OnPoint by Keith Ng

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  • George Darroch,

    So it's official.

    "It won't be 40 per cent," Key said yesterday.

    "The OECD [Organisation for Economic Co-operation and Development] average is 15 per cent, Australia is 14 per cent. My guess is that New Zealand will be somewhere in that benchmark. We don't intend to be a world leader when it comes to climate change. We'll do our bit."

    A 40 per cent reduction would "absolutely decimate our economic activity", he said.

    "We can't afford to write that cheque."

    Bad economic modelling, which asssumes allocations as a shock, does not try to model the costs and benefits of pre-2020 adaptation to medium and high price signals, and leaves out forestry and other sequestration entirely , wins out.

    WLG • Since Nov 2006 • 2264 posts Report Reply

  • George Darroch,

    I have to say that a lot of the blame also sits squarely on the shoulders of Helen Clark. They spent almost the entire 2000s trying to come up with an emissions instrument, but kept going back to the drawing board looking for something that would impose very minimal pain on all sectors of the economy (and thus pose little political risk). And something that Peter Dunne would support.

    Which is the antithesis of a ETS or tax - they're supposed to impose a significant price signal, in order to impose costs on emissions and incentivise other behaviour.

    WLG • Since Nov 2006 • 2264 posts Report Reply

  • Matthew Smith,

    Gareth, you're right. At a high enough carbon price, forests will cover even a heavy CP2 target. However, they're not going to solve the problem for us in the long-term.

    If the carbon price isn't high enough, those forests all get harvested. If that happens the credits we received for them were more of a loan than anything else. Any credits today are going to have to be paid back at the point of harvest.

    If the carbon price is high enough to make keeping the forests permanently, sufficiently lucrative, that will lock up a lot of land in permanent forest, and then sooner or later we'll run out of land. Also, at some point those forests will grow to their potential and stop sequestering more carbon.

    A more important factor for forestry, is stability in the carbon price. If land owners can't be assured that the carbon price is still going to be high in 30 years time, they're not going to risk locking up their land in the ETS. At the moment there isn't nearly enough assurance of future carbon prices for them to do that.

    Wellington • Since Jan 2008 • 11 posts Report Reply

  • Angus Robertson,

    Bad economic modelling, which asssumes allocations as a shock, does not try to model the costs and benefits of pre-2020 adaptation to medium and high price signals, and leaves out forestry and other sequestration entirely , wins out.

    On what basis is it presumed that post-Copenhagen there will be a high or even medium price signal on global carbon?

    Auckland • Since May 2007 • 984 posts Report Reply

  • Joshua Arbury,

    I am damn sick of the lies and blatant mis-representation of what the costs of a 40% reduction in net emissions by 2020 would be. For a start, everyone seems to ignore the difference in gross emissions and net emissions. While our gross emissions have increased since 1990 quite significantly, by planting extra forests we've basically offset that.

    Now if we get an ETS in place, with some level of incentivising for planting more forests, how much of that 40% can be remove by simply having more trees to suck the CO2 away?

    Everyone who says "oh we're already above 1990s levels so we need to cut back by about 60%" seems to be plainly lying.

    Auckland • Since May 2009 • 237 posts Report Reply

  • Keith Ng,

    Hi Matt,

    First, you're making the claim that a model which does not calculate the cost of domestic emissions reduction (DER), which the authors explicitly say should not be interpreted as the cost of DER, should be considered as the cost of DER. I think that the burden of proof is heavily on you.

    There are two aspects to the model that make it deeply inappropriate to treat its results as the cost of DER.

    1) The impact on RGNDI is the total cost of the AAUs multiplied by a factor of 1.7. This represents the cost of effectively “importing” AAUs, through its impact on our balance of payment and exchange rate (in addition to the cost of the AAUs themselves). By definition, 100% of the AAU deficit has to be purchased from overseas suppliers, so every dollar of the AAU deficit incurs this “import” penalty.

    While a DER programme would involve importing technology and equipment, it would also involve domestic labour, generic local goods, as well as the potential for locally R&D'd and/or manufactured climate change technologies (which would also have spin-offs). The proportion of DER costs going overseas will be far less than 100%, and so the impact on RGNDI will be much lower, too.

