NZ needs to move to post-recession clean economy

September 30 2009

Media Release

New Zealand needs to move to post-recession clean economy

New Zealand risks being left behind the global growth of a clean economy because of its reluctance to embrace users-pays for the environment.

The country now needs to move to clean economy as it comes out of the recession, which is running parallel with the major emerging environmental issues of climate change, energy water and other resource shortages, economist and former Revenue Minister and Deputy Finance Minister Peter Neilson says in a Waikato University Public Lecture Series presentation being delivered this evening.

The Chief Executive of the New Zealand Business Council for Sustainable Development, Mr Neilson, says the country has averted an economic freefall by using major economic stimulus packages, increasing liquidity, cutting interest rates to very low levels, increasing Government spending and cutting taxes.

“A question remains – in New Zealand will we have an anaemic recovery, like the Japanese, one which took 10 years because asset prices were kept too high, propped up by soft monetary policy and they were slow to adjust?

“In New Zealand, there are issues with exchange rates, Government borrowing, over-leveraged housing, in some cases high farm debt levels, and still rising unemployment.

“If this were a ‘normal’ New Zealand recession and only one or two of the US, EU or China were in recession – our downturn would be mild and we’d be looking to a strong export pick up within the next 6 to 12 months. Unfortunately our currency may now be too high to sustain an export-led recovery.”

Mr Neilson says just as the financial markets were not self correcting and under-priced risk, in the environmental sphere we have not been charging or managing the risks and opportunities well.

“Because people don’t pay for many environmental services, we are encouraged to push up against its limits. We need to make sure the recovery is based on real green shoots.

“In the 1980’s we were subsidising so many of things we were exporting it was hard to tell the difference between growth that was positive – and growth that was making us poorer.”

Dairy output has quintupled since the end of subsidies, positioning New Zealand to take advantage of a global boom in demand for dairy products, driven from China and India. There were costs of adjustment - 1% of farms went bust, but not the 10% predicted.

Reluctance to embrace user-pays for the environment is being shown in

• Plans to excuse agriculture from full emissions pricing until 2015; while the USA plans, in the Waxman-Markey Bill passed by the House of Representatives and now before the Senate, to offer farmers there free tradable credits for voluntary emissions reductions from when it passes; the EU plans to make all non-ETS sectors, includῩng agriculture, reduce emissions by 10% combined by 2020. An EU country like Ireland with 25% of its emissions from agriculture is looking at a tax on cows to help meet that 10% reduction target.

• New Zealand plans to allow firms to carry on increasing emissions at Australasian industry average emission levels per unit of production – without a cap or extra charge.

Mr Neilson says we now need to take care we are not left behind by

• plans to take more than 50 years to phase out emissions subsidies to large emitters, including agriculture;
• effectively have a $12.50 per tonne carbon tax for the first 3 years up until 2013, compared with a market price of $25 or more per tonne;
• have an all sectors, all gases ETS by 2015 but with almost no impact on heavy emitting industries who may face competition from producers that are yet to face a price on carbon;
• forgoing using the several billion which could be raised from the sale of emission credits to large emitters, making emissions in excess of their subsidised levels, or consumers, to reinvest in clean economic development;
• Suffering a large opportunity cost by not quickly advancing a range of emission reduction measures to complement the ETS – and help drive long-term export competitiveness.

New overseas research showed collaborative action worldwide to cut emissions by 30% could actually increase GDP by 0.8%, create 10 million more jobs – and cut the carbon price to just US$4 per tonne by 2020.

Economic recovery plans valued at US$430 billion are now in place in 24 countries. They aim to build truly green economies, with emphasis on rail, transport efficiencies, water infrastructure and electricity grid expansion, along with more efficient vehicle fleets.

Mr Neilson says the next wave of protectionism could be based around relative environmental performance.

“We haven’t much choice to move to a cleaner economy. That’s why the proposed weakening of the ETS is so disappointing and we need to take care we achieve a truly green shoots recovery.”

Mr Neilson’s full address is at www.nzbcsd.org.nz

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