Economic analysis of the proposed emissions trading scheme

The New Zealand Institute of Economic Research 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.

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.

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,” Layton said.

“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.”