Zealand; 5.03 cents per kilowatt-hour! Residential users paid 22.6 cents per kilowatt-hour, or four times as much.

On 11 September 2012, I riffed off a gangster meme and wrote the evocatively-titled Rio Tinto Alcan New Zealand Ltd plays godfather: nice aluminium smelter you got, be a shame if something happened to it, also at Hot Topic.

I noted that New Zealand Aluminium Smelter Limited was again threatening to close the smelter and in effect saying "Shame if something happens to" the smelter workforce, the Southland economy, the New Zealand electricity market, Meridian Energy and the conservation program for the critically endangered kakapo.

For a couple of years, I didn't really think about smelter until I looked at the Official Information Act releases by the NZ Treasury about the New Zealand Government's payment of $30 million to New Zealand Aluminium Smelters Limited in 2013.

Amongst the dozens of documents was an email between officials with a familiar title which made me laugh; Email to Officials: Rio Tinto Alcan NZ Plays Godfather: Nice Aluminium Smelter you got, be a shame if something happened to it.

In this email, one official noted to another that Meridian Chief Executive Mark Binns had emailed them asking if the electricity costs mentioned in my Hot Topic blog post were correct and that yes the numbers were correct!

Another couple of years went by. As they tend to. Then, on 9 April 2016 of this year, I wrote Opening up the data on emissions units in the NZ emissions trading scheme. In that post I noted with some surprise that the updated data on free emissions unit allocations showed that New Zealand Aluminium Smelter's 2013 allocation had increased by a factor of five from the 2012 allocation. And of course I made a bar chart.

So what happened in 2013? The free allocation increased from 301,244 units in 2012 to 1,524,172 units.

What happened was that the 2013 allocative baseline for aluminium production changed from 2.062 units per tonne to 10.441 units per tonne. As you can see from this bar chart.

Wrapping it all up

In hindsight, it's obvious from the June 2010 Cabinet paper Industrial Allocation under the New Zealand Emissions Trading Scheme: Group One Activities, Ref no: EGI Min (10) 14/9 that although there was a generic 'electricity allocation factor' of of 0.52 tCO2-e/MWh, that would not apply to New Zealand Aluminium Smelters Limited.

They would instead have a 'bespoke' arrangement for the electricity component of the allocation baseline.

This apparently involves an annual "reading" of the highly confidential ultra-cheap electricity supply contract with Meridian. There are a number of potentially ambiguous statements about how this is done.

Paragraph 38 states;

"Specific electricity supply arrangements mean it is appropriate to prescribe specific allocative baselines for aluminium smelting. The Act contains the ability to adjust allocative baselines where particular electricity supply arrangements affect the electricity price increase a particular firm faces. The rationale for this power is to prevent large over-allocations where electricity related contracts prevent a full pass-through of electricity costs."

Paragraphs 40 is in first-person and active tense (think of Nick Smith speaking confidently) and it states (with my underlining)

"I have since used my powers under section 161D of the Act to request electricity contracts and related information from NZAS. [Deleted] In particular the analysis suggests:

1. An average pass-through of electricity costs to NZAS during the transition phase (until 2013) of [Deleted] compared with the pass through of 0.52 tCO2-e/MWh that would otherwise be assumed.
2. Using the default pass-through of 0.52 tCO2-e/MWh would result in an average over-allocation to NZAS of [Deleted] during the transition phase.
3. The actual pass-through to NZAS during the 2010 to 2012 period is likely to be significantly higher or lower than the average value above".

So it's not just a matter of reading the contract. There is also "related information" from New Zealand Aluminium Smelters Limited. There is also an "analysis". This "analysis" suggests that actual annual pass-through electricity costs vary from year to year and may be more or less than than the electricity allocation baseline. However, in spite of this variability, the average pass-through electricity costs for the years 2010 to 2012 is known (but has been deleted to keep it confidential) and is less than 0.52 tCO2-e/MWh.

Paragraph 9 of the Executive Summary states a fairly firm conclusion;

"Information obtained from New Zealand Aluminium Smelters Limited (NZAS) enables electricity pass-through costs that NZAS faces for 2010 to be determined with reasonable certainty at this point."