    $1 spent on DER is going to have less of an impact on RGNDI than $1 spent on purchasing AAUs. Of course, it might be may be cheaper to purchase an AAU rather than get the same amount of DER. So which one works out to be better? We don't know, because we don't know the import component of DER, so we don't know its impact on RGNDI. Which means, in essence, we don't know how much DER costs. Which is why this model cannot be considered a cost model for DER.

    2) The model assumes a static climate change policy framework (see section 4.1.1, page 3). The DER it calculates is purely firm-level responses to the change in the price of AAUs.

    It's modelling the cost of achiving the 40% reduction through nothing *but* the use of the ETS. Surely, that's an unreasonable assumption, right? Do I need to defend this?

    Also, as George noted, their elasticity models are not designed for the price levels that such a scenario would require.

    3) As an aside, I think the $15b figure is just plain wrong. In run 11 (-40% AAU @ $200), the upper-estimate of the impact on RGNDI is actually $8.86b. That's the upper-estimate of the highest price scenario with the biggest AAU deficit. Did they get the $15b figure from somewhere else, or did they just multiply $3,000 by a guesstimate-generously-rounded-up population of 5m?

    Would be interested if you know where the $15b figure came from.

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Lucy Stewart,

    As Sir Humphrey Appleby would say, the Minister has adopted the tactic of playing the (wo)man not the ball.

    But she Googled the Privacy Commission before she did it, so, uh, that's okay then. Or something.

    I kind of thought that checking these things was what Ministers had staff *for*, but I guess with all those cuts to bureaucracy they've got to do their own work these days. Clearly there are some bugs still to be worked out.

    Wellington • Since Nov 2006 • 2105 posts Report Reply

  • Tom Semmens,

    I have to say that a lot of the blame also sits squarely on the shoulders of Helen Clark.

    Do you not remember the level of the opposition to the attempt at a ETS? "FART TAX"!!!! Tractors up the steps of parliament! What do you suggest Labour should have done? Used urgency to ram through legislation in the teeth of hysterical opposition? We are not talking about the current National government, who seem to think that is business as usual. we are talking about Helen Clark's government.

    Business in New Zealand fought a bitter campaign against any attempt by the previous government to create a meaningful ETS, because they clearly thought that if they could hang on until 2008 they would get a government they could lobby successfully to do nothing. And they were right.

    So far, the business lobby have won every round. But they don't care. They've won the right to another decade or two of windfall profits, and when the chickens come home to roost, they'll just get the taxpayer to bail them out.

    Sevilla, Espana • Since Nov 2006 • 2217 posts Report Reply

  • Angus Robertson,

    Which is the antithesis of a ETS or tax - they're supposed to impose a significant price signal, in order to impose costs on emissions and incentivise other behaviour.

    The big flaw in ETS theory is that "significant price signal" derived is actually to maximise profitability based on differences in global carbon pricing. This is not the intended consequence, but it is what occurs.

    Say (for instance, entirely theoretically) one country were to price carbon much higher than the rest, what would happen?

    If NZ for instance were to adopt high carbon pricing (as advocated here by Keith based on reasoned, but entirely anal economic modelling) we would by neccessity reduce the number of cows and increase the amount of pine. This would obviously increase the global price of beef/dairy and reduce the price of lumber. To maximise profitability Brazil, where the "price signal" is again "significant", will suddenly find it needs more cattle farms and less trees.

    Apparently Keith thinks we should provide Brazil with a "significant price signal" to rip out the Amazon Rainforest and set up cattle farms.

