The Mapp Report: Economic Pain Continues
ECONOMIC PAIN CONTINUES
The Labour Government is planning three measures which will increase costs, especially of fuel. A litre of petrol could rise by an extra 25 cents in early 2009. That is more than 10% on current prices. Householders are already suffering the impact of high petrol prices, higher food prices and higher interest costs.
The increase is due to Labour’s proposals for a combination of:
* Regional petrol tax
* Biofuel obligations
* Emissions Trading Scheme.
Regional petrol tax
National has already said it opposes regional petrol tax, and has voted against it. National is not ruling out regional fuel taxes as a long term proposition, but income tax cuts and better living standards have to be taken into account. It’s got to be when people’s incomes are going up and personal tax cuts give people money in their pockets. In the meantime, there are smarter ways to fund long term public transport infrastructure like rail electrification.
The biofuel obligation is fraught with problems, especially as it relates to petrol. The biofuel for petrol is ethanol; for diesel it is oil based, usually derived from non-edible tallow. The problem with ethanol is that food crops such as maize are being turned into ethanol. It actually takes as much fuel to produce and process the crop, as the amount of ethanol produced.
There is now widespread concern that biofuel, at least ethanol produced from corn, is unsustainable both in energy terms and in reducing global food supplies, and therefore increasing the cost of food.
National is looking very critically at the biofuel legislation. It seems to increase the price of petrol without any compensatory environmental advantage.
Emissions Trading Scheme
The third component of the price increase is the Emissions Trading Scheme (ETS) intended to implement New Zealand’s Kyoto commitments.
In short, the ETS puts a cost on carbon through a market mechanism, as opposed to a direct tax on carbon. Producers of carbon emissions (fuel and electricity) have to purchase carbon credits in 2009. Those who extract carbon from the atmosphere (tree growers) can sell carbon credits. Clearly a carbon exchange will have to be developed to facilitate their sale and purchase.
Craig Foss on the ETS
Last night in North Shore, Craig Foss, National MP for Tukituki, and a member of the Finance and Expenditure Select Committee dealing with the ETS Bill, gave us a clear insight into the problems of the ETS as developed by the Labour Government.
Labour has said New Zealand should be among the first in the world with an ETS. They have said it should include agriculture. Their ETS has unique features. As Craig noted, it is like designing a special currency, different to everywhere else in the world. Will it be acceptable to other countries? Will our carbon credits and debits count overseas? These are among the many unknowns.
Already, the New Zealand Institute of Economic Research has said the Labour designed ETS could cost 20,000 jobs over the next few years. Since fuel will be included in the ETS from 1 January 2009, there will be an immediate impact on fuel prices.
National supports an emissions trading system as a way of dealing with climate change, but National is very concerned about the impact of the current design of the ETS on the New Zealand economy, especially at a time of rapidly increasing fuel costs. We will be very carefully looking at the ETS to ensure it does not destroy New Zealand’s competitiveness and does not destroy jobs.
Dealing with climate change requires a long term approach, which New Zealand should be doing in partnership with other nations, not inventing its own ETS.
2 May 2008
Dr Wayne Mapp
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