Exempt Agriculture from ETS, Economists Recommend

Wednesday 17th June 2009

Measuring agricultural greenhouse gas emissions is likely to be too expensive in the short term to warrant including agriculture in any early version of an Emissions Trading Scheme, leading economic consultancies have told a parliamentary select committee considering an ETS for New Zealand.

The report, by Infometrics and the New Zealand Institute of Economic Research, recommends an ETS as the most cost-effective long term approach to dealing with the country's liabilities for GHG emissions, even though it would be cheaper in the short term for the Government simply to buy emissions credits offshore using tax revenue.

Modelling by both agencies found relatively small costs to the economy from measures to price carbon, although the net income loss per head of population could amount to $2000 a year by 2025 if carbon were priced globally at $100 a tonne.

Most of the modelling assumes a $25 per tonne cost of carbon.

With the whole world moving at various paces to introduce carbon pricing in various ways, NZIER and Infometrics said it was untenable for New Zealand not to follow suit, but that it should synchronise development of domestic carbon pricing with global pricing and technological developments.

"The introdiction of a carbon price is warranted," the report says. "In the short run, a narrow based carbon pricing scheme (whether tax or trading scheme) at a low domestic price can provide this signal at a lower economy-wide cost than an all-industries, all gases ETS with free allocation.

"In the longer run...a broad-based full price signal with no free allocation or exemptions is the least cost way of meeting our post-2012 obligations", when a replacement for the Kyoto Protocol on GHG emissions is due to kick in.

Given that climate change policy should drive emissions-lowering behaviours, it needs to be achieved cost-effectively, the report says. "Therefore, the transaction costs of implementing an all-sectors all-gases ETS need to be evaluated.

"It may be advisable to exempt sectors such as agriculture where measurement costs are high relative to the benefit that would be gained from that sector's inclusion. In the short term, such exemptions do not reduce economy-wide welfare," the report says.

Businesswire.co.nz

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