26 June 2008
Catherine Beard, executive director of the Greenhouse Policy Coalition, representing the energy intensive sector on climate change issues, says an economic peer review of the NZ Business Council for Sustainable Development report, The economic opportunities arising from emissions trading: the major cost of delay, concludes it makes claims that are unsupported by evidence and based on a basic misunderstanding of the way economies work.
The Greenhouse Policy Coalition asked economic consultancy Castalia to peer review the report and assess its conclusions that:
- The immediate introduction of the emissions trading scheme would lead to economic benefits in the form of new investment, jobs and wages
- Delaying the introduction of the emissions trading scheme would delay the benefits and impose additional costs on the economy through loss of competitiveness, investment and reputation.
Alex Sundakov, Chief Executive of Castalia, says the claim that “creation” of jobs and investment in particular sectors and industries under the scheme equates to an economic overall “benefit” reflects a lack of basic economic literacy.
“Workers and capital will not magically appear following the introduction of an emissions trading scheme, rather some capital and employment will be reallocated to different areas as relative prices change.”
“If that capital and employment is reallocated to areas of lower economic return or if the policy encourages “new” investment by artificially shortening the economic life of existing assets, that must be wasteful on economic grounds”.
Alex Sundakov points out that, under the logic applied by the BCSD, a Government policy that required every homeowner to demolish and then rebuild their family home would create economic “benefits”. Replacement of destroyed property would require investment and employment. “But it’s fairly obvious such a policy doesn’t make economic sense. In a fully employed economy, resources would simply be sucked away from areas where they can be used far more efficiently and contribute more to building New Zealand’s wealth.”
“It’s the same story with the emissions trading scheme. Investment and jobs will be moved around. But basic economic logic and most of the rigorous analytical work undertaken to date, suggests that the NZETS would reduce the efficiency with which available resources are used, by undermining New Zealand’s productivity in areas where we have a competitive advantage.”
Alex Sundakov says the Business Council for Sustainable Development report is also off the mark in predicting that delays in the introduction of an emissions trading scheme would impose costs through lost investment confidence and international competitiveness.
“Rushed policy that is flawed creates more investment uncertainty than a slightly delayed, but better thought-through emissions trading scheme. If there are business opportunities to be had in an increasingly carbon-conscious world, businesses do not need to wait for an emissions trading scheme to take the initiative and “green” their products and services.”
Alex Sundakov says the Business Council for Sustainable Development’s criticism of the conclusions of the NZIER economic analysis are unsupported by evidence or analysis, and reflect a clear misunderstanding of the analytical technique.
Catherine Beard concluded that an emissions trading scheme can work, as long as we take the time to get the policy right and ensure we design a scheme that keeps our efficient industries competitive in the transition to a global price on carbon.