KEY POINTS:
The warmth with which some sectors of the business community greeted the New Zealand Institute's call to renege on Kyoto and not try to be a leader on climate change suggest some home truths have yet to sink home:
THE CHALLENGE IS REAL
Climate scientists show no
signs of changing their collective mind on the dangers manmade global warming poses. On the contrary, their warnings are ever more emphatic.
Like it or not, agree with it or not, Governments are going to make policy on that basis. They have no choice. The risks of ignoring it are too high.
The transition to a low-carbon economy will not be costless but delay is more likely to increase rather than reduce that cost. Up to a point, one man's cost is another man's livelihood. The trick is to be that other man.
But so far New Zealand Inc has been fairly torpid about looking for the opportunities in all this.
DELUSIONS OF LEADERSHIP
The idea that New Zealand is somehow dangerously out in front on this issue is nonsense.
It is the Europeans who are leading, not us.
New Zealand has done five-eighths of not much at all to reduce its emissions. That 10 years after the Kyoto Treaty was agreed and five years after we ratified it we are still debating the details of an emissions trading scheme testifies to that.
Across the Tasman, both the Australian Labor Party and the Liberals are committed to emissions trading and Labor has promised to sign up to Kyoto as well.
Having ratified Kyoto, the only question is who pays. Under the Government's proposed scheme, the lion's share of the burden still falls on taxpayers, not emitters, for the next five years, which is just silly. Small and medium-sized businesses and residential consumers will bear most of the rest.
WE'RE ONLY LITTLE
It is often argued that because New Zealand is a tiny contributor to global warming (in absolute terms, certainly not per head) it does not matter what we do.
So we might as well do nothing. Apart from being ethically unedifying, this approach assumes that free riding would be costless.
Fat chance.
At the moment 27 per cent of New Zealand's exports go to other countries which have accepted obligations under the Kyoto Protocol. If Australia joins, it will be nearly 50 per cent.
Trade policy purists quail at the idea of "border tax adjustments" to deal with free rider and competitiveness issues arising from climate change policy.
But France's new President, Nicolas Sarkozy, recently renewed calls by his predecessor Jacques Chirac for Europe to consider a carbon tariff on products imported from countries which do not respect the Kyoto Protocol.
And the next United States Administration may find it easier to sell a climate change policy that involves some economic cost to American voters if it is accompanied by trade remedies.
Even without official action, there is the risk of backlash by consumers and tourists against free riding.
And protectionist farm lobbies can be expected to seize on any opportunity to paint their New Zealand competitors as climate-ravaging hypocrites.
The NZ Institute's chief executive, David Skilling, acknowledges opinion polls that show mounting levels of public concern about climate change but questions whether that has yet led to any significant shift in consumer behaviour.
However, he notes moves by such retail giants as Wal-Mart, Tesco and Marks and Spencer to burnish their green credentials - which you might think represents their expert judgments about where consumer preferences are heading.
IT'S ALL ABOUT CHINA
It is tempting to slide from the observation that China is now, by some measures, the world's largest emitter to the conclusion that it should set the pace for the global response to climate change.
Fortunately for the planet that is not going to happen.
The world is clearly going to have to develop and adopt cleaner technologies for generating electric power, propelling vehicles, providing comfortable temperatures to live and work in, and so on.
The incumbent technologies, mainly invented in the century before last, are on borrowed time.
These are not tiny niche markets. The commercial prizes are glittering indeed and the advanced industrial economies will go after them.
Can China and India develop at the pace their people legitimately aspire to without burning a lot of coal? Probably not.
Does the resulting carbon dioxide need to be dumped in the atmosphere? Probably not.
Carbon capture and storage technology will inevitably cost more than a chimney. But it should not be beyond the wit of man to develop mechanisms whereby those countries which can afford to, pay that cost.
Kyoto is based on the insight that it is immaterial where emissions reductions occur, or how, or who pays. What matters is that they occur.
China is already the source of most of the emissions-reducing projects that give rise to credits in the international Kyoto market.
PRICES WORK
A contrast is sometimes drawn between the European approach of developing policy instruments such as emissions trading and the United States-led AP6 approach of focusing on the development and diffusion of technology.
The implication is that we should put our trust in engineers, not policy wonks.
But it is a bogus distinction.
Both policy and technology are necessary. Neither is sufficient on its own. The only point of price-based policy measures is to foster the development and uptake of clean technology.
And there is no point pouring taxpayers' money into developing new technology if there is no commercial reason for anyone to adopt it.
Price-based measures allow the market to determines which technologies will deliver emissions reductions at least cost.
The alternative is to try to do it by regulatory fiat, letting politicians and bureaucrats pick winners.
The folly of the latter approach is brutally apparent in the US policy of tax credits for ethanol.
Tax credits are a politician's way out. Instead of raising the price at the pump, you have a subsidy from other taxpayers.
A higher price might give headroom for "second generation" ethanol made from the inedible bits of plants but inevitably involving more processing and more cost. But voters would not like it.
So instead we have a wicked waste of food and global food inflation.
If logic prevails and the world moves to putting a price on carbon emissions and a value on emissions avoided, New Zealand starts from the uncomfortable position of a highly emissions-intensive economy.
All the more reason to get on with the transition and not waste time in wistful nostalgia for the good old days when nobody knew or cared about the greenhouse effect.