    Auckland • Since May 2007 • 984 posts Report Reply

  • Whoops,

    International comparisons;

    The Republicans inflated the cost of cap and trade by a factor of 20x according to the non-partisan Congressional Budget Office. WASHINGTON (Reuters) – Climate change legislation pending in Congress would cost U.S. households only about $175 annually in higher energy and consumer prices, far less than the $3,100 “burden” opponents have claimed would result, according to a Congressional Budget Office estimate. “The net annual economywide cost of the cap and trade program in 2020 would be $22 billion, or about $175 per household,” the CBO, which gives Congress nonpartisan advice about the impact of legislation under consideration, said in an analysis delivered to Congress late on Friday. The $3100 dollar estimate came from this study which estimates the cost of cap and trade at $366 billion. In March, House Republicans get ahold of this paper, divided $366 billion by the number of households in America, and concluded erroneously that $3,128 will be the average cost per home. In fact, if they read the study they would see the actual costs to consumers would begin at $31 a year in 2015 (cf. Table 8) or $79 per family. But the Republicans knew that. Why? Because the author of the paper wrote a letter to Minority Leader Boehner telling him the NPV cost of cap and trade to a household was about $75/year. At which point the Republicans stood by their dumb math. Now we have a tie-breaker from the CBO where the Republicans are off by a mere factor of 20 rather than 40. But, hey, why let facts get in the way?

    from

    http://bipartreport.com/2009/06/cbo-cap-and-trade-will-cost-175-per-household/


    and

    USDA performed a preliminary economic analysis of the impacts of House-passed climate legislation, HR 2454, on U.S. agriculture. **The analysis assumes no technological change, no alteration of inputs in agriculture, and no increase in demand for bio-energy as a result of higher energy prices**. Therefore, it overestimates the impact of the climate legislation on agriculture costs in the short (2012-18), medium (2027-2033), and long-term (2042 to 2048). In USDA’s analysis, short-term costs remain low in part because of provisions in HR 2454 that reduce the impacts of the bill on fertilizer costs. In fact, the impact on net farm income is less than a 1% decrease. In the short run, agricultural offset markets may cover these costs. Over the mediumterm and long-term, costs to agriculture rise but remain modest (3.5% and 7.2% decreases in net farm income, respectively). However, benefits to agriculture from an offsets market rise over time and will likely overtake costs in the medium and long term. Other studies that account for the impact of higher energy prices on input substitution and demand for bio-energy find that HR2454 leads to higher agricultural incomes, even without offsets. In summary, USDA’s analysis shows that the agricultural sector will have modest costs in the short-term and net benefits – perhaps significant net benefits – over the long-term.

    from

    http://www.usda.gov/documents/PreliminaryAnalysis_HR2454.pdf

    here • Since Apr 2007 • 105 posts Report Reply

  • Keith Ng,

    I/S & George:

    Whoops: yes; its a clear sign that they're not seriously interested in costing it, just producing a stick for the Minister.

    There is a -15% / $200/ton scenario as well.

    George: what Keith said. They simply did a "worst case" scenario - combining a strong target, an (even more) ridiculous price, and no international trade. Strap that chicken!</quote>

    ...

    Bad economic modelling, which asssumes allocations as a shock, does not try to model the costs and benefits of pre-2020 adaptation to medium and high price signals, and leaves out forestry and other sequestration entirely , wins out.

    Hey-o, I'm really hesitant about blaming the wonks on this one (I guess that's my bias). The worst-case-scenario was fine. You select a range which you model, then you do a worst-case-scenario *outside* of that range. It does not make sense to either do a worst-case-scenario inside the modelling range, or to extensively model stuff in the worst-case-scenario range.

    The problem is when some fuckwit takes your worst-case-scenario and pretends it's the mid-point.

    Still trying to figure my way around forests... who knew counting trees was so hard?

    Auckland • Since Nov 2006 • 543 posts Report Reply

  • Angus Robertson,

    Saving the planet means destroying the rainforests.

    I never quite get past that. Its the same with biofuels.

    Can someone please point out where the fuck my reasoning has gone off track?

    Auckland • Since May 2007 • 984 posts Report Reply

  • George Darroch,

    Hey-o, I'm really hesitant about blaming the wonks on this one

    Yeah, pulling out a butter knife and handing it to the chef without telling him it's not good for carving steak is slightly problematic. You'd rightly expect him and his advisors to recognise the limitations of the report, however.

