Whether greenhouse gas emissions are allocated permits and traded, or whether they are taxed, a price is set by ‘the market’ and/or the government for a tonne of CO2 equivalent emissions. If the price per tonne of CO2 equivalent emissions goes up, this will:
• Make existing climate friendly technologies more economically attractive relative to polluting technologies;
• Stimulate the development of new climate friendly technologies and dampen the development of polluting technologies;
• Make land uses that absorb carbon (e.g. forests) more economically attractive relative to land uses that result in significant emissions (e.g. some forms of farming).
The economic models assume that climate change is either not happening or that increased flooding, drought, coastal erosion and storm damage will incur no cost to the New Zealand economy.
Because these models do not consider a number of important real-world factors, the results are rendered largely meaningless.
Peter Hardstaff, WWF-New Zealand Climate Change campaigner
What’s the deal with carbon prices?
This government has put a great deal of faith in economic modeling to provide ‘the right answer’ to the question of how far New Zealand should go to reduce emissions. The outputs of these models have been reported as fact. Yet their limitations and flaws, although often clearly explained by the modelers, get ignored by politicians and the media.
A different view:
• The economic models assume that there will be no technological change and no increased forest planting as a result of higher ‘carbon prices’. This is clearly a major deviation from what would happen in the real world.
• The economic models assume that no action is taken by other countries to reduce their emissions. This is clearly a major deviation from what is already happening in the real world.
• The economic models assume that climate change is either not happening or that increased flooding, drought, coastal erosion and storm damage will incur no cost to the New Zealand economy. The report didn’t consider a number of important real-world factors rendering the results largely meaningless. The models compare the impacts on national income of higher carbon prices (see box) with the possible national income under a baseline ‘do nothing’ scenario, yet failed to consider the potentially major economic costs of runaway climate change that would result from doing nothing.
Such assumptions are therefore bound to exaggerate the costs and underestimate the benefits of action to reduce greenhouse gas emissions.
In any case, even with its significant limitations, the economic model conducted for the Government still shows that New Zealanders will be economically better off in the future, compared to the present, if mitigation action is taken. However, the difference between this and the even greater economic benefit estimated to result from the ‘do-nothing’ scenario was portrayed as the ‘cost’ to New Zealanders of taking action to reduce emissions.
A different view:
• The economic models assume that there will be no technological change and no increased forest planting as a result of higher ‘carbon prices’. This is clearly a major deviation from what would happen in the real world.
• The economic models assume that no action is taken by other countries to reduce their emissions. This is clearly a major deviation from what is already happening in the real world.
• The economic models assume that climate change is either not happening or that increased flooding, drought, coastal erosion and storm damage will incur no cost to the New Zealand economy. The report didn’t consider a number of important real-world factors rendering the results largely meaningless. The models compare the impacts on national income of higher carbon prices (see box) with the possible national income under a baseline ‘do nothing’ scenario, yet failed to consider the potentially major economic costs of runaway climate change that would result from doing nothing.
Such assumptions are therefore bound to exaggerate the costs and underestimate the benefits of action to reduce greenhouse gas emissions.
In any case, even with its significant limitations, the economic model conducted for the Government still shows that New Zealanders will be economically better off in the future, compared to the present, if mitigation action is taken. However, the difference between this and the even greater economic benefit estimated to result from the ‘do-nothing’ scenario was portrayed as the ‘cost’ to New Zealanders of taking action to reduce emissions.
