Allocation is a key moderator in the effectiveness of the Emissions Trading Scheme in reducing New Zealand’s greenhouse gas emissions. It is critical that allocation is fair and transparent. Here I seek to improve the proposed methodology of industrial allocation for electricity consumption.
I recommend that the electricity allocative baseline rate is immediately reduced to a level that precludes any possibility of windfall profits by industry. I expect that this rate will be close to 0.2 credits per MWh. The electricity allocative baseline should only be revised upwards on the basis of new, transparent, and robust analysis identifying a rate that reflects the electricity price increases, due to carbon costs, faced by eligible companies specifically.
I recommend that the “electricity factor” used to test the emissions intensity eligibility of firms be set equal to the allocative baseline for electricity useage. This should be around 0.2 credits per MWh.