Jim Rose: Why environmentalists should endorse Rogernomics

The carbon tax is supposed to give people the right incentives about what to buy and where to produce. Photo / Mark Mitchell

COMMENT: Carbon emission cuts are an international public good. Our cuts benefit all countries irrespective of whether they follow suit.

Free-riding is more likely for international public goods because there is no effective mechanism for compelling nations to cut emissions, short of a green tariff war, which only works if it is most countries ganging up on a few recalcitrant carbon emitters.

Even if the major emitters cut back, the developing countries have made clear they will not sacrifice ambitious development goals for global climate objectives. Many developed countries are dragging their feet on cutting emissions and that is before we mention the Trump administration withdrawing from the modest targets in the Paris agreement.

Worse, the good guys who act early have a history of getting screwed over in climate treaty negotiations. Bard Harstad in his work on the dynamics of international environmental agreements found "short-term agreements can be even worse" than no agreement because "investments may decline if countries anticipate frequent negotiations". Countries delay their green investments and carbon pricing schemes to improve bargaining positions at later negotiations.

Harstad also found that nations who invest early in clean technologies are expected to make the deeper cuts, for they can do it at a lower cost. In 2008, Poland, Bulgaria and the old Eastern Bloc asked Denmark and other Western European nations for concessions. Eastern Europe was well short of its targets due to great coal dependency. Denmark had a big lead in renewable energy, so the Eastern bloc insisted it cut its emissions even further.

Countries that act unilaterally on global warming do so because of a large domestic environmentalist constituency. These nations are more likely to blink and bear greater emission cuts than risk coming home with no climate treaty and be hit at the ballot box.

It can be argued that unilateral reductions by NZ because of a higher-than-international average carbon price could quicken global warming. The point of carbon taxes is to encourage industries to migrate to the most efficient places of production and therefore lowest carbon emissions.

Making our dairy industry less efficient because of unilaterally higher carbon taxes means more dairy is produced in countries not restraining their emissions. In consequence, carbon emissions globally may increase but New Zealand is poorer for its unilateral restraint.

The carbon tax is supposed to give people the right incentives about what to buy and where to produce. Making the world's most efficient dairy producer produce less does not sit well with that.

The most likely international scenario is not much is done at all about cutting carbon emissions. Things will be done here and there but as soon as cutting emissions becomes costly, political support will fade. Tony Abbott will not be the only politician to describe a carbon tax as a great big new tax.

In such a world, is it in anyone's interest for the most efficient agricultural producers to shoot themselves in the foot? Should not they be taking on as much production as they can because their efficiency reduces total global emissions?

Given this outlook, Greenpeace and the Greens should be born-again supply-side economists pushing every Rogernomics reform they can find to increase economic growth. Richer is safer, wealthier is healthier. A richer New Zealand is more able to roll with the punches of climate change and make necessary adaptations.

• Jim Rose is an economic consultant in Wellington.