Paragraph 41 states; "to reflect the actual electricity costs to NZAS, the allocative baseline for NZAS would need to be amended at the beginning of 2011, 2012 and 2013 to ensure that final allocations more accurately reflect the pass-through of electricity costs to NZAS".

So, in conclusion, the Ministry for the Environment has set up a regulatory process where New Zealand Aluminium Smelters Limited is enabled and encouraged to annually provide the Ministry with "related information" and "analysis" of the electricity contract - in order to set the allocation baseline and therefore the number of free units they will be allocated. And this information analysis is not disclosed. It's hard not to conclude that this bespoke process allows New Zealand Aluminium Smelters to annually nominate it's preferred free allocation of emission units.

Opening up the data or webscrape the 2015 free allocation of emission units from MfE

Let's look at the latest data on the very generous free give-aways of emissions units to emitters made by the Ministry for the Environment
(N.B. Update on 10 December 2016. The allocation decisions have moved to the web page of the Environmental Protection Authority. And the "importHTML" function in Google sheets does not work on the EPA pages.)

The Ministry for the Environment has up dated its webpage 2015 Industrial Allocation Decisions to show the final 2015 free allocation of emission units to emitters under the New Zealand Emissions Trading Scheme.

I looked at the 2010 to 2014 data in my post Opening up the data on emissions units in the NZ emissions trading scheme. So in this post I am will repeat my steps in web-scraping the freebie emissions unit data into a sensible open format.

The url of the webpage is http://www.mfe.govt.nz/climate-change/reducing-greenhouse-gas-emissions/new-zealand-emissions-trading-scheme/participatin-4

Go to Google and open a new Google sheet.

Enter this text in cell A1 of the Google sheet.

=importHTML("http://www.mfe.govt.nz/climate-change/reducing-greenhouse-gas-emissions/new-zealand-emissions-trading-scheme/participatin-4","table",1)

That worked perfectly! We have a Google sheet of the 2015 free unit allocation to NZ emissions trading scheme emitters.

I have saved it as NZETS-2015-final-allocations-for-eligible-activities.

However, the first column includes both industry names and types of industries classified by the type of emissions the industry produces. And lots of asterisks. Any sensible format would have these attributes as separate columns so that each company/emitter would have a row each.

So I used a programme called Open Refine to data-wrangle the data into that format and to save it as a comma-separated values file which is this Google sheet NZETS-2015-final-allocations-for-eligible-activities. Its a bit fiddly using Open Refine, so I won't describe how I did it.

This is the updated free emission unit allocation data from 2010 to 2015.

As usual, the big emitters get the most emission units! Of 4.417 million units allocated to industries, 90% went to 11 large companies. New Zealand Steel Development Limited, of arbitrage profits fame, gets 1,067,501 free units. New Zealand Aluminium Smelters Limited gets 772,706 free units.

I did a bit of data visualising and created this pie-chart in R programming language.

The R script for that is

Did I not get the End the Rainbow memo? So I picked a better colour scale from Colour Brewer.

The R script for this non-rainbow pie chart is:

Minister for Climate Change Issues Paula Bennett and the surplus emission units

A wee while ago, back on 23 May to be precise, I wrote an open letter to Minister for Climate Change Issues Paula Bennett calling on her to cancel the surplus Kyoto emission units held by the Crown.

I received an undated reply from Bennett on Monday 4 July 2016.

To crudely sum it up, Bennett's reply is "No we won't cancel any units. Those bad bad Ukrainian units! It was bad. But we stopped being bad, we won't bad again, at any rate no more bad than any one else!"

Here is the text of Bennett's letter. For reference, I have put the text of my open letter at the bottom of this post.

Thank you for your letter of 23 May 2016 about surplus Kyoto Protocol assigned amount units.

As you say, the Government has a surplus of 123.7 million Kyoto Protocol emission units which were left over after we retired units to meet our target for the first Kyoto commitment period.

I accept that there were up to 97 million Emission Reduction Units (ERUs) bought and surrendered in the New Zealand Emissions Trading Scheme (NZ ETS) before the Government stopped accepting them. That was within the rules, but we now know many of the ERUs are likely to have had poor environmental integrity. We are not accepting international units now, and we are working hard to make sure any international units traded in the NZ ETS in the future are of high environmental integrity. We are reviewing the NZ ETS to make sure it will be fit for purpose in the future.

