The Government aimed to enhance a statute concerning significant polluters, but the outcome could potentially be unfavorable.

A law change intended to crack down on the number of free carbon credits allocated to major polluters could instead enable more companies to emit more carbon for free.

Tweaks to the law governing the free credits given to carbon-intensive industries – designed to protect them from export competitors’ – will likely also cost the taxpayer more, the Climate Commission says.

The commission says if the amendment passes in its current form, it risks doing “more harm than good” and has suggested officials reverse some of the planned changes.

“At this stage, businesses have had many years to make adjustments and to prepare for the transition to a low emissions economy,” the commission said. “It is therefore hard to justify providing significant new access to allocation.”

 The commission’s advice follows widespread concern from climate campaigners and carbon market experts about the proposed new law – particularly because the most contentious amendment was made only after industry lobbied for it.

The industrial allocation policy sees some polluting companies awarded free carbon credits to protect them from overseas competitors who are not subject to carbon taxes; and to stop them moving overseas to countries without emissions taxes.

Companies who qualify are labelled either “medium” emitters, or “high” emitters, and get either around 60 percent or 90 percent of their emissions subsidised accordingly, insulating them from the cost of their pollution.

There are 26 eligible activities , including the production of aluminium, urea, paper pulp and carton board, iron and steel, cement, and methanol.

Currently, about 75 companies qualify for free credits, including Tiwai Point aluminium smelter, the Glenbrook steel mill, Golden Bay cement plant, and the Ballance urea plant at Kapuni. The policy costs the government $600 million a year.

Initially, the changes proposed by the bill aimed to update the formula behind how many credits a company could get. The formula was based on outdated data, and had resulted in far too many credits being handed out for free.

During the bill’s consultation period, however, the affected companies made a suggestion that wasn’t on the list of issues up for debate: they argued that because the carbon price was now so high, the carbon price should also be part of the formula to decide if a company was eligible, and what level of allocation they should get.

The addition of the carbon price to the equation was a surprise late addition to the bill when it was introduced by climate change minister James Shaw in December, blindsiding and infuriating climate change campaigners.

“Imagine you had a backyard fence with a few holes,” Coal Action Network campaigner Tim Jones said, “and everyone agrees how to fix the hole, but at the last minute someone decides to knock down the whole fence instead. That’s what this process is like.”

The campaigners, including the Coal Action Network, Greenpeace and the Climate Club, highlighted the impact of the policy on a company like Fonterra. Currently, Fonterra’s lactose and whey manufacturing arm – which burns coal – is classed a “medium” emitter. Under the bill, however, it would likely be reclassified a “high” emitter, awarding it extra free credits worth more than $2m a year. Carbon market expert Christina Hood was also concerned, particularly after she discovered there had been no analysis undertaken by the Ministry for the Environment on how many new companies might be eligible for the scheme under the new rules.