The Climate Change Commission has given support to a campaign to end free carbon credits for big polluters such as Methanex, Rio Tinto and NZ Steel.
In a letter released overnight, the independent body pointed to serious problems with the subsidy scheme, after MPs asked it to comment on a 6000-signature petition before Parliament.
The 'Don't Subsidise Pollution' petition seeks an end to hundreds of millions of dollars in free carbon credits given each year to manufacturer/exporters under the Emissions Trading Scheme.
The commission's reply said: "The petitioner has raised a number of valid policy issues with how industrial allocation operates. We see merit in investigating other approaches that could be more conducive to meeting the 2050 target and come at lower cost to taxpayers."
The free allocation scheme was designed to prevent producers of carbon-intensive products such steel, methanol and cement from moving production overseas to get away from emissions pricing.
MPs feared New Zealand would lose jobs, and the climate would not benefit because manufacturing would shift to countries with lower climate standards.
Manufacturers such as Rio Tinto (owner of the Tiwai Point aluminium smelter), Methanex and NZ Steel (owned by Bluescope) receive millions of dollars' worth of free carbon credits from the government each year, based on their production levels, which they can use or on-sell to other emitters for upwards of $50 a tonne.
In 2020, a review found over-allocation by the scheme had seen companies such as Fletcher Building get millions of dollars more in credits than intended, however that problem has since been fixed.
The petition before Parliament argues that with pollution pricing and carbon-cutting efforts now widespread around the world, the hundreds of millions of dollars in revenue the government forfeits by granting the credits free, instead of selling them, would be better spent on helping the companies cut emissions.
The petition said the top five recipients of free carbon credits created the same emissions as more than 2 million petrol cars and it was unfair for motorists and households to pay for their emissions when major - often overseas-owned - polluters did not.
Campaign leader Alex Johnston put the value of subsidy to Methanex alone at about $60 million a year, or roughly $200,000 per New Zealand employee. RNZ has approached Methanex, and Bluescope for comment.
Rio Tinto said it was unable to comment because it was too near to the company's Half Year results being released on February 17.
The environment select committee of MPs asked the Climate Change Commission to report on the petition in November.
The commission's reply - dated December but only released on Monday - said the design of the scheme weakened the incentive for companies to reduce planet-heating emissions, and was misaligned with the country's climate targets.
It recommended the government look at other, less expensive ways to fight what is called emissions leakage - the problem when production of carbon-intensive goods shifts to countries with low or no emissions penalties.
The commission said "hybrid options" might also be effective.
RNZ has asked Climate Change Minister Simon Watts whether the government will review the scheme.
