NEW ZEALAND BUSINESS ROUNDTABLE
SUBMISSION ON
THE CLIMATE CHANGE RESPONSE BILL
SEPTEMBER 2002
1 Introduction
1.1 This submission to the Foreign Affairs, Defence and Trade Committee (the Committee) on the government's Climate
Change Response Bill (the Bill) is made by the New Zealand Business Roundtable (NZBR), an organisation comprising
primarily chief executives of major New Zealand business firms. The purpose of the organisation is to contribute to the
development of sound public policies that reflect overall New Zealand interests.
1.2 The Committee last considered climate change policies earlier this year when it had before it the government's
National Interest Analysis (NIA). The hearings on the NIA occurred prior to the release on 29 April 2002 of the
government's Preferred Policy Package. Our submission on the NIA argued that it was seriously deficient and recommended
that it should be re-worked. This view is consistent with the minority recommendation in the Committee's report that the
NIA should be re-done when the government had determined the measures it proposed to implement to give effect to New
Zealand's Kyoto undertakings.
1.3 The subsequent publication of the government's Preferred Policy Package reinforces this conclusion. It is in the
nature of a 'Clayton's package' for the initial commitment period, in that most sectors of the economy are shielded from
any significant impact and reliance is placed on forestry sinks to meet New Zealand's obligations. However, the Kyoto
requirements would bite hard beyond the first commitment period when, as the government acknowledges, gross emissions
would need to be reduced. We consider that the document is grossly inadequate in not addressing the longer-term
implications of ratification, which we see as very damaging for the economy. A copy of our submission on the Preferred
Policy Package is attached.
2 The key issue of ratification
2.1 We believe that the key issue facing the Committee and parliament is to assess the case for ratification. We are
aware that the Committee's report earlier this year stated that:
The provisions that allow Parliament to examine treaties do not include the power to approve treaties. This power has
been retained by the Executive. On this basis, we are not able to make a recommendation to ratify or otherwise as this
would presume Parliament performing some sort of approval function.
However, parliament necessarily performs such a function when it considers associated legislation, such as that proposed
in the Bill. We also note that the US Senate voted 95-0 against any international climate change agreement that would
harm the US economy and would not include participation from developing nations. Why should parliament not be asked to
address the merits of a decision (ratification) which will have profound long-term consequences for New Zealanders? The
Canadian government has announced that its parliament will be asked to vote on the ratification of the Protocol. We note
also that the Regulatory Impact Statement (RIS) contained in the explanatory note to the Bill states that the
government's decision to ratify is subject, inter alia, to the enactment of legislation to enable ratification.
2.2 The government's justification for the actions it proposes to take is set out in the RIS. We examine each element of
the RIS in turn.
2.2.1 Statement of the problem We think it is beyond doubt that the RIS does not comply with the Cabinet Office
requirement to establish that there is a clear need for government action. It does not even acknowledge that New
Zealanders might be better off with projected global warming.
2.2.2 The RIS does not mention, let alone evaluate, the economic literature that finds that the Kyoto Protocol would
impose significant costs on most developed countries for only small environmental benefits. It is well understood that
the full implementation of the Protocol will have a barely detectable impact on temperature increases projected for
2100. This is not a contentious point. A recent review article by McKibbin and Wilcoxen summarises the cost-benefit
aspect as follows:
For example, Nordhaus and Boyer (1999) find that the Protocol does not "bear any relation to an economically oriented
strategy that would balance the costs and benefits of greenhouse gas reductions." They calculate that the worldwide
present value cost of the Kyoto Protocol would be $800 billion to $1,500 billion if it were implemented as efficiently
as possible, while they estimate the present value of benefits to be $120 billion. Other studies reach similar
conclusions. Tol (1999), for example, finds that the Kyoto Protocol would have a net present value cost in excess of
$2.5 trillion and comments that "the emissions targets agreed in the Kyoto Protocol are irreconcilable with economic
rationality".
