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Greenhouse gas policies harming the economy

Greenhouse gas policies harming the economy

“Government policies to expose the economy to comprehensive charges for greenhouse gas emissions ahead of any other country will damage the economy,” said Ralph Matthes, Executive Director of the Major Electricity Users’ Group (MEUG).

He was commenting on the announcement by the Reserve Bank this morning to make no change to the Official Cash Rate which leaves households and businesses continuing to pay the highest interest rates in the OECD.

Looking forward the Governor of the Reserve Bank said [Refer http://www.reservebank.govt.nz/news/2008/3259437.html ]:

“Despite the weaker outlook for activity, we expect headline inflation to remain high, partly due to the inclusion of the planned emissions trading scheme in our projection. Higher food and energy prices are also contributing to near-term inflation. Furthermore, over the medium term, a tight labour market, strength in commodity prices, and the impact of announced government spending plans and assumed personal tax cuts will add to inflationary pressure. Excluding the effects of the emissions trading scheme, inflation is projected to return close to the mid-point of the target band by 2010.”

“The Reserve Bank’s highlighting of the proposed emissions trading scheme (ETS) from 2009 is very telling. The proposed ETS is well in advance of our major trading partners and well ahead of most Pacific Rim countries which have yet to accept any obligation to deal with greenhouse gas emissions.

“We (MEUG) agree New Zealand needs to participate in coordinated global greenhouse policies including developing market mechanisms to price emissions. It appears that some Ministers believe that by charging ahead with an emissions trading scheme the world will follow. The “Carbon Shock” to the economy will not be trivial and the impacts will be widespread. The impact on inflation and hence interest rates is an example of those impacts.

“To put this into perspective, from 1 January next year all transport fuel used will be liable to pay for greenhouse emissions. Assuming $30/t CO2-e, this will add $400 million to transport costs throughout the economy. No other country in the world is taking such a radical approach to greenhouse emissions from the transport and other sectors of the economy.

“It is absolutely essential that Government takes a more measured approach to climate change policies to ensure that unnecessary damage is not imposed on the economy” concluded Mr Matthes.

ENDS

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