Subsidizing polluting industries costs taxpayers directly

Written By: notices and features - Date published: 11:45 am, August 18th, 2009 - 34 comments
Categories: climate change, national/act government - Tags:

An excellent post from Idiot Savant (reproduced with permission) on the cost to taxpayers of subsidizing polluting industries. I haven’t noticed the mainstream media reporting this critical aspect of the governments climate change proposals. Too hard for them to grasp perhaps?

Climate change: An illustration

How unfair is the government’s plan to cap the price of carbon? Here’s an illustration. Holcim has just been granted resource consent to build a major new cement plant in Oamaru. The plant would produce about 900,000 tons of cement a year. In the process, it is estimated to produce about a million tons of CO₂ a year. So, for every dollar by which the cap is below the market price of carbon, we’ll be giving Holcim’s foreign owners about a million dollars a year. According to Treasury, the current price of carbon is around $22/ton. So, if the government caps the price at a sub-market $10 / ton, then Holcim will be getting $12 million a year in pure profit gouged out of kiwi taxpayers as an environmental subsidy.

This exercise can be repeated for every large industrial polluter. Methanex, New Zealand Refining, Contact Energy, Rio Tinto, New Zealand Steel… add it up, and we’re looking at around $4 million per dollar for the industrial sector, $6 million per dollar for the manufacturing and construction sector, $1 million per dollar for oil refining, $2 million per dollar for the coal and gas industry’s fugitive emissions, and $14 million per dollar for the oil companies. Per dollar. When you start multiplying it by the $10 – $15 per ton subsidy the major polluters want to continue polluting, then you’re looking at $250 – $400 million a year – around the cost of running the court system – straight into the pockets of our major polluters’ foreign owners.

In other words, we are looking at a major redistribution of wealth from the people of New Zealand to rich foreigners, in the form of a subsidy for pollution. And that simply is not fair. The only fair way of allocating the cost is for polluters to pay the full cost of their activities. And if that drives them out of business, then they were never really profitable in the first place.

(The above assumes a cap lower than current prices, but the same logic applies regardless of where the cap is set. If its needed, then by definition the market price is higher, which means we are artificially subsidising the profits of polluters by whatever the difference is. As carbon prices are expected to rise, any cap is likely to become the same sort of running sore on the government’s books that production subsidies to farmers were up until they were done away with in the mid-80’s).

34 comments on “Subsidizing polluting industries costs taxpayers directly ”

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BLiP 1

18 August 2009 at 11:58 am

The rich get richer and the poor get poorer. Thanks National Inc, I’m lovin’ it.
factchecker 2

18 August 2009 at 12:12 pm

if by “subsidy” you mean allocating free credits to businesses which up until the point at which you created the credits, didn”t have to account for carbon (thus changing the rules of the game overnight), sure….

correct me if I’m wrong but wasnrt it also Labour’s plan to give free allocation to polluting industries…?
- lprent 2.1
  
  18 August 2009 at 12:25 pm
  
  Yes at startup, but at least that means the credits would be in circulation to establish a market (and a price). However that is less of a bad thing for the market than doing what the Nats are doing. Not issuing credits at all to their mates, and therefore getting the taxpayer to subsidize it. Mind you that was the short-term thinking that lead to the SMP’s welfare for kiwi sheep farmers in the 1980’s.
  
  Why ask such a stupid question? Don’t you understand how markets operate?
  
  In other words – why not live up to your name rather than being such a idiot.
just another student 3

18 August 2009 at 12:27 pm

Subsidising business to destroy the planet.. how clever of them.

Surely this subsidy only negates the purpose of the plan in the first place, to encourage business to reduce carbon output.
Andrei 4

18 August 2009 at 12:42 pm

You people are a mystery to me.

Don’t you realize this cement plant means jobs where people can earn a living.

And that paying carbon tax is just giving money to unproductive troughers, money that could be used to pay higher wages to the people that work there.

The people who would get jobs there are the people you purportedly care about.

Obviously not.
- Conal 4.1
  
  18 August 2009 at 1:26 pm
  
  Can the cement plant run profitably without this subsidy? No? Then good riddance to it, and the bogus jobs it provides. Eliminating the subsidy on high-carbon cement would allow some other plant to make low-carbon cement instead (yes there is such a thing). Would a low-carbon cement plant necessarily employ fewer people? I don’t see why.
  
