Fiddling while the planet burns

The government has decided to axe the carbon tax. So, with a little over two years to go until the beginning of the Kyoto Protocol's first commitment period, we now have no coherent policy to reduce emissions or comply with our obligations. Talk about fiddling while the planet burns...

At the same time, the Minister is mouthing platitudes about how "New Zealand is committed to meeting our international obligations under Kyoto and achieving our domestic goal of lowering emissions" and how the government "takes seriously the threat that human-induced climate change poses to our environment, economy, and way of life". Of course they do. That's why they're refusing to do anything about it.

The core idea behind the carbon tax was that people should pay the cost of their pollution. Greenhouse gas emissions impose costs on others (in the form of long-term climate change), but are "free" to the emitter. They are a clear example of what economists call a negative externality. But markets don't work properly when there are externalities; resources are misallocated, resulting in activities which are privately profitable but socially destructive. A carbon tax (or its equivalent, an emissions trading regime) would have internalised this externality, ensuring that carbon emitters paid the full social cost of their activities, and thus made socially destructive activities unprofitable. It would also have helped shift the market towards a lower regime, by providing a direct incentive (in the form of saved taxes) for adopting lower-emissions technology. Now, that's less likely to happen, and we look set to continue along the same dirty, high emissions path we were before.

The decision doesn't even seem to make economic sense. According to the government, the cabon tax "would not cut emissions enough to justify its introduction". But according to the figures in the Greens press release, it would have cost the economy an estimated 0.2% of GDP in 2012 - or about $300 million. The tax would have saved an estimated 13 million tons of CO₂-equivalent, or about a third of our total emissions overflow. The cost of buying credits to cover that now is around $150 million, and it is expected to increase substantially. A mere doubling in carbon prices is at the lower end of the range. The cost of carbon in Europe is already around 20 Euros, or NZ$30 - and at that price the carbon tax more than pays for itself. By canning it, the government has just committed us to a large and uncertain risk on international carbon markets. All of those worried that we will be paying a billion dollars to the Russians, congratulations; the government has just more or less guaranteed that we will.

(I'll have more analysis and some proper number crunching once I've had time to read the full report. Hopefully one will be arriving in the mail by the end of the week...)

I am disgusted by the government's utter gutlessness on this. Ten years of policy development and the long term interests of New Zealanders and the planet pissed away because Labour didn't want to face criticism from the self-interested business sector. If we'd wanted the country to be run by Business NZ, we would have voted for National. Unfortunately, that's what we seem to have gotten anyway.