As we have said in the past, we will meet our target of -5 per cent by 2020 using a combination of domestic abatement, forestry removals, and some international purchasing. There is information about the target on the Ministry for the Environment website at www.mfe.govt.nz.

We have not made a decision about what to do with any Kyoto units that are left over after we have met the 2020 target.

Nearly all other Kyoto developed countries also have surpluses. Some of them have said they will cancel units, but haven't actually cancelled them yet. There is no urgency to do anything with these units, and the fact that we are not cancelling them at this stage doesn't put us out of step with other countries.

---

Let's look a little harder at three statements in Bennett's letter.

1. "We are not accepting international units now"
   Bennett is implying that the New Zealand Government made an express decision to stop the importing of some low-integrity international emission units. In fact, New Zealand ended up with no access to international carbon markets when Tim Groser told the UNFCCC that New Zealand was not going to have a formal emissions reduction commitment under the Kyoto Protocol for 2013 to 2020. Ms Bennett and the Ministry for the Environment should stop implying that some positive decision was made. Its just not true.
2. "we will meet our target of -5 per cent by 2020 using a combination of domestic abatement, forestry removals, and some international purchasing."
   The translation of this spin back into plain language is 'we will still be using creative carbon accounting' to pretend we are reducing emissions when we know we are not. Bennett should really stop saying such a disingenuous statement. The Ministry for the Environment's 2020 Net Position Statement still explicitly shows the 123.7 million surplus units plugging the gap.
3. "not cancelling them... doesn't put us out of step with other countries"
   Heaven forbid that New Zealand should be out of step with the many other countries who are also doing nothing about climate change!

My open letter to Paula Bennett - Your ethical duty to cancel 124 million surplus assigned amount units

Dear Minister,

I see that last Friday (20 May 2016) the Ministry for the Environment released New Zealand's Greenhouse Gas Inventory 1990–2014 and the summary 'Snapshot'.

I see that in the Snapshot summary on Figure 5, page 5, that New Zealand is still intending to use 123.7 million emission units (Assigned Amount Units or 'AAUs') that were 'surplus' from the Kyoto Protocol first Commitment Period to meet the 2020 emissions reduction target and still have a surplus of 92.6 million units.

You are aware that the Morgan Foundation's report 'Climate Cheats' and the Stockholm Environment Institute report (Kollmuss, Schneider and Zhezherin 2015) set out a persuasive case that the 97 million Emission Reduction Units ('ERUs') that were imported to New Zealand were “questionable or of low environmental integrity”. Those ERUs were surrendered by NZETS participants into Crown holding accounts.

According to the Kyoto Protocol 'True-Up' Report, in December 2015, the Ministry for the Environment cancelled (transferred Crown-owned units to cancellation accounts) 373 million emission units to comply with the Kyoto Protocol. The numbers and types of units cancelled were: the 97 million imported ERUs, 16 million imported Certified Emission Reduction units ('CERs'), 81 million removal units ('RMUs'), and 179 million AAUs . The 'surplus' units remaining in Crown holding accounts were 124 million AAUs.

In a nutshell, the only reason New Zealand (the Crown) has so many 'surplus' AAUs is because of the inflow and use of the dubious ERUs in the NZETS. Each dubious imported ERU has allowed one additional AAU to be carried forward in a Crown holding account as a 'surplus' unit. Because the ERUs have no credibility, the AAUs no longer represent carbon safely stored out of the atmosphere. No emissions were reduced. Therefore to use these surplus AAUs to comply with the national 2020 emission reduction target is simply an exercise in creative carbon accounting. It is simply unethical.

I put it to you that as Minister for Climate Change Issues, you are morally obliged to cancel these surplus units owned by the Crown. Will you cancel the units? It may hopefully to some small extent restore New Zealand’s very tarnished reputation with respect to mitigating climate change policy.

Yours sincerely

Emissions Trading Scheme unit allocations are open data but units surrendered and actual emissions are state secrets

It would be good if we could compare actual company emissions under the NZETS to the generous free allocations of unit some entities receive. But we can't. It's half secret. So how will we ever know if allocations are excessive?

