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We’ve got significant decisions to make on New Zealand’s 2020 target and on emissions trading that will have major environmental and economic consequences for many years to come."
Key conclusions from the NZIER-Infometrics report on the macro-economic impacts of climate change policy are that:

• Costs range from $600, $1000, $1400 to $3000 per person a year for 2020 emissions targets ranging from +15%, 0%, -15% to -40% relative to 1990 levels
• Costs are significantly greater if there is no international trading
• Costs are reduced by between a third and half if there is consistent action by other countries
• New Zealand’s Gross Domestic Product continues to grow under all options.

The economic models used for the report do not capture the response of forestry to a price on carbon. However, the report points out that While even a low carbon price is likely to change incentives for land use, uncertainty over long-term policy and regulation environments, as well as factor and liquidity constraints make the relationship difficult to estimate.

The Ministry for Agriculture and Forestry (MAF) suggests that, assuming long-term policy certainty, a $20 carbon price could theoretically induce up to 100,000 hectares of new planting a year up to 2020, and prolong rotation lengths. Collectively, this would increase New Zealand’s emissions sequestration by up to 30Mt in 2020 (although emissions would increase at a later date if/when the forests are harvested), the report says.

The implications of such a forestry response are substantial. If New Zealand is assigned 1990 emission levels in 2020, the report predicts an emissions deficit of 25.8Mt in 2020. An extra 30Mt of forestry sequestration would turn this deficit into a 4.2Mt emissions surplus, making New Zealand wealthier.

"If the forestry response to even higher carbon prices is consistent with those suggested by MAF above, carbon sequestration could offset the negative wealth effect of stringent permitted emission allocations by eliminating the need to purchase [credits] from other countries. Note however, that increased forestry will not offset the high prices of carbon that firms face and the resulting negative impacts on GDP. Indeed if new forestry planting takes land out of agriculture the negative GDP effect could be exacerbated."

Nick Smith said the government needed to be upfront with New Zealanders that climate change poses real risks and that addressing it comes with costs that this report helps quantify.

“The report highlights that getting too far ahead of other countries escalates the cost to New Zealand. The Government is also conscious that if we slip too far behind international efforts we damage our clean, green reputation and may put our export market access at risk," Dr Smith said.

He also released the first data from the Land Use Carbon Analysis System (LUCAS) that reports on New Zealand’s forested area using satellite imagery.

“The Government has been cautious over New Zealand’s Kyoto balance and future targets because of the billion dollar plus variations each year in the estimates of forest areas. This satellite data is good news in that it accurately confirms the area of post-1989 forests as sufficient to offset New Zealand’s increase in emissions and meet our Kyoto obligations in the first commitment period from 2008-2012.

“These reports, alongside the public submissions that close this week on the 2020 target, will help ensure the Government makes a balanced and well-informed decision on climate change policy.”
The Government will announce its 2020 target before the next international climate change negotiations in Bonn, Germany on 10 August.

NZIER-Infometrics Report contact: Adolf Stroombergen, Tel 021 990 066. For a copy of the LUCAS report: www.mfe.govt.nz/publications/climate/stakeholder-progress-report/

Source: NZ Government media release