Adding Up The Costs Of Climate-Change Policy

INSIGHTS ABOUT THE NEWS - Climate-change policy and reducing greenhouse gas emissions are among the most testing issues facing policy advisers and politicians around the world.

As reported in the NZ Energy & Environment Business Alert, like most other countries, NZ has decided the use of price signals to change behaviour and weight costs in favour of low-pollution options is the best way forward.

The preferred model of Labour and National is the Emissions Trading Scheme. Under National this has failed to send price signals of any significance because the party is more concerned about damaging the economy than climate change.

Labour’s response is to “restore” the ETS and state it would, in a world-first, bring farm animal emissions into the scheme by 2020 with 90% free emissions. Presumably this would mean an increase in the carbon price, but, like much of Labour’s policy, the details which matter are deferred to a future committee.

To their credit the Greens put out a climate change policy with detail, but it was reported in a way to make it seem like emissions could be reduced without anyone feeling any economic pain. Leader James Shaw even said everyone would be better off.

The Greens want to scrap the ETS and replace it with charges on all emissions set at $40/t of carbon dioxide emissions with $6/t for nitrous oxide emissions and $3/t of methane emissions from agriculture.

The Greens say these charges would raise $1.7bn in 2020. This means higher fuel and power prices and new charges on farmers. Businesses will have to absorb or pass on the costs where they can. The passed-on costs mean households which can’t change behaviour or afford to will have to pay more.

The Greens propose the $1.7bn would be recycled through paying for forests (about $630m), compensating NZU holders ($106m) and a dividend (each adult $250 and costing $990m).

The Greens “estimate a $40 carbon price would add an additional $33 per year to electricity bills and $60 a year to fuel costs for an average household.” However, this cost is less than $200m a year, which would leave a lot for businesses and others to cover to raise $1.7bn a year.

The Greens estimate an average dairy farm would pay $4621 a year and an average sheep and beef farm would pay $6083. This would still leave the Govt well short of the $1.7bn a year in revenue, but farms would still have to wear or pass on the cost where they could.

The Greens say an average dairy farmer makes $267,000 a year pretax profit and the average sheep and beef farm $136,000 profit. The assumptions about profitability of farming appear to be on the heroic side as the last survey by DairyNZ showed dairy gross farm revenue per ha in 2015/16 was $4,804 and the business profit before tax per all effective ha in 2015/2016 was minus $734.

Trans Tasman’s sister publication, NZ Energy & Environment Business Alert, is a weekly source providing you with in-depth news, analysis and opinion on NZ’s energy and environment sectors.

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