The costs of ETS

Brian Fallow looks at the costs of an ETS. It all depends on the price of carbon. Treasury is budgeting $23 a tonne, but a last minute change to the scheme has pushed this up to a likely $50 per tonne, and by 2020 it is predicted the cost will be $70 a tonne. For now we will go with $50 a tonne.

• Inflation to increase by around 0.7% per year for the next two years
• Retail electricity prices to increase by 20%
• Petrol prices to increase by 12c/litre
• Reduce payout to dairy farmers by 50c/kilo (once agriculture fully in the scheme) or 6%

As Fallow notes:

It would be a perverse outcome for the global climate if growth of the pastoral farming sector in New Zealand were hobbled by climate change policy here, only for the demand for dairy products and meat it might have satisfied to be met instead by production elsewhere in the world whose carbon hoof-print (emissions per litre of milk or kilogram of meat) is greater.

So the ETS exempts livestock emissions altogether until 2013 and taxpayers will continue to pick up the great majority of the bill (up to 90 per cent) until at least 2019.

Agriculture is not the only sector where the NZ ETS may simply lead to production transferring off shore, which will result in even worst environmental outcomes, and a drop in income for New Zealand.