Editorial - If it looks like a subsidy ...

Methanol production in this country dates to the Think Big state-interventionist economic programme promoted by the Muldoon Government in the early 1980s. The strategy called for heavy government borrowing overseas for several large-scale industrial projects.

Taxpayers are now helping the Methanex Corp to operate its Motunui plant at full capacity again. The company announced at the weekend it has restarted its second production unit at the site. Impressive numbers have been aired, spiced with talk of a revival of methanol's heyday in Taranaki – in the early 2000s – when 2.3 million tonnes a year were produced. The restart follows a $100 million refurbishment that will add 650,000 tonnes of production capacity to the facility. It is now able to manufacture a total of 1.5m tonnes of methanol a year through two production units, all to be exported.

Earlier this year, the company said restarting the mothballed plant would add an estimated $1.2 billion in taxes and royalties paid to the Government over the next 10 years. An estimated 500 construction and gas field jobs would be created.

Economic Development Minister Steven Joyce welcomed that announcement as a good example of why oil and gas development ("with suitable environmental protections") formed part of the Government's plan to build a stronger economy. But methanol manufacture entails carbon emissions and the Government has assumed responsibility for the costs of the company's carbon credits under the Emissions Trading Scheme. One critic claims these are 0.45 million or so credits a year, worth around $3.6m (assuming the current low carbon price of $8 a ton).

Whatever the figure, the Government is subsidising a company whose latest annual report records a profit of US$200m. But Mr Joyce recently said ETS exemptions are not a subsidy. They simply give an assurance that New Zealand is not putting burdens on our companies that other countries are not putting on theirs.

They sure look like subsidies, however.

The actual cost to taxpayers of thinking and borrowing big was never definitively worked out and the net benefit for the economy is a matter for conjecture. The net benefit from ETS exemptions invites conjecture, too.

- © Fairfax NZ News

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