Someone recently asked me if there was enough publicly available information to be able to tell how the free allocation of NZ emission units to some privileged ETS participants under the NZ Emissions Trading Scheme related to the emitters actual emissions of greenhouse gases.

This information would be the number of emission units allocated to some emitters on the one hand, and on the other hand, the actual emissions of the emitters as reported to the Environmental Protection Authority and the actual numbers of corresponding emission units they surrender to the Environmental Protection Authority.

I replied "No, the data is not available". A response which, although it contains a grain of truth, still doesn't reflect the whole story. So this post is an attempt at that story.

In the past few years, I have written several posts about the significance of the free allocation of emission units to New Zealand Aluminium Smelters Ltd, Norske Skog Tasman and New Zealand Steel. In each case I concluded that the free allocation of units (including units for energy costs) were excessive. That these were cases of 'over-allocation'.

In those posts I had to make estimates of the actual emissions and actual units surrendered. Although the Ministry for the Environment completely discloses the annual free allocation of units, neither the Ministry or the Environmental Protection Authority report the emissions and units surrendered by entity.

As I noted recently I have compiled a Google sheet of all units allocated to emitters from 2010 to 2014.

So good on the Ministry for the Environment. A while ago I made this pie chart of the 2011 allocations from the Ministry. Yes, awful rainbow colours I know! But it still makes it clear that the vast bulk of free units get allocated to the top ten or so emitters - who happen to also be some of New Zealand's largest and most influential companies.

I was running out of emitters like NZ Steel and NZ Aluminium Smelters Ltd who both have unique operations. Both are the only example of their industry in New Zealand. So I could look at 'category' emissions for 'aluminium smelting' and 'steel making from iron sands' in the Ministry for the Environment's greenhouse gas inventory reports and be confident the category emissions were the same as the company emissions.

So, back on 28 March 2013, I made a request under the Official Information Act (OIA) to the Environmental Protection Authority, who administer the reporting of emissions and surrendering of units in the ETS.

I asked for number of units surrendered by the top eleven ETS participants (New Zealand Steel Limited, New Zealand Aluminium Smelters Limited, Methanex New Zealand Limited, Fletcher Concrete and Infrastructure Limited, Ballance Agri-Nutrients Limited, Holcim (New Zealand) Limited, Carter Holt Harvey Pulp & Paper Limited, Pan Pac Forest Products Limited, McDonalds Lime Limited, Winstone Pulp International Limited, Whakatane Mill Limited) for 2010 and 2011.

On 18 April 2013, the Environmental Protection Authority declined my request.

On 19 April 2013 I made a complaint about the EPA decision to the Office of the Ombudsman.

Almost a year later, on 8 April 2014, the Ombudsman concluded his investigation and said that the EPA were correct in refusing to give me the information as the Climate Change Response Act 2002 explicitly applies to the surrender of units in priority to the Official Information Act 1982.

The Deputy Ombudsman Leo Donnelly advised that he agreed with the EPA view that they did not have to provide the information on units surrendered. This is the key passage from his letter dated 8 April 2014.

"I am not persuaded that the Official Information Act is an Act that provides for the disclosure of information in s 99(2)(a) of the Climate Change Response Act.
The Official Information Act confers a right to request official information and requires that such requests be processed in accordance with its provisions, but those provisions do not provide for the disclosure of information under the Climate Change Response Act (or any other Act that imposes restrictions on the availability of official information).
Instead, section 52(3)(b)(i) of the Official Information Act provides that nothing in that Act derogates from any provision which is contained in any other Act which imposes a prohibition or restriction in relation to the availability of official information. Section 99 is such a section.
Accordingly, the Official Information Act does not override the restrictions imposed by section 99 of the Climate Change Response Act and it would be contrary to that section for the requested information to be made available to you. Consequently, section 18(c)(1) of the Official Information Act provides a reason to refuse your request on that basis."

I was bloody disappointed with that response. Here is the Ombudsman's letter. I also didn't know that the Official Information Act only applies if another statute allows it too. I will look at the relevant sections in detail.

Section 52(3)(b)(i) of the Official Information Act states;

(3) Except as provided in sections 50 and 51, nothing in this Act derogates from—
(a) ....
(b) any provision which is contained in any other Act of Parliament or in any regulations within the meaning of the Regulations (Disallowance) Act 1989 (made by Order in Council and in force immediately before 1 July 1983) and which—
(i) imposes a prohibition or restriction in relation to the availability of official information;...

