News

02, Jun, 2014

Policy Stability, greater economic efficiency and better environmental outcomes expected from Green’s climate policy package


Category: ECO Inc

The Green’s climate policy is an important proposal to reduce New Zealand’s greenhouse gas emissions, the most important issue for the future which all political parties should be treating seriously, the Environment and Conservation Organisations (ECO) said today.

University policy economist, Cath Wallace, and ECO Vice-Chair, Policy, has welcomed the Green Party’s new policy package for greenhouse gas emission reductions and its fostering of better economic efficiency.

”The policy ticks the boxes for economic orthodoxy, for economic efficiency, for providing clear incentives to de-carbonise investments, and to help households with tax cuts that provide an increase in income that more than compensates for any price rises.”  “It is good policy,” says Wallace.

“The Green’s policy would re-set incentives to get New Zealanders to reduce ouremissions which have been rising relentlessly even though we have promised the international community to reduce them.

“The policy would increase economic efficiency by starting to internalize the harm from climate-destabilising emissions and resetting investment incentives to lower emissions.  Significantly, because of both household income tax rate reductions the policy would also increase the average household’s income by a predicted net $319 each year according to the accompanying BERL assessment.”

“A proposed 1% reduction in company tax rates, and the income tax cuts for households will offset of any demand reduction in the macro economy and position the economy for more choice to lower carbon emissions.”

“The Green’s proposals would substitute a carbon charge of $25/tonne of CO2 equivalent emissions for the flawed Emissions Trading Scheme (ETS) which is largely ineffective and has lined the pockets of some.  With a concession of a charge of only $12.50/tonne for dairy emissions, dairy farmers will be facing at least some incentive to reconfigure their farming operations to reduce emissions.”

“The provision of no charge for beef and sheep farm emissions is a huge concession which will be appreciated by those farmers whom for environmental reasons have resisted the temptation to convert to dairying despite the much higher returns.”

“The Green’s move to a carbon charge is a good idea because the ETS has failed to send the price signals needed, and we have had mis-directed dairy investment as a result.  The carbon charges will provide for much more effective and settled policy which up to now has been ineffective and subject to on-going policy flip-flops, particularly those affecting the forestry sector.”

“The Government’s budget move to stop the arbitrage between very low cost international emissions units worth about 20c/tonne being in effect swapped for NZ Unit credits was sensible but applied only to the forestry sector – other industries have been left to continue the rort.

Cath Wallace said This is not fair on the public purse or the forestry industry and fails to incentivize any move from fossil fuels.  “Forestry under the Green’s scheme will be rewarded by $12.50 tonne of CO2eq sequestered and will pay the same for deforestation emissions.”

“The policy package has many other companion policies which farmers will welcome and so will others with a concern for the environment:  certification schemes for farmers who do on-farm emissions reductions or offsetting such as fencing and riparian planting and pest control.  These will be very welcome.”

“The Green’s Climate Commission is a good idea to de-politicise climate protection policies.  The setting of regular carbon budgets and emissions reduction targets, charting the path for this, and the transparency of the charges will provide greater policy stability which will help both farm and non-farm investors to know where they stand.”

“This policy shows how economic mechanisms can be used to help the environment, to improve economic efficiency by pricing pollutants and can achieve greater equity by implementing the polluter pays principle.  The complementary policy measures add to the robustness of the commitment to reduce emissions.  The income and company tax cuts will protect aggregate demand in the economy, while positioning both the economy and New Zealand’s international standing better for the future.”

“The accompanying BERL analysis provides substance to the policy, but the reliance on average outcomes, forced by an apparent lack of data for impacts on the median and quartiles of households, is a weak point in the analysis.  The BERL analysis notes this, and notes that a General Equilibrium model would be hugely more complex but would give the opportunity to see how both consumers and producers would adjust.”

“Overall, the policy is economically sound, would provide much improved policy stability, is much fairer and would protect the most vulnerable farmers – those in the sheep and beef sector.”

Cath Wallace said the question is now, where do the other parties stand on this?


NOTE:

1.            Cath Wallace was until recent semi-retirement, a Senior Lecturer in economics and public policy at Victoria University of Wellington, with a specialization in environmental economics and policy.  She still teaches environmental policy at an undergraduate level and Environmental Economics at a masters level at Victoria University.  She is not a member of any political party.


Previous page: What We Do