Climate Change
We have prepared briefing material on the three main aspects of climate change policy: the international negotiations, the Emissions Trading Scheme (ETS), and the role of other domestic measures. Our general views are as follows.
- New Zealand's participation in any future international agreements needs to be conditional on expanding the number of countries with emission reduction targets, relative to their respective ability and responsibility, and recognition of our unique emissions profile when setting our target.
- The ETS is the most important part of the domestic policy package as it provides the right incentives for emitters to abate their emissions where it is cost effective to do so. We consider the design of the ETS generally sound but suggest a couple of amendments that could beneficially be made, noted in the table below.
- The adoption of the ETS renders most other abatement policies redundant. Additional policy measures should only be adopted where there are external costs and benefits that are likely to cause an inefficient level of emissions; or information barriers prevent cost effective mitigation from occurring; and the government can take action that would be effective in eliminating or minimising the identified market failure at a cost lower than the cost of purchasing emissions permits.
| Policy proposals | Treasury comment | Recommendations/implementation advice |
|---|---|---|
ETS Legislation to amend Labour's Emissions Trading Scheme (ETS) within nine months of taking office. Coalition Agreement Put ETS on hold to undertake a full review of climate change policy |
We consider the ETS design to be generally sound but would recommend:
We will report as soon as possible, in conjuction with the Ministry for the Environment, on the implications of the proposed review. |
Additionally we would recommend:
Careful consideration of issues such as the treatment of forestry during the review period will be required to avoid significant negative fiscal and economic impacts. |
50 by 50 50% reduction in New Zealand's carbon-equivalent net emissions, as compared to 1990 levels, by 2050 |
We do not see huge risks with proposing longer-term emission reduction targets as long as these are not domestically binding targets (ie, no trading). |
The international negotiations include discussion on targets to 2020 for developed countries and long-term global targets. New Zealand's focus should be on determining a post-2012 emission reduction target for New Zealand and what targets we expect from other countries. |
| Repeal Thermal Moratorium | The thermal moratorium is an unnecessary and potentially costly initiative that should be repealed. | Various policies have been rendered redundant by the ETS. Examples would include the Biofuel sales obligation and the proposed Vehicle Fuel Economy Standard. We will report further on other measures that are no longer required. |