2.2.3 This article and other analyses support the view that the deficiencies in the Kyoto Protocol arise from
unprincipled political considerations. The choice of 1990 as a base year was more convenient for Europe than the United
States. Europe has an anti-competitive interest in raising cost structures in the United States. This suggests that
Europe's willingness to meet its targets will be lower (a) the less likely it is that the United States participates;
and (b) the greater the costs that are likely to fall on Europe. On the latter point, it is of interest that a recent
US-based study found that Europe "faces major challenges in meeting not only the Kyoto greenhouse gas targets but also
the more stringent emissions being debated for the post-Kyoto commitment period."
2.2.4 Unfortunately, the Committee itself appears to be seriously misinformed on this question. Its report this year on
its international treaty examination of the Protocol stated that the "justification for the Kyoto Protocol lies in the
overwhelming scientific evidence that greenhouse gas emissions are a major contributor to
climate change and that in the long term this will be extremely detrimental to the whole planet." This statement ignores
cost-benefit considerations and uses false scientific certainty to justify action that would have no material impact on
global warming. In fact, as McKinnon and Wilcoxen state, "it is quite hard to prove that global warming has begun".
Furthermore, the assertion about the long term appears to be undocumented and to lack a scientific basis. Scientists do
not know if or when a doubling of carbon dioxide will occur, given substitution possibilities. Nor do they know whether
a doubling will lead to a temperature closer to the lower or upper end of the IPCC's 1.5-4.5¢XC range. In any case,
these alleged problems cannot justify the Kyoto Protocol because it will not solve them. Any justification would have to
consider costs and benefits. These are economic, not scientific issues, and are ignored in the Committee's report.
2.2.5 Stated policy objective The stated policy objective does not meet the Cabinet Office Manual requirement that an
RIS should not "align with (and so prejustify) the particular effects of the proposed regulation". Instead it excludes
consideration of all non-ratification options by stating that:
The public policy objective is to enact legislation that will allow New Zealand to ratify the Protocol and formalise the
powers and institutions necessary for New Zealand to continue to comply with its obligations under the Convention.
This is a flagrant breach of the RIS guidelines.
2.2.6 Statement of options As a result of this specification, the only two options identified in the RIS are to ratify
using existing legislation or to use new legislation. The second option is preferred on the grounds that it is "[t]he
only effective way to meet the policy objective". The RIS does not even identify the option for New Zealand of following
the approach of Australia and the United States not to adopt the Protocol while implementing unilateral measures. Only
indifference to the national interest could explain this omission.
2.2.7 Statement of net benefits The RIS's statement of benefits simply assumes what the government wants to believe ƒ{
that ratification will materially reduce climate change for the benefit of New Zealanders and that there will be
positive effects on New Zealand's "trade and other international relationships". Any responsible analysis would consider
the possibility that it could have the opposite effects - including distancing New Zealand further from the United
States and Australia, two countries that are of the utmost importance to New Zealand.
2.2.8 The RIS's examination of net benefits fails to meet the requirement to identify the total regulatory costs of the
preferred ratification option. It does not even identify the nature of the implicit alternative. In particular, it makes
no attempt to ascertain the economic costs of ratification beyond the first commitment period. Paragraphs 3.5-3.12 of
the attached submission suggest that the future costs could be massive.
2.2.9 Finally, the section in the RIS on the parties likely to be affected by the measures does not examine the prospect
that the costs will fall largely on the least mobile members of the community. Capital and internationally mobile labour
can escape the ongoing costs by emigrating. The elderly and the least skilled will find this more difficult.
2.3 These deficiencies appear to be wilful. By stating its determination to ratify despite such incompetent analysis,
the government is giving the impression that it is acting for political reasons and does not care about the wider
national interest. The most obvious step it could take to redress the situation would be to require officials to submit
a professionally competent NIA. Indeed, parliament should demand no less from the executive. We submit that the
Committee should also call the departmental chief executive(s) responsible for the RIS before it to respond to the
foregoing criticisms.
3 Accountability
3.1 We have raised our concerns about the low quality of public policy analysis on this topic inter alia with the State
Services Commissioner. He agrees that chief executives and their departments are accountable for the delivery and
quality of their advice and analysis.
3.2 We note in passing that there is ample evidence that the problem of low quality regulatory analysis is a general
problem. It is not specific to the climate change
issue.
