Emissions trading cost 'too great' for NZ

Last updated 01:33 01/05/2008

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The Government's plan to cut greenhouse gases to help save the planet from global warming will slash billions off economic growth, cost 20,000 jobs, and in time take $3000 off individual household spending annually, an independent report warns.

The Government should "take a breath and have a cup of tea" before proceeding, one of the report's authors, John Stephenson, said yesterday.

The report by the Institute of Economic Research says the Government's emissions trading scheme will have a major impact on an "already faltering economy", with rising prices, lower export earnings, fewer jobs, and a falling standard of living.

By 2025, gross domestic product would fall by almost $6 billion, household spending by $3000, wages by almost 7 per cent and dairy land values by 40 per cent.

Mr Stephensonsaid the export sector, especially agriculture, and rural regions would bear the greatest cost.

But the 20,000 jobs it would cost would mainly not be created, rather than being destroyed.

The independent report says the Government scheme would push New Zealand's standard of living further behind Australia.

The cost in 2012 would be eight times greater than if the Government paid for carbon credits from overseas projects to reduce greenhouse gas emissions.

"It is cheaper [for the Government] to buy emissions reductions abroad," Mr Stephenson said. It should pay directly for emissions reductions out of general tax.

Buying carbon credits is assumed to cost about $40 a tonne, though NZIER expected that to rise eventually, making the position even worse.

Farmers would be especially hard-hit, with New Zealand alone in the world including agriculture in its emission reduction scheme.

"The dairy sector is the biggest hit - both dairy farming and manufacturing, " Mr Stephenson said.

Dairy land could fall 40 per cent in value.

There would be a shift to a lower-value economy, such as textiles and clothing, "because wages have gone down and labour is cheaper".

NZIER chief executive Brent Layton said: "Agriculture, which delivers more than a third of the country's export earnings, will be particularly hard-hit because it cannot make quick adjustments."

About half of New Zealand's greenhouse emissions come from agriculture and animals.

Costs imposed by the scheme could not be recovered by raising prices, because New Zealand would be competing with countries that did not have emissions costs for their farm sectors.

Farmers thus faced lower profits or lower production under the scheme.

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Either way, New Zealand would earn less from agriculture.

Cutting methane emissions from animals would mean reducing stock numbers and production.

If the cost of dairy production rose in New Zealand and production fell, other countries would probably lift dairy production to fill that gap.

Because New Zealand was an efficient dairy producer, global methane and other emissions would not actually fall, with "leakage" about 25 per cent of the intended total greenhouse gas cuts.

"It is an imaginary impact on emissions overall," Mr Stephenson said.

So the New Zealand economy would suffer, for no gain in cutting global greenhouse gases.

FEEL THE BURN: Key impacts of the Government's proposed emissions trading scheme: BY 2012 The equivalent of 20,000 jobs lost or not created. $600 reduction in average household spending. $900 million cut in gdp. BY 2025 Spending down $3000 a household. Hourly wage rates down 6.7 per cent or by $2.30 in today's prices. GDP will fall by almost $6 billion. Dairy farming declines 13 per cent. Dairy land may drop by up to 40 per cent in value. Sheep and beef farming down 6.6 per cent. Sheep and beef land down 23 per cent in value. Rural economies in Southland and Northland hard hit by loss of dairy, sheep and beef farmers. Basic metals manufacturing sees 3.4 per cent fall in jobs, but aluminium smelter expected to continue, as well as Marsden Pt oil refinery.

 

- © Fairfax NZ News

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