A coalition of environmental, faith and construction industry groups say that the Climate Commission's final advice on the government’s Second Emissions Reduction Plan is a clear signal that it’s time to end the system of free carbon credits given to large industrial polluters.

The Commission’s advice concluded that “Current industrial free allocation policy is not fit for the long term or proportionate to emissions leakage risk” and urged the government to “explore other policies to address emissions leakage risk”.

Free industrial allocation in the Emissions Trading Scheme is the handout of free carbon credits to large industrial polluters that helps them avoid paying a full carbon price, and represents a subsidy of more than $600 million a year to just a few companies, getting more expensive as the carbon price rises.

The Don’t Subsidise Pollution coalition says that subsidising pollution during a climate crisis doesn’t make sense and a plan is urgently needed to end free credits by 2030.

“The new government has said they want the ETS to be the key tool to meeting New Zealand’s climate targets, and that they don’t like subsidies” says Alex Johnston, Common Grace Aotearoa co-Director and coordinator of the coalition. “Endlessly handing out free carbon credits to big polluters goes against both aims.”

“If they are intent on cancelling most other climate policies then they need the ETS to be doing some extra heavy lifting. The Commission has sent a clear signal that industrial emissions need to drop significantly in the second Emissions Budget period. Our analysis shows that ending free carbon credits by 2030 could achieve 10 million tonnes in extra reductions, plus generate $1.4 billion in revenue to reinvest in climate action.”

Said Johnston: “The Second Emissions Reduction Plan should contain a commitment to accelerating the phase out of industrial allocation to reach zero free credits by 2030, and instead phasing in a carbon border mechanism like the European Union is doing.”

“The first thing that the Minister of Climate Change should do when he gets off the plane from COP28 is request advice on a plan to end free carbon credits.”

Coal Action Network Aotearoa’s Tim Jones said that “New Zealand industries need to be on a level playing field when it comes to paying for carbon emissions. It's time to stop the carbon credit handouts to vested interests that delay decarbonisation. Ending free carbon credits is key to get coal out of our energy system.”

Andrew Eagles, CEO of the New Zealand Green Building Council, says ““We know the ETS is broken. Kiwi families are increasingly paying the cost of emissions and climate change, while an out of date anomaly in the ETS gives large industrial polluters tens of millions of dollars’ worth of free carbon credits. Removing free allocations will provide greater incentives for our big polluters to act and decarbonise. It also means government gains more capital to help Aotearoa with the transition to a lower carbon future.”

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