KEY POINTS:
Economic modelling released by the Government yesterday shows that emissions trading would make no difference to the overall size of the economy by 2012, compared with a business-as-usual scenario in which the country took no responsibility for its emissions.
Economic output would be slightly higher (0.2 per cent) than under the status quo, where the cost of meeting Kyoto Protocol obligations falls on taxpayers rather than emitters.
However, the modelling by Infometrics economist Adolf Stroombergen does not find emissions trading will be costless.
Household spending is trimmed by 0.2 or 0.3 per cent, depending on the carbon price assumed. And real wages are 0.2 or 0.5 per cent lower than they would be under business-as-usual with no Kyoto obligations and no policies to reduce emissions.
One of the three scenarios Stroombergen models for 2012 (the end of Kyoto's first commitment period) is one in which there is no domestic trading and the taxpayer bears the whole cost of buying emissions units on the international market to cover the extent to which the country's emissions exceed its Kyoto target.
Under this scenario, which is the current position, the average household tax rate would be 1.4 per cent higher than it would be if the country had no Kyoto obligations, and both private consumption and overall GDP would be 0.2 per cent lower.
The second and third scenarios involve emissions trading along the lines of the plan outlined last month, with agriculture out and large industrial emitters given a free allocation for 90 per cent of their emissions in 2005.
If the carbon price is $25 a tonne, national emissions would be 2.7 per cent lower (not than they are now but than they would be with no scheme).
But private consumption, imports and real wages would be 0.2 per cent lower.
It is the positive effect on net exports of not having to buy so many units overseas that keeps the bottom-line economic impact at nil.
If the carbon price is $50 a tonne emissions are reduced by 4.7 per cent. Households' tax burden is lighter but wages are 0.5 per cent lower than they would otherwise be and their consumption 0.3 per cent lower.
Climate Change Minister David Parker said the Infometrics analysis did not consider the potential risks in taking no action to reduce emissions, to the country's clean, green image and trade and to the environment.
The modelling showed emissions trading would reduce emissions, at least cost to the economy, Parker said, and that it was better economically than the Government just buying emissions reductions overseas.
