Kyoto deal would hit GDP: report

By BRIAN FALLOW

Implementing the Kyoto Protocol on climate change would shave up to a quarter of a per cent off New Zealand's gross domestic product in 2010, according to economic modelling commissioned by the Government.

But the six scenarios considered by the Australian Bureau of Agricultural and Resource Economics (Abare) all show gross national product would be higher in 2010 by up to half a per cent.

The difference is that GNP, which measures the income available for New Zealanders to spend or save, would be boosted by international sales of carbon sink credits from post-1990 plantation forests.

The carbon sinks - where changes in land use increase the amount of carbon dioxide taken out of the atmosphere by vegetation - may offset calculations of a country's net emissions.

Abare's conclusions are based on a mathematical model of the New Zealand and world economies which it uses to predict how the economy would adjust to measures to reduce greenhouse gas emissions.

The Government said the models inevitably made simplifying assumptions, and the conclusions should be treated as broadly indicative only.

All the scenarios assume that the United States will be out of the international market in "carbon" (rights to emit greenhouse gases). They have international prices of carbon ranging between $US75 and $US110 a tonne, high compared with other modelling efforts.

"This may overestimate both the cost of emissions and the returns from carbon credit sales," the Government said.

They make no allowance for measures the Government might adopt to ease the costs, such as "revenue recycling" - using the proceeds of a carbon tax to reduce other taxes.

The worst case of the six scenarios assumes that New Zealand is the only country to pass the internal carbon price through to the agricultural sector, which is responsible for some 56 per cent of New Zealand's emissions.

This would cut GDP by 0.26 per cent (around $250 million in today's dollars), while GNP would be only 0.05 per cent higher than in the business-as-usual case.

That scenario forecasts a 25 per cent drop in dairy production and a 5 per cent drop in meat production.

But those results assume no research to reduce emissions from the farm sector and no compensating economic policies.

"It is highly unlikely all those negative assumptions would hold true," says an assessment of the modelling by Ministry for the Environment and Ministry of Agriculture analysts.

Meanwhile, Energy Minister Pete Hodgson has left for the seventh conference of the parties to the United Nations Convention on Climate Change in Marrakesh, Morocco.

The aim is to turn the political agreements struck in Bonn in July into a detailed rule book.

"When private-sector entities buy and sell carbon internationally they need to know they are dealing with a system where they will have legal redress," Mr Hodgson said.

The New Zealand delegation would also be vigilant that nothing "came from left field" to disturb the agreement on forest sinks.

nzherald.co.nz/climate

Intergovernmental Panel on Climate Change (IPCC)

United Nations Environment Program

World Meteorological Organisation

Framework Convention on Climate Change

Executive summary: Climate change impacts on NZ

IPCC Summary: Climate Change 2001