    WLG • Since Nov 2006 • 2264 posts Report Reply

  • Kumara Republic,

    They've won the right to another decade or two of windfall profits, and when the chickens come home to roost, they'll just get the taxpayer to bail them out.

    Chickens called Waxman, Markey and Waitrose.

    The southernmost capital … • Since Nov 2006 • 5441 posts Report Reply

  • Russell Brown,

    Okay, having heard the news report, and from one of the women whose personal information was revealed by Paula Bennett, and from Bennett herself ... I am officially appalled.

    It's not just what Bennett did, it's her refusal to accept any responsibility for the odium these women have suffered today, and her pathetic attempt to deny malice.

    They had a legitimate grievance over a policy change, they exercised their right in bringing it to the attention of the government, and they got punished by a minister who appears to have serious judgement problems.

    I thought Mary Wilson got it very right on Checkpoint.

    Auckland • Since Nov 2006 • 22848 posts Report Reply

  • Paul Williams,

    Okay, having heard the news report, and from one of the women whose personal information was revealed by Paula Bennett, and from Bennett herself ... I am officially appalled.

    Yup. I think Bennett's actions have the potential to do to Key what David Benson-Pope did to Clark. Bennett's grossly breached the standards expected of a Minister and Key must act to avoid this setting a shocking precedent.

    Sydney • Since Nov 2006 • 2273 posts Report Reply

  • Sofie Bribiesca,

    Key must act to avoid this setting a shocking precedent.

    Shame then, he thinks its ok which he just stated on the telly.

    here and there. • Since Nov 2007 • 6796 posts Report Reply

  • Russell Brown,

    +

    Bennett's grossly breached the standards expected of a Minister and Key must act to avoid this setting a shocking precedent.

    It's a bit too late for that. Key has declared himself "comfortable" with her actions -- and expressed the view that it would be better if all the facts were out in the open at the start of any such debate.

    I, for one, look forward to such personal information dumps on any business leader who comments on government policy.

    Auckland • Since Nov 2006 • 22848 posts Report Reply

  • Jackie Clark,

    Didn't take long for them to reveal their true ghastly colours, did it? Fucking bastards. And she's the worst of the lot because she touts herself as having been from a "deprived" background. Whatever, love. Shame she didn't remember what it felt like before she completely screwed those women over.

    Mt Eden, Auckland • Since Nov 2006 • 3136 posts Report Reply

  • Russell Brown,

    Didn't take long for them to reveal their true ghastly colours, did it? Fucking bastards. And she's the worst of the lot because she touts herself as having been from a "deprived" background.

    She got the very training supplement that was actually the issue here. I'm still steaming about her performance on Checkpoint. She's a Minister of the Crown, for goodness sake.

    Auckland • Since Nov 2006 • 22848 posts Report Reply

  • Whoops,

    The problem is when some fuckwit takes your worst-case-scenario and pretends it's the mid-point.

    Yep.

    Still trying to figure my way around forests... who knew counting trees was so hard?

    Have a look here

    here • Since Apr 2007 • 105 posts Report Reply

  • Danielle,

    I think Bennett's actions have the potential to do to Key what David Benson-Pope did to Clark.

    On the other hand, Your Views is filled with drooling idiots braying 'good on her!' Beneficiaries? Fair game, apparently.

    Charo World. Cuchi-cuchi!… • Since Nov 2006 • 3828 posts Report Reply

  • Russell Brown,

    @TheWineVault has just made an interesting point on Twitter:

    How does this affect MPs' plea of privacy over their expenses?

    Worms. Can of.

    Auckland • Since Nov 2006 • 22848 posts Report Reply

  • Russell Brown,

    On the other hand, Your Views is filled with drooling idiots braying 'good on her!' Beneficiaries? Fair game, apparently.

    Yes. One of the women said she'd been listening to Radio Live today. I imagine that wasn't pleasant.

    Auckland • Since Nov 2006 • 22848 posts Report Reply

  • Jackie Clark,

    Absolutely, Russell. Fantastic.

    Mt Eden, Auckland • Since Nov 2006 • 3136 posts Report Reply

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