Wednesday, November 29, 2006



Key on climate change

John Key again seems to be wasting no time in signalling a change in policy direction from National, with a speech today in which he signalled his support for action on climate change, albeit with many caveats and some of the same credibility problems suffered by his predecessor. At the same time, his attack on Helen Clark's proposal for carbon neutrality smacks of bad faith - it is clear that this is intended to be a long-term goal reaching out to around 2050 or so, not something the government is planning on doing tomorrow or next year as National is trying to cast it as. Then there's his attack on the Kyoto Protocol:

Mr Key said the Kyoto agreement was flawed and had done little to constrain New Zealand's emissions which were growing at a faster rate than Australia and the United States which had refused to sign.

But this isn't a problem with the Protocol so much as New Zealand's commitment to it. Successive governments have repeatedly lowered the bar on targets and then dragged their feet on implementing policy. And the National Party has been a key part of this story, backing off from implementing a carbon tax in 1997 (while at the same time signalling that climate change should not be handled through the RMA, leaving us with no solution); kneecapping their own minister Simon Upton's plans for emissions trading in 1999; and working tirelessly to undermine Labour's planned carbon tax as a "threat to economic growth" (and then to add insult to injury, complaining that those policies have not been implemented). We could already have reduced emissions by complying with the Protocol - but thanks to National, we haven't. So their criticising the sole serious international arrangement to combat emissions is just a little bit rich.

As for Key's sole policy proposal of a trans-Tasman carbon market, while its a good idea (the bigger the market, the better), its too late. CP1 begins in 13 months. We no longer have time to waste debating policy and endlessly circling around the questions of points of obligation and permit allocation with the deniers in Canberra. We've been debating it here for a decade, and we know what the solutions are (short answer: it doesn't really matter. What's important is that there is a price). Its time to implement them. If we can hook up with Australia later, that's good, and it makes sense to talk to them - but that must take a back seat to sending a domestic price signal and connecting that price to the international market. Otherwise, we're likely to find ourselves halfway through CP1, and still with no policy - and paying a heavy price for it.

7 comments:

Key should jump into the green argument.

If he is as green ans the greens and greener than labour be may upset a few big businessmen but they wont change their vote or their suport for that reason (except to revive ACT which isn't actually all that bad for national's chances to win an election, as long as national throws them a seat)

the fact that he seems to choke on the idea and still spout his green ideas in a right wing way jsut makes him sound a bit insincere

Posted by Genius : 11/29/2006 06:44:00 PM

Hopefully this will corral Labour into serious action - fast. It's in their best interests not to make it an issue in 2008, and getting bipartisan agreement on this will be good for Key, promoting him as a man of principal and policy rather than the idealogical wank of Brash.

Posted by James : 11/29/2006 11:10:00 PM

You may want to consider that the key reason why carbon tax makes little sense is that the analysis by officials is that it:

A. Adds cost to business.
B. Will have a very very small effect on behaviour.

In other words, it would just be a tax. The demand elasticity on petroleum with the carbon tax that would reflect the "cost" of CO2 is very low. In other words, it wouldn't do what you want - it is a tax for the sake of a tax.

Posted by libertyscott : 11/30/2006 12:10:00 AM

It generally costs an economy to gather tax, except when he thing you tax is actually somthing you want to discourage OR it is somthing with very low demand elasticity.

So - aside from the regressive nature of a petrol tax I think you would generally want to raise petrol taxes to displace somthing like income taxes.

Aside from that I think that human reactions to petrol price rises are very slow but quite significant. So you raise the price today and everyone will just pay it, but maybe in 5 years time you will notice everyone has a smaller car and lives a bit closer to work etc. And there is an externaliy to price (the kyoto protocol and any likely increase in it's force) which is also a long term thing.

Posted by Genius : 11/30/2006 06:57:00 AM

I think it would be a clever move for Key to get national to support Jeanette Fitzsimon's RMA Amendment Bill to get carbon considered in resource consents, especially if Labour is going to vote against it.

It's a tragic gap that needs fixing.

Posted by Anonymous : 11/30/2006 07:35:00 AM

libertyscott,

Your claim is that demand elasticity for petrol is low.

But there's substantial evidence that this is untrue: it's not low, but is instead slow to take effect.

It's slow because when petrol prices rise NZ's car fleet doesn't change overnight to reflect that: it takes a decade for changes in habits in buying cars to change imports sufficiently to a change the fleet of cars, trucks and busses on the road.

It's also slow because decisions about location are very long lasting. To take the simple case: if you build houses a long way out where there are big commutes, they won't go away if petrol prices rise. Business co-location is more complex, but comes down to the same point.

This is the point where both Labour and National have done NZ business a great disservice: you get much more effect per dollar taxed if you give clear warning in advance about upcoming consistent policy. But they've both dithered, chopped and changed.

Posted by Icehawk : 11/30/2006 11:28:00 AM

Diesel is highly elastic to overall economic activity - it goes up and down with GDP changes. Petrol is less so - much more an incremental growth.

Fuel can be responsive to price in the shorter term but the movements need to be large. We have seen the Govt impose a couple of 5cpl tax increases with no impact - hence the Treasury's concern about the value of a 7cpl carbon tax.

Sales of fuel did not really drop off until you got the large rapid price movements of the last year which were of the order of 40-50cpl. The question is whether consumers' expectations would have adjusted and they would have gone back to old ways at a higher price.

Insider

Posted by Anonymous : 11/30/2006 01:52:00 PM