The update deleted a clause in the Climate Change Response (Late Payment Penalties and Industrial Allocation) Amendment Bill, passed under urgency late last night, which would have enabled more polluters to emit carbon for free.

The clause would have made more companies eligible for free industrial allocation under the emissions trading scheme (ETS) by tying eligibility to the rising price of carbon.

Climate Club’s Emily Mabin Sutton says the update is a huge win. “The change would have potentially opened up room for millions more free carbon credits for polluters, for decades into the future, by re-evaluating the criteria for getting credits – and worse as the price increased.”

The government says the Bill will cut 12% of the free allocation, equivalent to 800,000 tonnes of carbon dioxide pollution – the same amount as the Government’s deal with NZ Steel, announced in May.

The industrial allocation policy is intended to give local companies a more even playing field against overseas competitors who don’t have to pay carbon taxes, by giving some polluting companies free carbon credits, which they would otherwise have to pay for. It is also intended to prevent “carbon leakage,” by stopping businesses moving overseas to countries without emissions taxes.

However the current allocation is based on an outdated formula, using data from 2006 to 2009, resulting in too many free credits for polluters, with some companies being given even more free units than they emit.

Many more countries have also adopted carbon taxes since the industrial allocations were first introduced, so “carbon leakage” is less of an issue.

Companies recieving free allocation include big companies such as NZ Steel and Golden Bay Cement, through to tomato and capsicum growers – with 26 activities eligible including producing aluminium, paper pulp and carton board, iron and steel, and methanol.

Currently, qualifying companies are supposed to get between 60% and 90% of their emissions subsidised, with about 75 companies qualifying for free credits. The policy costs the government about $600 million a year.

The changes proposed by the bill were initially intended to update the outdated formula allowing free credits. But during the bill’s consultation period some companies argued that, because the carbon price was high, it should be included in the formula to decide if a company was eligible, as well as determine their level of allocation.

Making the carbon price part of the equation was a surprise addition to the bill when it was introduced by climate change minister James Shaw in December. It hadn’t been consulted on, unlike the rest of the proposal, and had climate activists up in arms.

Three thousand people signed a Climate Club and Coal Action Network Aotearoa petition to stop the change and activists even performed a song at the select committee hearing.

The select committee report came back last week, noting that many submitters opposed the update to eligibility thresholds. “They expressed concern that updating these thresholds to use the more recent carbon price would risk moderately emissions-intensive activities being reclassified as highly emissions-intensive and increasing their industrial allocation.”

The select committee agreed that increasing industrial allocation should be avoided “especially as units are currently being over-allocated,” and recommended retaining current eligibility thresholds and deleting the clause tying eligibility to the carbon price.

The bill was passed under urgency last night with support from all parties except ACT.

Sutton says the response to their petition was much larger than they expected. “It shows that Kiwis really do want a strong ETS.”

She says that Kiwis want bolder climate action, but submissions on the ETS are often very specific and technically worded, so it can be hard for supporters to know what side of the details to stand on. “Climate Club’s mission is to make systemic climate action accessible to all, so we consulted a team of experts and simplified the technical questions into this petition, in collaboration with Coal Action Network Aotearoa.”

New Zealand needs to phase out industrial allocations by 2030, rather than give away more free credits, Sutton says. “This signals to lawmakers and business alike that society at large wants to see all businesses becoming involved in the real solutions to the climate crisis – decarbonisation and emissions reductions – not merely delaying the problem.”