Climate Policy: No Proper Cost Benefit Analysis

For Immediate Release
Climate Change Policy: Still No Proper Cost Benefit Analysis

“While the new NZIER/Infometrics report to the government on climate change policy provides useful insights, it is not a Regulatory Impact Statement, as required by and defined in the terms of reference of the parliamentary select committee reviewing the proposed Emission Trading Scheme (ETS)”, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

Mr Kerr said that the committee’s terms of reference required “A high quality, quantified, regulatory impact analysis to be produced to indentify the net benefits and costs to New Zealand of any policy action, including international relations and commercial benefits and costs.” Despite this, the committee did not commission the NZIER and Infometrics to provide a report that would produce this kind of analysis.

“The report uses computable general equilibrium modelling, which is useful up to a point, but is only one of a range of quantitative and qualitative methods of analysis that should have been applied. It does not look at the benefits side of the equation, nor does it fully examine the costs, and policy recommendations were inappropriately ‘bolted on’ at the request of officials.

“The report fails to explore many vitally important issues, such as the consistency of an ETS with the government’s goal of catching up with Australia by 2025, the economic costs of potentially high and volatile carbon prices under an ETS, transitional costs, and sectoral and regional effects.

“The result is a report that provides a much too limited basis on which to form policy conclusions”, said Mr Kerr.

He emphasised that both the NZIER and Infometrics were respected, reputable consultancies, and that the shortcomings in the report were not of their making but rather a result of a much too limited brief.

“Moreover, they were not commissioned to explore policy issues in anything other than a superficial way.

“Much more analysis on both the costs and benefits sides is required, and a comprehensive Regulatory Impact Statement (RIS) evaluating policy options should be undertaken, covering the range of options and issues included in the 200-page RIS accompanying the Australian government’s climate change legislation.

“The scant amount of research and policy development that has been undertaken in New Zealand compared with Australia should be regarded as embarrassing by the committee and the government.

“We support additional action by New Zealand, preferably in the form of a low, revenue-neutral carbon tax with subsidies for carbon sinks, if agreement is reached 2 in Copenhagen on post-2012 measures and if action is taken by Australia and other emitters. New Zealand should await these developments before taking final decisions.

“In the meantime much more work needs to be undertaken to provide a basis for sound, broadly accepted and politically durable government decisions”, said Mr Kerr.

NZBR Submission on NZIER (pdf)

ENDS

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