Wednesday, September 16, 2009

Climate change: Compensation

Last night, the Maori Party revealed that it was pushing for an increase to social welfare benefits as the price of its support for gutting the ETS. The government, which prefers to give money to the rich rather than the poor, has slapped this down pretty quick - but it is the right approach. Any price on carbon, whether from an ETS or a carbon tax, will lead to rises in electricity and fuel prices, which will fall disproportionately on the poor (what policy analysts disarmingly call an "equity effect"). If we want to reduce this impact - and a moral society would - then we need to financially compensate for it. Raising benefits is a good targeted way of doing this: people in need get help, while the price signal of the ETS (and hence its effectiveness) is unchanged.

The government's solution - a 50% subsidy for pollution - is not a good way of doing this, for two reasons. Firstly, it doesn't target those in need, but rather hands out money to the people we want to discourage: polluters. Secondly, by ensuring polluters do not face the full marginal cost of their activities, it reduces the financial incentive for emissions reduction, and hence the effectiveness of the scheme. But it is clear that the government doesn't actually care about emissions reduction. Instead, its all about using the ETS as another excuse for corporate welfare to its donors and cronies - another incidence of its meta-policy of looting the state.

Meanwhile, with the government brutally slapping down any attempt to get a policy quid pro quo, I'm wondering why the Maori Party is supporting this wretched policy at all. It's completely counter to their own stated policy and they are getting nothing for it - except maybe a reputation as a doormat.