  Or alternatively the tax money spent on subsidising high-carbon cement could be spent on subsidising housing construction, or it could be used to lower taxes, or to build schools, telecommunication networks, wind-farms, roads, etc, or to buy trains, run TV stations, etc, etc, and thereby employ people usefully.
  - Andrei 4.1.1
    
    18 August 2009 at 1:31 pm
    
    Don’t you need cement to build schools and roads?
    
    And what money is being saved here? Carbon credits are a phantom product with no intrinsic value what-so-ever
    - Armchair Critic 4.1.1.1
      
      18 August 2009 at 1:48 pm
      
      Don’t stop at carbon credits, there are plenty of other things out there for sale that have no intrinsic value whatsoever.
      Roads tend to be built mostly from aggregate and bitumen. Some concrete is used for the culvert pipes and kerbing.
      Schools also tend to not use that much concrete in their construction.
- lprent 4.2
  
  18 August 2009 at 1:50 pm
  
  Cement is main by burning lime. Lime is largely calcium carbonate. The carbonate is largely fossilized CO2. Burning the lime inevitably releases fossil CO2 into the atmosphere along with the H2O that they are trying to get rid of to make cement.
  
  CO2 is a greenhouse gas that will inevitably contribute to climate change through heat retention in the earths biosphere.
  
  So you want your children and grandchildren to not live in the world you do? They will have higher sea-levels, probable food shortages because of crop failure, increased prevalence of disease as always happens with climate change and food shortages, probably widespread warfare as too many people fight over uncertain resources, and probable collapses of civilization.
  
  All because you want to stop businesses paying the full costs for their products?
  
  Whats wrong with you – don’t you have any feelings for your kids ? Are you human?
  - Andrei 4.2.1
    
    18 August 2009 at 2:08 pm
    
    Whats wrong with you don’t you have any feelings for your kids ? Are you human? Nothing, yes and yes.
    
    Where did the carbon in the Calcium Carbonate come from in the first place?
    
    The Atmosphere
    
    Is the process that laid down the limestone still occurring today?
    
    Yes it is
    
    How much Carbon is removed by this process today?
    
    Nobody knows. but given the size of the oceans where the majority of God’s little creatures are happily creating their exoskeletons it will be well in excess of the worldwide production of cement.
    
    Question why do you want to jeopardize my kids future by boosting a phantom problem in order to impoverish mankind?
    - So Bored 4.2.1.1
      
      18 August 2009 at 2:22 pm
      
      Hi Andrei, FYI those little creatures exoskeletons are threatenned by the acidification of the oceans. To be impoverished it helps to also be alive on a living planet.
      
      Your current arguments are so tedious and boring that they are not worth the (metaphoric) yawn of one of these tiny creatures.
    - lprent 4.2.1.2
      
      18 August 2009 at 2:48 pm
      
      You really are a fool or have bugger all idea of earth sciences..
      
      Factor in time and rework your brain from ignorance to enlightenment.. Sure we don’t know exactly, but we can estimate based on the steady-state. I haven’t looked at the IPCC estimates for lockup in limestones – but it will be a hell of lot less than you think. I do have an idea of the release of CO2 from cement production.
      
      The nice little diatoms and such like lay their lives down to produce a nice calcium carbonate bed over millions of years, not decades. Most deep seafloor deposition rates (where most of the deposition takes place away from the processes that destroy the shells) are measured in small numbers of millimetres per year.
      
      Extend that only by the areas that will form limestone deposits – ie remove all of the areas that are subductive seafloor where after a few 100k years it gets fried back up into the atmosphere (and never forms limestone). What you have left is the CO2 lockup rate per year from limestone formation. The quantity of that is probably measured in mere 10’s-100’s of millions of tonnes of CO2 per year at best.
      
      What you have is a time and surface area problem. The actual formation rate of limestones is very low because it depends on a whole heap of processes happening. Especially basins that are not subduction areas (rare) and long accumulation periods. All of the other formation that you’re referring to is recycled by the biosphere within relatively short periods of time.
      
      I expect that you’d find that the estimates (no certainties there either) of current cement industry worldwide production of CO2 will be exceeding the natural annual formation rate of sequestered CO2 in long-term (ie millions of years) calcium carbonate beds. But knock yourself out – find me the estimates for both to prove your point.
      
      Of course we haven’t even got into the costs of transporting concrete, or the costs of generating the heat to burn it. Cement is one of the most expensive building materials around if you look at the all of the costs. Building in steel is preferable.
      