So if another statute (or regulation) prohibits or restricts the availability of official information, then that statute or regulation applies irrespective of the Official Information Act.

Section 99 of the Climate Change Response Act certainly appears to prohibit the availability of information. It states;

This section applies—
(a) to the chief executive, the EPA, an enforcement officer, and any other person who performs functions or exercises powers of the chief executive, the EPA, or an enforcement officer under this Part and Part 5; and
(b) at the time during which, and any time after which, those functions are performed or those powers are exercised.
(2) A person to whom this section applies—
(a) must keep confidential all information that comes into the person’s knowledge when performing any function or exercising any power under this Part and Part 5; and
(b) may not disclose any information specified in paragraph (a), except—
(i) with the consent of the person to whom the information relates or of the person to whom the information is confidential; or
(ii) to the extent that the information is already in the public domain; or
(iii) for the purposes of, or in connection with, the exercise of powers conferred by this Part or for the administration of this Act; or
(iiia) for the purposes of, or in connection with, reporting requirements of the Public Finance Act 1989; or (iv) as provided under this Act or any other Act; or
(v) in connection with any investigation or inquiry (whether or not preliminary to any proceedings) in respect of, or any proceedings for, an offence against this Act or any other Act; or
(vi) for the purpose of complying with any obligation under the Convention or the Protocol.
(3) A person to whom this section applies commits an offence under section 130 if the person knowingly contravenes this section.....

So why does the Ministry for the Environment publish the annual allocations of units on its website? Why is the policy for unit allocation effectively open data (with complete public disclosure) when the policy for emissions and units surrendered in the ETS, the policy is 'Official Secrets Act?

The answer is the perfect bureaucrat's answer, because the Act says so. Section 86B Decisions on applications for allocations of New Zealand units to industry and agriculture of the Climate Change Response Act states:

(5) The EPA must, as soon as practicable, after deciding an eligible person’s final allocation for an eligible activity in respect of a year,—
(a) publish the decision in the Gazette; and
(b) ensure it is accessible via the Internet site of the EPA.

Where does this leave us? It's the old story of the three-handed forestry consultant. 'On the one hand, on the second hand, but on the third hand..' Its great that the data on free allocation of units to emitters is fully disclosed. I am sure many of them wouldn't want that. However, without data on units surrendered and actual annual emissions under the ETS, no one can make much of an assessment of whether the units allocated are reasonable or over-allocated in terms of exceeding actual emissions. Transparency (and legitimacy) would be very much improved if the actual emissions and unit surrenders were just as open as the unit allocations

Opening up the data on emissions units in the NZ emissions trading scheme

In this post I include a gratuitous image of Marlon Brandon as the Godfather because all this wonky open data stuff I have been doing lately might be a bit boring. But I do eventually get around to a worked example of how to find out how many free units were given to NZ Aluminium Smelters Ltd.

Following on from the post about the data on internationally-sourced emission units that have been imported into New Zealand, I have uploaded more two data files to Google Sheets. They are in comma separated values (CSV) format.

The first sheet is NZETS-2010-2014-final-allocations-for-eligible-activities-csv which is five years of data on the free allocation (gifting) of New Zealand Units (NZUs) to emitting industries under the New Zealand emissions trading scheme (or NZETS).

This file combines into one sheet the numbers of allocated units (which are recorded in separate 'by year' tables) from the 'Industrial allocation decisions' pages on the Ministry for the Environment's climate change website.

The second sheet is Kyoto Unit Holdings by Account 2008 - 2014 which is seven years worth of data listing all account holders in the Emission Unit Register who held a balance of Kyoto Protocol emission units at 31 December of each year. This sheet combines all the seven year by year sheets linked to on the post about Kyoto emission units

The Kypto units are the Assigned Amount Units (AAUs), the Emission Reduction Units (which are otherwise known as the the dubious Russian or Ukrainian emission units), the Removal Units (RMUs) and the Certified Emission Reduction units (CERs). Oddly, there is no requirement for the Emission Unit Register to disclose the year end balances of NZUs held by account holders.

How do we use this data? We need a worked example.

