Castalia Report Realistic about Climate Change

_Castalia Report Realistic about Economic Cost of Climate Change Policies

“The Castalia report on the government’s proposed emissions trading scheme (ETS) supports the Business Roundtable’s view that the government is seriously underestimating the economic impact of action to achieve large reductions in emissions”, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

Mr Kerr said the report criticises both the assumptions that point to low adjustment costs and a number of the design features of the scheme.

It makes the key point that no scheme will be politically sustainable if the relevant costs and benefits are not well understood and accepted by the electorate at large.

“Given present technology, major reductions in New Zealand emissions are likely to be very costly”, Mr Kerr said.

Official estimates of such actions in the United States and Canada have put the cost at NZ$5000-10,000 per household. The ETS is essentially a tax, and a tax of this magnitude would dwarf any tax reductions that the government may be considering. Only two years ago the government found that a carbon tax of $10-15/tonne CO2 was not politically sustainable.

The Business Roundtable has pointed out that carbon neutrality would not be achieved in the foreseeable future in New Zealand even if the whole of the agricultural sector were shut down, cars and other carbon-emitting forms of transport were banned, and the economy did not grow at all.

Mr Kerr said the report’s suggestions for modifications to the proposed ETS were sensible and constructive, in particular those relating to timelines and the inclusion of a safety valve.

“As the Castalia report says, attempting to build political consensus by denying the inevitable trade-off between economic growth and major emissions reductions is not a long-term solution. Rather, it is a recipe for repeating the failed initiatives of recent years. The regulatory impact analysis and supporting material on which the government is relying is woefully inadequate and risks precipitating a public policy failure on the scale of ‘Think Big’ “, Mr Kerr concluded.

_5 November 2007

ENDS