      Incidentally you’re displaying what I have referred to today as the supercilious smug attitude of the right. It just demonstrates that a little bit of knowledge is just sufficient to make you stupidly dangerous rather than giving you wisdom. ie you’re a fool.
      - Andrei 4.2.1.2.1
        
        18 August 2009 at 4:42 pm
        
        Incidentally you’re displaying what I have referred to today as the supercilious smug attitude of the right. It just demonstrates that a little bit of knowledge is just sufficient to make you stupidly dangerous rather than giving you wisdom. ie you’re a fool.
        
        Yeah Yeah
        
        I haven’t looked at the IPCC estimates for lockup in limestones
        
        I had a look for it – couldn’t find it there – which is not to say it isn’t but if it is its buried deep..
        
        Of course it is a fairly intractable problem to try and estimate how much carbon is being removed from the biosphere by the formation of calcium carbonate. Like you say it is deposited in small numbers of millimetres per year. but omit the areas over which this occurred are large. For example Southern England and parts North Western Europe are all deposits of chalk laid down in the Cretaceous. and who is to say similar deposits are not being laid down right now?
        (S)mall numbers of millimetres per year. over thousands of square Kilometers becomes quite large – no?
        
        Anyway when scientists produce papers that contradict your alarmism we now what happens don’t we – there are all sorts of ructions e.g Willie Soon and Sallie Baliunas . A thoroughly disgraceful and reprehensible episode which just show the lengths you people will go to to advance your agendas and disrupt the process of science to do so.
        
        NickS 4.2.1.2.1.1
        
        19 August 2009 at 11:29 am
        
        I’ll dig into the rest later, But on Soon and Baliunas, 2003;
        http://www.realclimate.org/index.php/archives/2004/12/myths-vs-fact-regarding-the-hockey-stick/
        See myth 2.
        
        Which also brings me a major point about reading scientific literature. Papers do not, and cannot really exist in isolation, the results and methods need to contrasted with other research, and often you need to delve into the literature cited in the introduction in order to get what the paper is about. This can also highlight errors in the paper at question’s methodology and results, as such is the case with Soon and Baliunas, 2003, in part thanks to the joys of google scholar’s cite search;
        http://scholar.google.co.nz/scholar?cites=4086521552769615362&hl=en
        
        Lo and behold, papers written by Mann are at the top. Though I need to use advanced search in future just to cut out the stuff hosted on denialist sites, though the Wahl & Ammann 2005 one on climateaudit is rather interesting in light of other literature on the Hokeystick I’ve skimmed over.
        
        Anyhow, according the paper cited in the realclimate link, effectively S&B2003 made some rather silly mistakes that effectively hole the authors claims of having falsified Mann et al’s reconstructions of past climate.
  - oamarusouth 4.2.2
    
    19 August 2009 at 2:13 am
    
    How dare you say “how human”? No one – outside a few – has opposed the holcim cement plant. The folks who opposed the Holcim plant had Save the Manapouri and Stop Anamoana in their heads . .but NZ Labour did nothing … Get off you high horse, and embrace the future . . as fearful as that may be
- sk 4.3
  
  19 August 2009 at 2:17 am
  
  Andrei,
  
  How about taking up reading as a hobby . . the jobs will come from Westport .. which can ill afford the loss of jobs Oamaru does not need (given the positive impact of the dairy boom) .. . ..
Draco T Bastard 5

18 August 2009 at 12:44 pm

NACT inc, paying their friends (and themselves) millions of dollars of taxpayer money since forever.
travellerev 6

18 August 2009 at 12:59 pm

I am fully convinced that we have serious problems and that we are destroying the very planet we live on but the Carbon Credit trade is just another form of tax and it’s a tax we the little people are going to be paying. And to whom?

Oh oops, to Dr. Global Warming himself, former Vice President Al Gore to name but one of the many international finance scheisters who stand to gain huge rewards form the carbon tax.

The scam is pure genius. You scare the shit out of everybody by telling them that a pure natural gas is killing the planet and set impossible targets to get rid of it and then you tell everybody if you just pay us for the carbon you produce and let’s face it every breath you take produces carbon you can keep on living the way you want. Brilliant.

Even if you believe the carbon global warming baloney the only way to get rid of any possible excess is to allow the planet to regenerate it’s forest and jungles and stop using fossil fuels. Nothing else will help.
Anthony Karinski 7

18 August 2009 at 1:11 pm

The fair way to do this would be to allocate each person with his and her free personal carbon credit for their share of the capped total output of pollution from the domestic sector as a whole of the economy. People can then buy and sell credits if they exceed their limit/have some left.

The remaining non-domestic part of the economy’s share of pollution allowance could be put in a pool and auctioned off to the highest bidder. Thus the total output is capped and the free market competition will reward businesses which are clean and don’t have to buy too many permits.

