Reforming industrial allocation in the NZ ETS

The need to act on climate change is urgent.
The IPCC makes clear that every effort to cut emissions now matters.
Policies that delay emissions reduction are no longer fit for purpose.
Accordingly I agree with these criteria in a general sense, but the detail is important, such as what "appropriate incentive", how you should evaluate emissions leakage, what typical investment horizons are.
Eg: allocations should ensure that there is a large incentive to decarbonise, and to do so rapidly, allocations should be based on what the best case overseas practice is, not averages or worst case, typical investment horizons should be assumed to be short as we need urgent and rapid change, and this means the investment horizon for all of our society must be short.
Protecting large emitters from the costs of their pollution transfers the cost to another part of our economy, making that part less competitive. This biases our economy toward higher emission industries, when we need to be swinging toward low emmitting industries.

Baselines should be updated every year.
There needs to be continuous demand for reduction.

Globally, more research is being conducted to reduce emissions in all industries, and this will only increase as the demands on industry increase. The replacement of ICE vehicles with EVs is a case in point, and the rapid improvement in battery energy density. The point of allocations is to keep our companies competitive to the extent that they are at the low end of international emissions. If competitors (inside or outside New Zealand) decarbonise rapidly there needs to be strong incentives for others to follow rapidly.

We have a plan to reach net zero by 2050, and this plan is not sufficiently ambitious to meet the Paris goals, or to keep NZ emissions within any fair amount based on IPCC calculations.

10 years represents a very slow rate of change, and with rapid changes in technology would see us subsidising polluting industries for most of each 10 year period.

As above. The reassessment should happen every year.
For the reasons above.
The event timeline for decarbonisation is now very short.
To meet our intermediate carbon budgets we need maximum reductions early, not late in the target periods.
Any money going as subsidy to prop up polluting industries is money that counts against our emissions goals. This money should be going toward industries that help meet our climate goals.

For the reasons above.
The event timeline for decarbonisation is now very short.
To meet our intermediate carbon budgets we need maximum reductions early, not late in the target periods.

These years are already 5, 4 and 3 years ago.
Based on the proposed 10 year review, these baselines would be 15 years old by the time they are reviewed.
That is a ridiculous timeframe considering that the need to reduce emissions is urgent.

To meet our goals, globally, some industries will need to radically change, and quickly, to shut down.

The possibility of an industry becoming obsolete through regulatory change, technology change, or change in consumer desire is a business risk. The need to deal with emissions has been visible for 3 decades, since the Kyoto negotiations started.

Anyone making high emission investment decisions over this time period has made their choices with eyes open. Anyone who made their decisions prior to this time period has long since made their return.

We should not protect industries causing the most damage, from being impacted by regulations designed to mitigate this damage.

They should be the only years included.

Yes.
And eligibility, like base years, should be constantly updated.
These industries need to improve or die.

Yes.

Yes.
We should be eliminating all factors that over allocate.

Yes, because we need to provide support to develop and encourage low intensity industries, not support the retention of high intensity industries.

Yes.
It is not logical to subsidise a high emissions industry that is not at real risk of being substituted in the local market.
This simply insulates local consumers from paying for the emissions of their choice of product.

The method suggested would have the shortcoming of not predicting a likely impact of removing subsidy.
It would be useful to look at the international market for the product, and the proportion of trade in the product that is typically domestically produced and consumed.
Products that have a high percentage internationally traded could be considered more at risk.

Simplify.
Any scheme we use needs to be able to respond rapidly, and not be delayed.
Action on climate emissions is urgent.

No.
New activities should not be covered by allocations.
We should not be encouraging emissions intensive activities that require subsidy from the public at large.

Similarly, existing support should be subject to a ratchet cap mechanism. Expansion of existing, polluting, industries should not be subsidised by the public at large.

No.
New activities should not be covered by allocations.
We should not be encouraging emissions intensive activities that require subsidy from the public at large.

Similarly, existing support should be subject to a ratchet cap mechanism. Expansion of existing, polluting, industries should not be subsidised by the public at large.

Yes.
Any business that receives a public subsidy to pollute should be subject to public scrutiny.

No.
The need for change is urgent.

Yes.
We should update the scheme as a matter of urgency so that some action is taken.

But, we should also look at replacing this with price adjustment for imports (but not exports) at the border that come from countries/industries that do not have emissions pricing built into the cost of the import product. This is the likely future of international trade. As more countries get serious about meeting their emissions targets they will look to add carbon prices to imports to create competition parity.

We should not be subsidising exporters to pollute, as this merely increases the overall global emissions. The argument that other, higher emitting, overseas competitors would fill the space is hollow. Generally the size of the market is being increased by the oversupply and price subsidies. Removing the subsidised NZ competitor would reduce competition, increase the price and reduce the market for the emissions intensive product. This would be a global benefit, even if it would reduce NZ exports of this product. The saved money could instead be used on emissions reduction actions in New Zealand.

See answer to q23.
Price adjustments at the border on imports to reflect the regulatory situation in the country (or countries) of origin.

No subsidy for exports, as that only reduces the price and increases the market for high emissions products internationally.

IA policy should require reduction in emissions, or have a very early sunset clause. The whole scheme should expire in 2030.

Emissions leakage concerns should not be relevant to export industries. As I noted above, additional supply leads to lower price which drives consumption of higher emissions products.

Even internally it is problematic. For example: A building can be made from wood or from concrete. One is carbon positive, locking away carbon for long periods. The other is carbon intensive. But the cement from the concrete is being subsidised by credit allocations, biasing the building market toward a higher emission product.

A sinking cap on allocations, with a terminal date of 2030 or 2035.

This forces industries to improve or die, which is the in interests of the world. The present scheme totally fails to reflect the urgency of climate action.

At the moment we would be better to buy and close the polluting industries, and seek low emission alternatives.

For example: the world does not *need* a year round supply of hot house tomatoes, capsicums and courgettes. These are luxuries that typically come with a nice dollop of air freight to round out their climate damage.

Yes.
Urgent change is required.
In many cases the cost of allocations comes close to the income of the jobs supported by the allocations.
Then these supported industries cause other environmental damage, or receive other subsidies on top of the allocated credits.
We should seek alternatives to industries that have reached a natural "use by" date when we take into account pollution. Propping up these industries slows down the innovation and uptake of non-polluting substitutes.

Emissions leakage is largely a myth. It props up the polluting industries and protects them from competition from alternative products.