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No U-Turn on Carbon Tax

No U-Turn on Carbon Tax

The Business Roundtable has welcomed National Party leader John Key’s indication that the new government will be willing to consider the merits of a carbon tax vis-à-vis an emissions trading scheme (ETS) as a response to climate change.

Executive director Roger Kerr said that its belief that a carbon tax might be superior to an ETS was not a reversal of its earlier views.

“We opposed the previous government’s carbon tax proposal not because we thought an ETS was better. We opposed it, first, because there was no rigorous analysis to indicate that taking any additional action was in New Zealand’s interest at that time, and, secondly, because we did not support the government’s ‘lead the world’ approach of taking action ahead of major trading partners such as the United States and Australia.

“Australia has now ratified the Kyoto Protocol and the new US administration may have a different approach to the issue. So in our submission on the emissions trading bill last year (see attached extract) we indicated a preference for a carbon tax, coupled with a subsidy for forestry sinks, if New Zealand were to take additional action.”

Mr Kerr said that this position was based on the overwhelming weight of opinion among eminent economists that a tax/subsidy regime is superior to an ETS, for the reasons set out in the Business Roundtable’s submission.

“In addition, there is political advantage in beginning with a low tax (we suggested in the $5-10 per tonne of CO2 range) in that firms and households would have greater certainty about the impact and might therefore be more willing to support what has to be a stable, long-term policy.”

Mr Kerr said that some business sector players were approaching the issue from the viewpoint of their interests in benefiting from trading in carbon rather than the national interest.

“Moreover, forestry interests would not be disadvantaged with a tax/subsidy regime instead of an ETS because they would receive a subsidy for carbon sinks associated with tree planting.”

Mr Kerr said that the Australian Productivity Commission had recommended that Australia begin with a modest carbon tax and transition to an ETS if a deep, liquid international trading market developed (which is not in prospect at present).

“We think the select committee that will review the ETS legislation should seriously consider a similar approach, provided it is presented with sound analysis from government officials that taking additional action is in New Zealand’s interests”, Mr Kerr concluded.


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