Roger Kerr: Not so Fast, Minister

Friday 15 June 2007.

Unveiling plans for an emissions trading scheme last month, climate change minister David Parker declared it would be up and running next year, would apply to all sectors of the economy, and would have a "negligible" impact on economic growth. And while noting that no final decisions have been made, he said the government was doing "no work" on alternative policies.

The minister has frequently stressed the need for haste, no doubt reflecting the prime minister's earlier decree that New Zealand must lead the world in combating climate change.

The plan is bold, and the sentiments lofty, but are they based on any detailed analysis or process? Apparently not.

Even Noah, one of the earliest believers in climate change, had a game plan, and must have taken some time to size up the options, design and build the ark, and persuade his passengers of the wisdom on getting on board. Mr Parker has declined meetings to discuss business concerns and only intends to consult with affected parties during the brief six week period while legislation for the scheme is being drafted.

This is hardly consultation in good faith. Business and industry groups took the government's earlier consultation documents seriously and responded with in-depth submissions.

The government's own Cabinet Manual sets out a clear and rigorous process to be followed in the case of a proposal of such significance for New Zealanders. It includes the requirement for a regulatory impact statement and a proper cost-benefit analysis.

There is no sign that these requirements are being taken seriously and that all options are being examined. For example, the option of a carbon tax should be thoroughly analysed: it is supported by leading economists such as Gregory Mankiw, former chairman of the US Council of Economic Advisers and former Federal Reserve chairman Alan Greenspan and by former US vice-president Al Gore. And, given the liabilities New Zealand now faces under Kyoto, the government should be examining whether it should withdraw from that agreement and perhaps seek to join the AP6 grouping which includes China and India as well as the United States. Such a possibility may be politically unpalatable, but that shouldn't be the driver in a decision with such far-reaching costs and consequences.

Given the trail of embarrassing policy failures in this area, such as the aborted methane levy, carbon tax and negotiated greenhouse agreements, and the Kyoto forestry blunder, one might expect the government to have learned from its mistakes. Businesses were put to great expense over NGAs before they were abandoned.

And it is laughable to suggest that if New Zealand goes out on a global limb, the rest of the world will take note and follow. New Zealand emissions make no discernible difference to global warming, and it should move in line with its major trading partners and competitors.

The Australian government's recently released Task Group Report on Emissions Trading set out a four-year timetable to implement an Australian emissions scheme, cautioning against premature introduction and noting the time required for proper cost-benefit analysis and a comprehensive programme to prepare business and the community for the changes required.

Writing about the report recently, the Melbourne Age economics editor Tim Colebatch noted the pitfalls and complexities involved in designing the right one for Australia: "At best, today's report could create a world-class emissions trading scheme, which would cut emissions deeply at a tolerable cost. At worst, it could saddle Australia with a scheme that would create a rortable asset for big greenhouse polluters, do little to reduce greenhouse emissions - and cost taxpayers a fortune to fix later."

Europe took six years to bring in a system significantly less ambitious than the one Mr Parker is proposing for New Zealand, but widely regarded as a fiasco. An April report from the European Economic and Social Committee described it as "a monstrous mess whose only likely effect was to damage European competitiveness with no discernible influence on the climate."

Canada is also considering an emissions trading scheme. Analysing the proposal, Financial Post columnist Peter Foster noted that it "sounds great, but when the practicalities of such a scheme are dissected, it falls apart like a Soviet suit."

Such lessons, and the caution with which Australia is proceeding, should have been sufficient to halt the government's headlong rush to lead the world. But it seems this is not the case.

Therefore it is not surprising to see eight major business and industry groups join forces last week to spell out their concerns to the minister. Global warming is potentially a long-term problem and any policies to deal with it need to have a well-established justification, be stable and durable if industry is to plan rationally, and have broad political and community buy-in. At present there is no sign of these conditions being met.

Roger Kerr is the executive director of the New Zealand Business Roundtable.

ENDS

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