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1  Introduction

A reduction in carbon dioxide emissions arising from the production of goods and services can come from three main sources: changes to the structure of final demand; changes to fuel mix and efficiency in production, and changes to the structure of inter-industry trading. The aim of this paper is to examine the nature of the least disruptive changes in the New Zealand economy that are necessary to achieve a target annual rate of reduction in emissions. The paper concentrates on changes in final consumer demands and changes in the quantities and mixture of fossil fuels used by industries. A situation in which emissions reductions are achieved by reducing all final demands would imply an increase in aggregate unemployment and a negative growth rate of GDP. In the case of final demand changes, constraints on GDP and employment growth are imposed: these imply that the final demands of some industries would need to increase, while other industries decline. These changes are examined using constrained minimisation techniques within an input-output framework, following the methods developed by Proops et al (1993).[1]

The constrained minimisation method does not consider a specified means of reducing emissions, such as a carbon tax.[2] It is therefore not directly concerned with determining the economic costs associated with curbing carbon dioxide emissions. Instead the method attempts to find the minimum set of structural changes required in different industries of the economy that would achieve a target level of emissions reduction whilst maintaining predetermined levels of variables like GDP growth and employment. In doing so, the method can determine the severity of the required changes.

Subsection 2.1 presents the input-output approach to modelling carbon dioxide emissions, while subsection 2.2 describes the method of allowing for constrained minimisation of disruptions. The minimum disruption approach is applied to New Zealand in sections 3 and 4. Section 3 describes the sources from which the data were gathered and the processes used to form the expressions derived in section 2, while subsections 4.1 and 4.2 analyse the minimum disruption results for respectively final demands and fuel use. Conclusions are provided in section 5.

Notes

  • [1]For an application to Australia and comparisons with and references to other applications of the basic approach, see Cornwell and Creedy (1997).
  • [2]For an analysis of the implications of a carbon tax for household demands and the distribution of welfare changes arising from the price changes resulting from a carbon tax, see Creedy and Sleeman (2004).
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