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Reality Breaks Through With Axing of Carbon Tax

Reality Breaks Through With Axing of Carbon Tax

By Roger Kerr - Mr Kerr is the executive director of the New Zealand Business Roundtable.

The government’s decision to scrap the proposed carbon tax marks another (and more positive) phase in a sorry saga of policy making on climate change.

Neither of the main political parties nor the public service comes out of it with credit.

National’s minister for the environment Simon Upton was a leading evangelist on climate change in the 1990s. His enthusiasm for action ran far ahead of the scientific evidence and the economic case for governmental action to combat warming.

He attacked the Business Roundtable for bringing distinguished scientist Richard Lindzen to New Zealand to balance up the scientific debate.

Some years later the Ministry for the Environment refused to have anything to do with the visit of the sceptical environmentalist Bjorn Lomborg.

Lomborg’s central argument is that Kyoto Protocol measures are simply a bad deal for the world. Even if fully implemented, at high cost to the world’s economies, they would only delay projected warming by six years by 2100. The world’s resources can be used to do far more good, especially for poor countries.

When the government was considering ratification of the Kyoto treaty, it neither sought nor received any advice from its public service advisers on the central question of whether it was in New Zealand’s interests to do so. This was a gross failure on the part of public servants whose duty is to provide “free and frank” advice, even if ministers don’t want to hear it.

Officials produced an inadequate National Interest Analysis which purported to demonstrate that adherence to Kyoto was in New Zealand’s interest. A key claim in the document is that “Long term, the overall effects [of climate change on New Zealand] are expected to be increasingly negative.”

Repeated efforts to get the Ministry for the Environment to substantiate this bald statement have so far failed. Clearly there would be both positive and negative effects from moderate warming. Only moderate warming for New Zealand is indicated by 2100 on the basis of the mid-point of the projected global temperature rise for a doubling of atmospheric CO2.

The public has been fed a diet of misinformation on the issues. A case in point was the claim that New Zealand would make money out of forest sink credits.

Private sector economists questioned this at the time, and last year it was officially confirmed that New Zealand faces an estimated Kyoto liability of $440 million, rising by $110 million if the projected carbon tax gains are not recouped in other ways.

Astonishingly, however, no public servant has yet been held accountable for this egregious blunder.

It is to the credit of new energy minister David Parker that he has been willing to recognise that New Zealand’s approach to climate change has been hopelessly misdirected. However, the saga is not yet at an end.

The carbon tax would have imposed serious costs on the economy for indiscernible environmental benefits. Yet the government is still talking as though the command-and-control system of emissions targets is a sensible approach to climate change, and is contemplating alternative measures.

One option it has flagged is a narrow carbon tax on electricity generators and large energy users. But what public policy rationale could there be for taxing electricity and not petrol and methane emitting activities? For the same impact on emissions, a narrow tax by definition would be more distortionary than a broad-based one and do even more harm to the economy.

In addition, talk of this kind creates ongoing uncertainty for investment. How can major energy users be expected to make sound long-term decisions while it is hanging over them?

The reality is that the Kyoto approach to climate change is dead. Commenting on the recent Montreal conference which produced nothing of real substance, the London-based Economist wrote: “Kyoto’s failure is hardly surprising”, given the general failure of command-and-control mechanisms. A far more promising approach is the development of more environmentally friendly technologies. Even countries such as China are prepared to go down this path: it is planning to build 30 nuclear power stations over the next two decades.

Extensive economic research has rebutted the case for early and costly action to mitigate any global warming trend. Normal market developments such as higher prices for fossil fuels as supplies become scarce, next-generation low-carbon technologies such as clean coal, cold fusion, carbon capture and storage and hydrogen (as well as renewables), and voluntary actions by business enterprises offer a far more promising approach.

The United States is winning the international debate with these arguments. Its CO2 emissions are only 13% up on 1990 levels whereas New Zealand’s have risen by 22%. Australia, another non-participant in Kyoto, also has a creditable record.

It is time for New Zealand to get off the Kyoto bandwagon and align its policies more closely with those of two of its most important trading partners.


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