Let's assume we are interested in New Zealand Aluminium Smelters Limited, the operator of the Tiwai Point aluminium smelter. I mean, who isn't interested in the Godfather of the NZ emissions trading scheme?

All we have to do with our Google sheet is apply a filter to the top row, the column headings, select the third or 'C' column 'Activity', and then open a drop down dialogue box and then hit 'clear selection' then select 'Aluminium smelting'.

That tells us that New Zealand Aluminium Smelters Limited were given the following emission units

2010 210,421
2011 437,681
2012 301,244
2013 1,524,172
2014 755,987

In other words, NZ Aluminium Smelters were given millions of NZ emission units for free from 2010 to 2014. A total of 3,229,505 to be exact. A bar plot of the annual allocations looks like this.

So what happened in 2013? NZ Aluminium Smelters free allocation increased by a factor of five. Maybe that can wait for another post.

Here is the R script for the bar chart.

Who owned the Russian and Ukrainian sourced emissions reduction units used in the NZETS?

The New Zealand Emission Unit Register, which records legal title for all valid carbon credits/emissions units in the New Zealand Emissions Trading Scheme, can be searched.

One possible search gives a list of account holders and the volume of Kyoto Protocol emission units the account holder owned at the end of the calendar year. This search shows the types of Kyoto units held, the two commonest types being the Emission Reduction Units (ERUs) and the Certified Emission Reduction units (CERs).

What interests me is who owned these units? Who imported them? As Brian Fallow pointed out, the cheaper units collapsed the price of all units in 2011 and 2012

The imported units were not only too cheap and too plentiful. Most of them it appears were fraudulently issued.

In two scathing blog posts last December, No Right Turn traced the serial numbers of some Emission Reduction Units and Certified Emission Reduction units that New Zealand had retired to comply with the Kyoto Protocol, back to fraudulent projects in the Ukraine and Russia.

I have taken the annual lists of unit holders from the html tables on the Emissions Unit Register's website and uploaded them to Google Sheets. Here they are from 2008 to 2014. At some stage I will do some analysis. In the meantime, feel free to download them.

Kyoto Unit Holdings by Account 2008.

Kyoto Unit Holdings by Account 2009

Kyoto Unit Holdings by Account 2010

Kyoto Unit Holdings by Account 2011

Kyoto Unit Holdings by Account 2012

Kyoto Unit Holdings by Account 2013

Kyoto Unit Holdings by Account 2014

Surplus emission units in New Zealands Emissions Trading Scheme

The New Zealand Emissions Trading Scheme Review discussion document includes this statement about surplus emission units on page 10.

"There is a substantial number of banked NZUs owned by market participants, which combine with current ETS settings to weaken the effectiveness of the NZ ETS to assist New Zealand to meet its international obligations...
This stockpile of banked NZUs amounts to around 140 million units. This is several times the total number of units surrendered under current NZ ETS settings each year, which typically amounts to less than 30 million units.
Some of these units are held by foresters, who banked the NZUs they received as their trees grew. Other participants banked units they received via one-off allocations when the NZ ETS was first put in place, or accumulated NZUs by surrendering cheaper international units to meet their obligations and banking NZUs they purchased or received from the Government".

Did you notice the specific use of language? The word 'surplus' is not used. The preferred term is 'banked NZUs owned by market participants'. 'Banked units' implies that it's the fault of the market participants. Surplus units implies faulty design. As I have posted previously.

An effective emissions trading scheme with a real cap would never have surplus units. Units would be scarce and realistically priced. A surplus of units is of itself evidence of a failed implementation of cap and trade frameworks such as Kyoto and the EU ETS.

How many surplus units are there? The discussion document says 140 million units. I have doodled away with the R programme and some data from the Environmental Protection Authority's Emissions Units Register and have made a graph of the cumulative total of units held in the NZ Emissions Unit Register at the end of the calendar year, up to 2014.

The key point being that the cumulative total of all types of units, 588 million, at the end of 2014, exceeds the total 'compliance demand', 110 million, the number surrendered by emitters/ market participants from 2009 to 2014 by a factor of almost six.

We need to note that in the final accounting for the 2008 to 2012 Kyoto Protocol commitment period, New Zealand has to cancel some 373 million units to match our emissions.

Here is the R script.

Here is the data.