Back in March climate change minister Nick Smith decided it was time to sort out whether the Emissions Trading Scheme was a recipe for economic disaster, as ACT and big emitters were insisting (using figures from a shonky report by NZIER), or affordable, as Treasury modelling (conducted by Infometrics) showed. Smith commissioned both economic consultancies to work together to arrive at a consensus, which they were happy to do (at a cost of $79,200 + GST). The result of this ministerial banging of heads was released yesterday [PDF], and it is simultaneously interesting, encouraging and profoundly disappointing.
The obvious winners are Adolf Stroombergen, Infometrics and Treasury, because the new modelling shows that far from being as economically crippling as NZIER had suggested in their 2008 report, action to restrain carbon emissions appears both affordable and sensible. The new report is explicit: the introduction of carbon pricing is warranted, and under all the scenarios considered the economy will continue to grow. The modest cost is in foregone growth, and that amounts a few thousand dollars off annual incomes by 2025. In other words, we’ll be slightly less rich than we might have been. So much for Rodney Hide’s scare tactics and the economic doom and gloom pedalled by the cranks and deniers.
The really interesting conclusion?
Our modelling shows that if the rest of the world takes steps to price carbon, and technological change is induced by this pricing, then a broad-based domestic carbon pricing scheme is the least cost way to meet New Zealandâ€™s international obligations. (p40)
NZIER/Infometrics are curiously uncertain about the international situation, and apparently clueless about the technological progress already well under way, because this conclusion is made dependent on an “if” that the rest of the world takes for granted. International action is already under way, and however disappointing the progress there will be some sort of carbon pricing tent NZ will need to be inside. The technologies to achieve emissions reductions not only exist, they are already in many cases being deployed. Or perhaps those wind turbines are a mirage, and electric cars a pipe-dream?
From this high point, the report descends to the farcical. Despite having made no effort to model the role of agriculture — only 50% of our emissions profile, after all — or done more than decide forestry would be too difficult to factor in, the authors conclude that agriculture should be excluded from a near-term ETS on the grounds that it may cost too much to measure agricultural emissions. This view is not supported by any argument or reference in the report that I could find, and looks like something the authors added as an afterthought. On the one hand, a broad-based scheme is least cost (as the last government insisted), but it’s sensible to exclude our biggest emitters?
In addition, the authors argue that until we can see what the rest of the world is going to do and what technology may bring, we should hand out free allocations of emissions permits to “trade exposed” industries (code for the big emitters). As No Right Turn eloquently argues, this amounts to a huge subsidy from the general taxpayer to corporate interests. Given that Nick Smith had a draft report back in April, one is forced to wonder what (if any) changes were made to the authors’ original conclusions in order to make them acceptable to a government keen to water down the existing Emissions Trading Scheme. There’s no denial in this report, but there is certainly delay that many will find financially and politically convenient.
Perhaps most disappointing of all is the fact that this report is a missed opportunity. As conceived and presented, it’s a purely technical exercise in economic forecasting, based on limited scenarios and far too little consideration of the world in which New Zealand exists. To establish the real risks — the real costs and benefits of dealing with climate change — we need to give our economists a range of scenarios that are rooted in a wide-ranging assessment of climate projections, the state of international relations and technological progress. Instead, the government leaves them to bring their own biases to the table, or imposes its own. Bad practice breeds bad policy, and I’m very afraid that’s what we’re going to get.