Implemented world wide it would be fair as everyone everywhere would have the same share of pollution “rights”, thus everyone contribute on an equal basis whether they live in Algeria, India or NZ.

http://en.wikipedia.org/wiki/Tradable_Energy_Quotas
- BLiP 7.1
  
  18 August 2009 at 1:34 pm
  
  That’s what they did in Russia when the government industries were “given to the people”. In less than five years, the rich got richer and the poor got fucked over – just ask Aotearoa’s very own billionaire bastard. Not much of a renaissance in that economy, in fact so far as the Russians are concerned, the rat race is over – the rats won!
  - Anthony Karinski 7.1.1
    
    18 August 2009 at 2:03 pm
    
    ?
    - So Bored 7.1.1.1
      
      18 August 2009 at 2:33 pm
      
      BLiPs right, no need to question. Its also a bit sad when we have to create a financial credit system to supposedly stop us from what is essentially self harming behavoir. Next up some rich sod will want to do some mindless damage and will purchase the credits to do so.
      - Anthony Karinski 7.1.1.1.1
        
        18 August 2009 at 3:21 pm
        
        We create such systems all the time with our taxes on for instance alcohol and cigarettes. It’s just an acknowledgment of the fact that human behaviour is not necessarily rational.
        
        At least this system would accomplish three important things.
        
        *The maximum output of co2 and other harmful gases will be capped.
        
        *People who use less than their free allowance that year can sell it to those who exceed theirs. In general this will favour the poor as they drive less/ doesn’t have a car/ have smaller houses to heat. Rich sods will have to pay for their damaging behaviour and the more rich sods wanting to keep that behaviour going the higher they will push the price for the left over credits from the poor. Thereby the system is inherently regressive transferring wealth from the top down to the frugal/poor people.
        
        *Business don’t get any free credits but have to purchase/bid for all of theirs. This means that the cost of carbon pollution will automatically be priced into every product and service. Competitive businesses will thrive by polluting less and thereby selling their produce at a lower price point reflecting the fact they are polluting less.
        
        How this compares to a free for all Russia of the early 90s is beyond me.
- lprent 7.2
  
  18 August 2009 at 1:52 pm
  
  Nice theory….
  
  Doesn’t work if you exempt large parts of the economy from the market signals as NACT are doing.
  - Anthony Karinski 7.2.1
    
    18 August 2009 at 2:09 pm
    
    I know. Don’t think any of the NZ political parties support this. Believe the Greens in the UK has been tinkering with the idea.
    
    Nice way to get rid of the people saying “NZ pollution is only 0.000002% or whatever of the world total. It doesn’t matter what we do” It’s not about NZ any more, but your individual share of the worlds limited capacity to handle climate gases.
factchecker 8

18 August 2009 at 2:51 pm

There is little point in engaging with people who say silly things like “don’t you have any feelings for your kids ? Are you human?”

lprent wilfully misses my point; then calls me stupid.

have fun in the echo-chamber.
- lprent 8.1
  
  18 August 2009 at 4:16 pm
  
  Which roughly translated means “I’m not willing to facetiously argue when people argue back with facts – and an opinion on how piss-poor they think your argument is”.
  
  Or in other words – Wimp… If you can’t be bothered to defend your opinions, then they are likely to be as thin on thinking as tissue paper.
gomango 9

18 August 2009 at 3:33 pm

I don’t often agree with travellerev but there you go……

First, the full story about us maybe matching Australias carbon credit scheme is ignored by no right turn. The mysterious Aussie plan is cap at A$10 in the first year, then to A$40 in the second year. Given the forward price curve for credits is :

Spot: EUR14
2009 EUR14.50
2010 EUR 14.70
2011 EUR 15.50
2012 EUR 16.60

With the AUDEUR exchange rate at 0.58 the most expensive price for carbon is AUD28.60. Doesnt look like much of a subsidy to me. Anyone can go and buy as many credits as they like for any year out to 2012 and not go near the proposed limit. Talk of a limit seems more about providing a degree of certainty to business.

Cap and trade is a completely flawed system, designed by politicians with motives beyond the environment – very few govts will put the scheme ahead of employment even in warm fuzzy western europe. The baseline year is a farce because of Russian and east European situation – they make out like bandits due to the date choice. Plus they are currently cheating like crazy – it is an open dirty secret that they cheat on their data. Even paragons of virtue like Germany and France managed to negotiate exemptions from the baseline for some of their dirtiest industries on the grounds of protecting employment. Can we do the same for dairy? The answer will be a resounding no from the EU because of their farming lobby.

