NZIER on Emission Trading Scheme

The NZ Institute of Economic Research has done a report on the impact of the proposed Emissions Trading Scheme. The report is 77 pages long. For those who don’t read the whole thing, here are some key points:

  • The ETS will reduce GDP by $900 million by 2012
  • The average household will have $600 less spending
  • A reduction in employment equivalent to 22,000 jobs
  • By 2025, GDP will be $5.9 billion less than without an ETS
  • The average household will have $3,000 less by 2025
  • Hourly wages will be $2.30 an hour less by 2025 than they would be without an ETS
  • The ETS will reduce emissions by 5% less than merely funding emissions reductions directly
  • The ETS may be bad for the climate as some NZ production will become uncompetitive and shift to countries where their increase in emissions will be greater than if they stayed in New Zealand. This is known as “leakage”
  • The ETS will see by 2025 a 12.9% reduction in dairy farming, a 41% drop in diary land prices and a 6.6% reduction in sheep and beef farming.
  • As the decline in pastoral production in NZ will lead to greater pastoral production elsewhere, the increas in will be 3 million tonnes – around 25% of the reductions from the total ETS.
  • Southland and Northland would be most affected by the ETS with a 3% drop in GDP, with Auckland and Wellington less affected.
  • Paying for emissions reduction out of general taxation would be cheaper and more effective.

So they are not saying we should not be in . They are saying the ETS, as proposed, will cost us more than alternative ways of meeting our obligations. And also leakage due to industry relocating to non countries will actually be worse for the environment than the alternative of direct funding of emissions reductions.

So one can say slow down with the ETS and don’t rush it into law just because of the election, without being a climate changer “denier” or “sceptic”. This is about how best to meet the Kyoto obligation, and it seems apparent there is a lot more work needed to be sure we have the right model. What will be interesting is what model Australia adopt as there could be considerable merit in harmonising between the two countries.

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