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Emissions trading bill will cause unnecessary economic pain

11 February 2008

Economic consultancy Castalia have reviewed the climate change (Emissions Trading and Renewable Preference) Bill, which was referred to a Select Committee before Christmas and concluded that the draft legislation does not fix any of the problems which were identified in the Government’s earlier proposals, and fails to create a mechanism for balancing economic and environmental interests in a sustainable fashion. (5 page review attached).

The review of the Bill was undertaken for the Greenhouse Policy Coalition, which represents many large industrial employers in New Zealand. Castalia were asked to consider whether the Bill addresses concerns expressed during the consultation process and solves the problems which have been identified.

The review finds that the Bill continues ignore the economic consequences and risks which have been identified. The recommendations by industry participants during the consultation phase have largely been disregarded.

In particular, despite earlier signals from the Government, the Bill fails to allow for an effective price safety valve to cap the price of carbon, meaning industry and consumers could be exposed to a high and volatile price of carbon which would do significant economic damage.

Catherine Beard, executive director of the Greenhouse Policy Coalition said in some ways the Bill goes even further than the previously announced policies in loading risks and costs on to New Zealand’s productive sectors. “The critical issue is that the New Zealand Government, unlike any other developed country government, appears to be indifferent to its industry and agriculture being exposed to high (currently double what the government had been predicting) prices of carbon with inadequate protection against a loss of competitiveness against international trading competitors and a strong disincentive for new investment in New Zealand.”

Executive director of Castalia, Alex Sundakov, said the NZ government seemed to be taking a riskier approach to introducing a price on carbon than any other country, including the EU.

“The European Union is prepared to contemplate 100% free allocation to shield its trade exposed energy intensive industry from competitors in countries not facing emissions trading costs. The New Zealand scheme is more ambitious in terms of coverage than any other in the world and has no provision for new investment or growth without a carbon penalty.”

Alex Sundakov said it was critical that a New Zealand emissions trading scheme allowed our efficient industries to remain internationally competitive.

“At the very least a price safety valve is required and better protection for trade exposed industry and new entrants, until such time that our trade competitors impose similar costs on their economies.”

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