The GIDI Fund: Sensible Spending?

The Emissions Trading Scheme or ETS was introduced by the Labour Government in 2008 and is widely regarded as the primary tool for reducing greenhouse gas emissions in New Zealand.

The ETS is essentially a market for greenhouse gas emissions in our economy, not including agricultural emissions such as biogenic methane from livestock. For now, agriculture is outside the ETS as there isn’t any practical way of reducing biogenic methane emissions without cutting production. And it is important to note that food production is protected under article 2.1 of the Paris Accord.

The importance of maintaining this exception is underlined by the food shortages materialising around the globe as the war in Ukraine impacts fertiliser production.

Businesses must measure and report their greenhouse gas emissions and surrender an emissions certificate, or NZU, for every tonne of CO₂ they emit. The number of emissions certificates is capped, and the cap will be reduced in line with our emissions budget. On the other side of the equation, foresters can earn an NZU for every tonne of CO₂ their forest sequesters and sell those certificates on the open market. A simple and effective scheme that will drive further beneficial choices, such as buying a more fuel-efficient vehicle or replacing a coal boiler with an electrode boiler.

With the ETS having such an important role in emissions reduction, we should expect that the Government would understand how it works and not impose policies that work against it.

Unfortunately, that has proven not to be the case. The Minister of Energy and Resources has set up the Government Investing in Decarbonising Industry Fund or GIDI. The website states that the purpose of the GIDI Fund is to accelerate emission reductions from process heat used, in industry, by supporting energy efficiency and fuel-switching projects (eg switching from fossil fuels like coal to biomass or electricity). Sounds good, but given that process heat is already covered by the ETS, is the additional GIDI support really needed?

Fortunately, the Energy Efficiency and Conservation Authority, or EECA, the body responsible for GIDI, hired a consultant to investigate the effectiveness of the fund and whether the businesses funded would themselves have made the investments into fuel-switching anyway. I have been chasing the minister for reports or advice on the effectiveness of GIDI for some time without success. Dr Eric Crampton from the New Zealand Initiative was doing the same and picked up a vital clue from an answer to one of my written questions, which are publicly available.

Long story short, EECA commissioned Concept Consulting to investigate five projects funded by GIDI and found that four of them would have gone ahead anyway, without taxpayer funding. Little wonder they did not want this level of corporate welfare to become public.

What worries me most is that ministers either do not understand how the ETS works, or that they do understand, but the political value of being seen to hand out money for a noble cause (climate change) is worth more to them than the financial cost to taxpayers.

What is most disappointing is that climate policies are enormously costly anyway; we cannot afford to waste a single dollar on ineffective policy interventions such as GIDI. We have learned from Europe that the public will go along with green policies – until it costs too much. That the EU was forced to classify natural gas as a green investment in an attempt to ease Europe’s energy crisis, is proof of that.