3.3 In our view, it is very important for the public interest and for the efficient operation of parliament, select
committees and even cabinet itself that the relevant policy ministries are required to provide competent advice on major
policy issues of the day. Parliament should not permit key ministers to dispense with formal advice or to tolerate
incompetent analysis.
3.4 We urge the select committee to make a strong stand on this issue. The executive undermines parliamentary democracy
when it gets away with providing select committees with inadequate material. We also believe the responsible
departmental chief executives should be asked to state their position clearly on the key issue of whether the government
should ratify the Kyoto Protocol and that this advice should be made public (eg under the Official Information Act).
They are servants of the public as well as the government. The State Services Commissioner should also be asked to hold
chief executives accountable for the quality of that advice in their performance appraisal. Kyoto has the potential to
be a public policy failure on the scale of the Think Big programme, for which none of the public servants who supported
it were called to account. Given the stricter accountability regime introduced by the State Sector Act 1988, advice
which turns out to be seriously misguided should be met by reputational and other sanctions.
4 Other submissions
4.1 In preparing this submission we had discussions with the Greenhouse Policy Coalition, the Landowners Forum, Carter
Holt Harvey and Business New Zealand and are aware in general terms of their submissions to the Committee on the
administrative aspects of the Bill. We concur with the view that the Bill would impose excessive and unnecessary costs.
The RIS does not make any case that the benefits from the proposed administrative measures exceed the cost. Nor does it
make the case that they are necessary in order to achieve the policy objective. In our view the Committee should respond
favourably to Carter Holt Harvey's conclusion that aerial photogrammetry and the provisions of the Resource Management
Act 1991 are adequate for reporting purposes.
4.2 We also share in the general concern about the intrusive powers to be conferred on government officials. The
Landowners Forum has pointed out that the possibility of these powers being abused is not academic. We suggest that the
Committee should respond to the view of the Greenhouse Policy Coalition that the Bill should not delegate powers that
should be reserved to parliament.
4.3 In our view, the Committee's report should also respond to the point made by the Landowners Forum about the
uncompensated taking in respect of removal units. In general, uncompensated takings undermine the rule of law and
thereby discourage investment.
4.4 We strongly concur with the emphasis placed by Business New Zealand on the need to promote higher rates of economic
growth in New Zealand and the importance of avoiding measures that unnecessarily make New Zealand less competitive. In
our view, the RIS fails to establish that the intrusive measures in the Bill are necessary or desirable for
ratification.
5 Conclusions and recommendations
5.1 The Speech from the Throne at the opening of the current parliament stated unequivocally that the:
¡K government sees its most important task as building the conditions for increasing New Zealand's long term sustainable
rate of economic growth.
This statement is inconsistent with the proposals in the Bill. Ratification of the Kyoto Protocol would be negative for
economic growth. The RIS accompanying the Bill does not make any case that it would produce material offsetting
environmental or diplomatic benefits. McKibben and Wilcoxen describe the Kyoto Protocol as "an impractical policy
focused on achieving an unrealistic and inappropriate goal".
5.2 The totally inadequate regulatory analysis of such a major issue contained in the Bill is, in itself, a negative
signal for businesses and potential investors in New Zealand. Draconian regulations and an evident determination to
expropriate private property rights associated with post-Kyoto forests without compensation are the opposite of what is
required if the most important national priority is to increase sustainable economic growth.
5.3 In our view, none of the government's other measures in the Speech from the Throne could possibly offset the
negative effects on business activity and investment in New Zealand of Kyoto ratification. If the government wishes
investors and the business community to view its stated goals for growth seriously rather than cynically, it cannot
proceed with ratification on the basis of this analysis.
5.4 The government has ample time for further reflection on the issue in the light of the approach taken by the United
States and Australia. A responsible approach would be for it to insist on a NIA and RIS that met professional standards
of regulatory analysis. We recommend that the Committee asks for this to be done and that in the meantime the Bill does
not proceed.
5.5 We also believe the Committee should insist that the relevant policy ministries provide an explicit policy
recommendation on the basic issue of ratification, and that their chief executives are held accountable for the
professional quality of the advice given. We also recommend that the Committee asks the responsible chief executive(s)
to respond to the criticisms made of the RIS in this submission, and invites the State Services Commissioner to advise
it on how they will be held accountable for their advice on the ratification decision.