We don’t talk about climate change on TransportBlog that often, although we should – transport is a big contributor to emissions, and the most obvious opportunity for NZ to reduce its emissions.
But most economists would agree that the best starting point for tackling emissions is to price them properly, so people and businesses are incentivised to change their behaviour. Currently, we’ve got an Emissions Trading Scheme, but it has been almost completely ineffective, because the prices are too damn low. The current price for an emissions “unit”, equivalent to one tonne of CO2, is about $19 – but over the last few years, they’ve often been only a few bucks, or at some points less than a dollar.
By comparison, a litre of petrol creates around 2.3 kg of CO2. An emissions price of $100/ tonne would add about 23 cents per litre (plus GST) to the petrol price. Not much, but enough to prompt some behaviour change – a few more people might take the bus, or cycle, or simply drive less. At current prices, it’s more like 2 cents.
But reducing emissions doesn’t come free – there’s some short-term economic pain to come from it. The challenge will be how to cut emissions, while keeping the economy going strong. To that end, Sina Mashinchi has been looking at the macro effects of different climate policies. There’s a summary of his research below, along with a ‘poster’ explaining it – which won Sina the New Zealand Economic Policy Prize at this year’s NZAE conference.
New Zealand’s attempt to lower climate change-fuelling emissions by trading carbon credits is failing. But there’s good news: introducing a carbon tax and beefing up the Emissions Trading Scheme (ETS) could substantially lower emissions and lower GST – a win-win for our environment and economy.
Sina Mashinchi, a University of Auckland and Energy Centre doctoral researcher, has developed a new modelling that measures the impact of carbon pricing on New Zealand economy. Unlike previous modelling attempts by the government which used computable general equilibrium (CGE) based energy models, the new modelling approach in his study follows the historical behaviour in New Zealand economy and its responses to the various shocks, crises and policy implications through the years since 1970.
According to the findings in this research, New Zealand will need to set higher carbon prices in order to close the emission gap, but even with a carbon price at $355 in 2030, emissions would fall 14.2 percent from current levels which would be only a half of target reductions (around 27 percent) in 2030.
Sina experimented with mixes of a beefed-up ETS and a carbon tax. He found if the price of carbon credits increased to $75 right now, and rose by $20 a year from now on, and a carbon tax for non-ETS sectors was introduced and set at the same levels, the government could use the extra tax take to lower GST by 2.5 percent to 12.5 percent. This would stimulate the economy, encouraging investment in new technologies, energy efficiencies and public transport, which would create jobs. GDP would rise by an average 2.2 percent per year from 2016. This still falls short of our emission targets, but it’s a lot better than emissions going up.
Sina believes this move would be a win-win-win – good for the environment, good for the economy and good for consumers who would end up paying less GST.
What do you think? Assuming the government can get past its “business as usual” stance, what should we be doing about emissions?