Less costly to buy carbon units - report

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It would be cheaper for New Zealand to meet its Kyoto Protocol commitments by buying carbon units overseas than cutting emissions, a new report has found.

A joint report by economic consultants Infometrics and the New Zealand Institute of Economic Research, commissioned by the Ministry for the Environment, recommends watering down New Zealand’s emissions trading scheme (ETS) to ensure exporters are not hit by a price on carbon.

The ETS passed into law by the previous government is under review by a parliamentary select committee. The scheme introduces a carbon market, with major emitters required to meet emissions targets or pay for carbon units to make up the shortfall.

The ETS is likely to increase the price of petrol by about 4c a litre and could push up power prices by about 5 per cent. Consumers could also pay more for goods produced or transported using oil, gas or other greenhouse gas-producing fuels.

The consultants’ report, released yesterday, says an ETS could lower gross national disposable income by between 0.2 per cent and 0.8 per cent, or up to $2000, depending on the international price of carbon.

It says the cheapest method of meeting the country’s international liabilities is through the Government buying permits funded through raising taxes.

Despite it being cheaper to buy carbon units overseas, the report says, the option is politically untenable, given New Zealand’s international stance on climate change.

“The global trend is clearly moving towards the gradual introduction of carbon pricing, albeit slowly and in varying forms. Our understanding of the international climate-change negotiations is that New Zealand would lose credibility if it was to shy away from carbon pricing,” the consultants say.

“That is unlikely to benefit the country in the longer term. Being `outside the tent’ is not a place that New Zealand can afford to be.”

They say New Zealand should not get ahead of other trading nations in introducing a carbon charge that could harm exporters.

The Government should proceed with a carbon-pricing scheme, but through a narrower version of the current ETS that excludes or suspends the involvement of “at risk” industries such as agriculture.

The consultants say industries at risk from the ETS should receive a free allocation of carbon units based on their emissions, which could be phased out as international competitors adopted carbon pricing.

Agriculture is excluded until the end of the first commitment period under Kyoto, which ends in 2012. More than half of New Zealand’s greenhouse gas emissions are from that sector.