Economic modelling shows emissions trading is effective

A summary of economic modelling shows emissions trading is an effective approach to reducing New Zealand’s greenhouse gas emissions in the long term, according to NZ Climate Change Minister David Parker. The report summarises general equilibrium modelling undertaken by Infometrics for the government’s Emissions Trading Group and the Climate Change Leadership Forum convened in October 2007. “As we stated last October, the impact of NZ meeting its commitments under the Kyoto Protocol on gross domestic product is easily manageable,” said Parker. “This report shows that the economy will still grow and New Zealanders will continue to get wealthier. New Zealanders’ private consumption per capita is forecast to expand by 54% by 2025. With an emissions trading scheme, private consumption per capita is forecast to grow by 51% instead,” Parker said. “It is important to remember that the ETS does not cause a loss in economic welfare,” he added. According to Parker, any loss in economic welfare is caused by the nature of the international commitments NZ faces and the ETS is an effective way of managing those commitments. “It is a significantly more effective way of managing our commitments than having no domestic carbon price and the government buying overseas the emission units we need, paid for by higher income taxes,” he said. “In addition, the modelling suggests that the vast majority of industries participating in the ETS will grow strongly between now and 2025. This includes oil refining, electricity production, and meat and dairy processing,” said Parker. “What the modelling doesn’t do is look at the risks of not honouring our commitments, for example, the economic impact of countries in the EU ETS imposing duties on our exports,” Parker said. “Any structural change to the economy comes with adjustment costs and the government is designing the ETS in ways that minimise and fairly share these costs. In particular, the government is determined to protect NZ’s international competitiveness, household incomes and the environment,” he added. “It is never possible to model all the costs and benefits of any major reform such as an ETS. However, the government will closely monitor progress and act to moderate any unforeseen impacts,” Parker said.