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Costs of emissions cuts most likely over stated

July 27 2009
Media Release

Costs of emissions cuts most likely over stated

A carbon price of $100 to $200 per tonne is being assumed to generate estimates that New Zealand households will face a $3000-a-year bill for cutting emissions by 15%.

This carbon price is nearly two to four times higher than the price being used in Congressional Budget Office (CBO) modeling in the United States.

The CBO estimates that the price of GHG allowances would rise from about US$15 per mtCO2e of emissions in 2011 to about US$26 per mtCO2e in 2019. It estimated the cost to US households would US$175 a year, or less than $350 in New Zealand dollars.

At the US$26 top end estimated price, this would be about NZ$54 per tonne, the New Zealand Business Council for Sustainable Development says today.

The current carbon price is about NZ$28 per tonne.

The NZIER-Infometrics economic model being quoted in New Zealand also does not take into account the other positive economic opportunities which can arise from putting a price on carbon. These include greater energy efficiency in homes and businesses, new export opportunities for low-carbon products, technology and services, and new clean economy jobs.

The US predictions for fixing acid rain with a cap and trade scheme were twice the actual cost for the actual reductions achieved.

Business Council Chief Executive Peter Neilson says modeling, assuming the rest of the world does little, does not fit with current reality: more than 58 countries and jurisdictions around the world either have or are planning emissions trading schemes.

The scenarios NZIER and Infometrics use are also based on an assumption, according to the report, of “no change in technology or forestry in response to carbon prices”.

However, the Ministry of Agriculture and Forestry (MAF) says in the report that a carbon price of $20 per tonne would lead to up to 100,000 ha of forests being planted.

“On that basis, a carbon price of $200 per tonne would lead to nine times that volume being planted. At even $100 per tonne, most sheep and wool farmers in New Zealand would find it economic to convert all their land to forestry,” Mr Neilson says.

Some 30 million tonnes of carbon will be sequestered (stored by trees) by 2020 with a carbon price of $20. So at $200 per tonne, as NZIER and Infometrics assume, there could also be a nine fold increase in sequestration. New Zealand would go into an emissions surplus, which it could sell on world markets.

“If you believe in the $100 to $200 per tonne figures, you also need to accept they will result in a forestry response that would virtually offset all of New Zealand’s emissions per year – and would therefore greatly bring down the cost of the policy to households and others,” Mr Neilson says.

The emissions reduction targets being discussed are part of a negotiation, and no Government will go in offering its highest potential reduction target first up. These negotiations are likely to continue into 2010.

Mr Neilson says the Business Council welcomes Climate Change Issues Minister Nick Smith’s statement on TVNZ’s Q and Q programme yesterday that he seeks a multi-party agreement on the emissions trading scheme (ETS) and an amending bill in the House this year.

“The Minister wants a workable ETS and says the price signal it sends to the energy sector is a priority for him. This will boost investment in renewable energy.

Meantime, the country also needs to consider other policies to help households and businesses adjust to carbon prices. Transitional assistance to households, estimated to cost $180 million a year, was part of the Labour-Green deal last year to pass the ETS law.

“Both National and Labour agree that an ETS should be revenue neutral: money the Government raises by selling emission credits to firms which exceed their emissions targets should not go into the general tax pool, but be ploughed back into other emissions reduction or assistance measures.

“This will provide the money to help households and businesses, and fund other complementary policies, like growing trees, sell the world New Zealand-invented low-emissions technologies, encourage widespread take up of farm practices to lower emissions, and help vehicle owners switch to lower-emission vehicles,” Mr Neilson says.

Meantime, concern over households paying up to $3000 a year, with world carbon prices at $100 to $200 per tonne, need to be discussed within the context of the models used, and the opportunities they exclude.

The Congressional Budget Office’s July report on the costs of the United States’ proposed emissions cap and trade regime are at http://www.cbo.gov/ftpdocs/103xx/doc10376/hr2998WaxmanLtr.pdf

Business Council research on complementary policy options and levels of support for them along New Zealanders is available at http://www.nzbcsd.org.nz/story.asp?StoryID=987

ENDS

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