Hodgson Responds To GPC/PEANZ Report On Climate Change Policies

Energy Minister Pete Hodgson says the report The Economic Effects of Greenhouse Gas Emission Policies: A quantitative evaluation is a contribution to the climate change debate that must be taken “with a large pinch of salt”.

Mr Hodgson said the analytical limitations of the report, released by business groups the Greenhouse Policy Coalition and the Petroleum Exploration Association, meant its conclusions about the possible economic impacts of climate change policies should be read with caution.

“The impacts analysis commissioned by the Government from the Australian Bureau of Agricultural and Resource Economics (ABARE) suggested the econonomic impact of climate change policies would be slightly positive overall,” Mr Hodgson said. “This report says the impact could range between slightly negative and very negative, depending on how extreme a policy scenario is applied.”

“This report is interesting but not illuminating, given the uncertainty surrounding its conclusions. An independent review commissioned by the Department of Prime Minister and Cabinet from Infometrics economist Adolf Stroombergen notes that ‘it is not at all clear that the scenarios present a plausible picture of the economic effects of policies to reduce emissions’.

Mr Stroombergen says the uncertainty surrounding the report’s conclusions on economic impacts is primarily due to a shortage of information on its base assumptions, insufficient explanation of the economic model it uses and a lack of testing of the model’s sensitivity to variation in critical parameters.

“I would add that the GPC/PEANZ report makes misguided assumptions about New Zealand’s energy needs, fails to take account of the incentives created by early certainty of climate change policy and shows no comprehension of international political reality in its policy analysis,” Mr Hodgson said.

“The report assumes that New Zealand’s present level of inefficiency in energy use must continue and completely overlooks the greenhouse gas emission reductions that even partial success for the National Energy Efficiency and Conservation Strategy would achieve. It assumes businesses would be hit by climate change policies as if by lightning, when in fact they will have years to adjust behaviour and position themselves to minimise the impacts.

“Most incredibly, the report’s conclusion that New Zealand should meet its Kyoto Protocol obligations entirely with carbon sink credits, while doing nothing to reduce emissions, completely ignores the political reality of our position in international climate change negotiations. Far from enabling the government ‘to position the New Zealand economy for the second commitment period in the least damaging fashion’, this approach would demolish New Zealand’s credibility in negotiations and make it extremely difficult to get targets for the second commitment period that were remotely achievable.

“Notwithstanding its shortcomings, the report is a worthwhile contribution to the debate on climate change policy now under way in New Zealand. By modelling a series of extreme scenarios, NZIER have shown that poor policy would lead to serious economic effects. That is why the government is consulting widely on climate change policy now, and will consult widely again next year when we have developed a preferred policy package.”

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