There should be some rejoicing in farm circles today, after Environment Minister Nick Smith released a joint report by economic consultants NZIER and Infometrics.
The report was commissioned by the Ministry for the Environment and provided to the Emissions Trading Scheme Review Committee as part of its terms of reference.
Smith’s media statement emphasises the recommendation that a modified emissions trading scheme as the best way forward for New Zealand on climate change policy.
“The report highlights that the costs to New Zealand’s climate change policy are significantly greater if other countries do not put a price on carbon. This reinforces the Government’s policy of aligning our response more closely with other countries.
“The Government will await the report back from the Review Committee before committing to any decisions on the future of New Zealand’s ETS. The environmental and economic consequences of climate change policy are critical to New Zealand and a careful and considered approach is required.”
Alf has had a quick read of the report and brings you this from the very end of the report’s conclusions and recommendations:
If the aim of climate change mitigation policies is to change producers’ behaviour, it is vital to be able to measure emissions in a cost effective manner. If the transaction costs of measuring emissions outweigh the benefits of emissions reduction, the policy may not be net welfare enhancing. Therefore the transaction costs of implementing an all-sectors all-gases ETS need to be evaluated. It may be advisable to exempt sectors such as agriculture where measurement costs are high relative to the benefit that would be gained from that sector’s inclusion. Our modelling suggests that, in the short term, such exemptions do not reduce economy wide welfare.
On balance, our recommendation in the short run is to introduce an ETS with free allocation to competitiveness-at-risk sectors, with agriculture excluded if measurement of its emissions is prohibitively expensive. Free allocation should be output-linked and phased out as our competitors adopt carbon pricing. If agriculture is initially excluded it should be transitioned into the ETS, with free allocation if required, as measurement becomes economic.
It seems to Alf this recommendation gives the farm sector much more breathing space than was provided by the Labour scheme.
It remains to be seen what weight the select committee gives this report, of course.