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Economic analysis of the proposed ETS

NZIER media release
Thursday 17 April 2008

Economic analysis of the proposed emissions trading scheme and alternative approaches

The New Zealand Institute of Economic Research (Inc) says it is well advanced with a study of the likely costs to the New Zealand economy of the Emissions Trading Scheme on which the Finance and Expenditure Committee is hearing submissions.

If the draft Bill becomes law in its present form, firms which emit carbon dioxide gas into the atmosphere will have to surrender an entitlement to offset the emission. Under the draft Bill ultimately all firms will have to purchase these entitlements at prices which are not yet known but are unlikely to be low.

Dr Brent Layton, Chief Executive of NZIER, says there is strong interest and support from New Zealand business in NZIER’s study, whose findings will be made available to the Select Committee.

Dr Layton said that one of the issues NZIER has been focusing on is the costs and opportunities New Zealand firms and farms are likely to face in reducing emissions. For many these costs will be significant.

"There is no doubt that by the time the emissions trading scheme envisaged in the draft Bill comes fully into effect, New Zealand business will have a very large annual cost to cope with, and the country's economy will suffer. Our exports will be less competitive, household incomes will be reduced and transport and electricity costs will increase markedly.

"We have been working with various industry groups for some time, checking assumptions and putting together the most accurate possible picture of what the current scheme is actually going to cost New Zealand to try to conform to its Kyoto obligations."

"A central issue we have been exploring is whether it is more damaging to the economy to load costs on to various industry groups as envisaged in the Bill, or whether a better answer for the country is for the Government to purchase the necessary credits offshore and spread the load through the taxation system, with an accompanying, but less drastic emission trading scheme to encourage practicable emission reductions within New Zealand. With the help of business we developed an emission trading scheme and strategy for introduction a year ago. It was not perfect but it would have avoided most of the pitfalls we have discovered in the current Bill."

"There will be a cost to New Zealanders as we play our role in reducing the world's output of green house gasses. We think it makes sense to work out the way which damages our economy and standard of living the least."

"There would be no sense in damaging the New Zealand economy and our international competitiveness, which is inevitable if this Bill becomes law in its current form, if we could make a greater contribution to reducing the world's green house gas emissions at lower cost by going down a different route. That is another of the key issues we are focussing on in our study."


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