The only way to change behaviour is with a carbon tax – but that doesnt play to the vested interests (led by al gore) who have captured the discussion. A tax is more direct, less open to cheating, easy to measure and is the most direct impact on behaviour. Emissions trading relies on the honesty of governments and thats a poor starting position in any negotiation.
- Pascal's bookie 9.1
  
  18 August 2009 at 4:23 pm
  
  Yep, a carbon /methane tax would be much better all round, but that well got poisoned back in 05. Labour backed down, for shame, but the political reality at the time was what it was. Thanks to, even more shameful, efforts on the part of FedFarmers, the Nats, ACT and others.
Strathen 10

18 August 2009 at 3:36 pm

I’ve just done a little google. Google tells me that the origins of this Carbon system came from Enron. Originally it was designed to allow big companies to make money from not polluting the world as much as they could. Not so much for them cutting back on emissions. This will explain the numbers as to the original post from NRT.

What kind of credibility has my Googling got? Can anyone help me out as there seems to be as many different stories as people on the net. Perhaps my results have found conspiracy theories, perhaps not…?

Catchpa: Selling
Sam Vilain 11

18 August 2009 at 5:28 pm

I agree that this plan is class theft, but I think it can be framed positively. Don’t forget that a fixed carbon tax was a Green policy not so long ago.

In principle, the Government can go ahead and cap carbon at $10 domestically to give predictability to business and save implementation costs. It’s a start. At â‚¬25/TCOâ‚‚ (I’m converting as NZ$45) and 60MTCOâ‚‚/yr gross emissions we’re looking at about $2.1bn/year in subsidised cost. 80-90% of that comes from the global allowance negotiated at Copenhagen. That leaves $210-$420m to find in carbon credits.

With that money, the government then has a choice. Can it buy carbon credits or does it make more sense to negotiate deals with large carbon credit producers such as forestry. So, NZ carbon credit producers will be $10/T disadvantaged versus international producers, and they must sell them to the government only, or locally for $10. In principle the Government could play hard ball and only pay $10/T for credits, but if they do that they might find that they won’t find any sellers.

The $10/T cap can then be slowly lifted and the allowance that NZ gets lowered in international negotiations. It could work and achieve the overall desired outcomes, but it really stinks of Big Government and needless interference, and as I described above, it is a form of “market meddling” which might simply not work. The EU for instance is going completely the other way, and their whole carbon sector will be completely free market by 2020. That’s “2020 vision”. National’s 2020 vision? 10 by 20: Short-sighted.

If it’s possible to produce carbon credits for only $10/T cost, then the burden on the taxpayer could conceivably be lifted completely. My research would say that figure is at the extreme low end of the scale for profitable ventures, but still possible. If you grow exotic timber species, grow specially selected mycorhizza/mushrooms along with the timber, and push for deferred carbon cost of finished timber products, it could still be economically viable to support a carbon industry.
Bill 12

18 August 2009 at 5:36 pm

Carbon Cap and Trade bubble anyone?

Sorry for the length of the quote. It is from a Matt Tiabbi piece on Goldman Sachs manipulating markets that appeared off line in Rolling Stone that somebody reproduced on-line. I copied to read but have subsequently lost the link.

“The new carbon-credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.

Here’s how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy “allocations” or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.”
- BLiP 12.1
  
  18 August 2009 at 7:49 pm
  
  Here. Great article.
oamarusouth 13

19 August 2009 at 2:07 am

The NZ Labour Party was founded on what was right . . Michael J Savage, John A Lee, Peter Frazer . . .those are the names that last . ..

You current lot. . you huff and puff, you intellectuise . . but nobody is prepared to put their bodies on the line . . .. to quote that NZ axiom

Only one group in NZ has spent NZ$1m fighting the national direction, and that is the Waiareka Valley Preservation Society – that opposed the Holcim cement plant in Oamaru. Only they, and the tangata whenua who supported them – can walk with their heads held high .. . .. . Only they can stand before their ancestors (both maori and pakeha)

NZ Labour is pathetic . . a happy-happy bus tour through the Taranaki is the best they can come up with . . .And yet how The Standard huffs and puffs . . NZ Labour wanted nothing to do with the Waiareka Valley Preservation Society. To date, David Parker – their effective Labour MP – has declined to meet . ..

Given the threat we face you should be ashamed . .

And by the way, you have no right to huff and puff about polluting industries . . (just read Clayton Cosgroves speeches and private members bills) . .

Labour need to find its roots to win again. In the meantime, stop the preaching . .