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| Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz | ||||||||||||
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It abandons measures like subsidies for electric vehicles that, perhaps counterintuitively, cannot reduce net national emissions. Every tonne of emissions in the sectors covered by the Emissions Trading Scheme (ETS) requires surrender of a carbon credit. In transport, fuel companies buy and surrender credits on behalf of road users. Everyone switching to electric vehicles does not reduce the number of carbon credits that the government creates. More carbon credits are left for other sectors to use instead. Regulations and subsidies targeting emissions already covered by the ETS only change the price of carbon credits and shift where emissions happen. Also encouragingly, the government has largely resisted pressure to restrict forestry credits. Our clean ETS recognises that a tonne of carbon dioxide pulled out of the atmosphere by a tree, or by other technologies that may yet emerge, is as good as a tonne of carbon dioxide that was not emitted in the first place. Reducing global warming requires reducing the concentration of greenhouse gasses in the atmosphere. The balance between reducing emissions and pulling emissions from the atmosphere should depend on what is most cost-effective. The ETS helps discover what is most cost-effective. Pretending that forests do not sequester carbon would have embedded a fiction into the ETS. The ETS should only care about getting carbon accounting right. If forestry conversion on decent pastoral land causes other problems, those problems should be dealt with directly rather than by skewing the ETS. But a truly ETS-led approach would expand the ETS to cover all emissions that are easily treated as carbon-dioxide equivalents. Methane is short-lived and does not face a net-zero target. It would not be easy to include it in the ETS. The government will take some time in figuring out the best approach. Nitrous oxide emissions from synthetic agricultural fertilisers are long-lived and more easily covered by the ETS. While there are real issues to work through, punting this easier set of emissions out into the further future does not build confidence about eventual agricultural emission pricing. Within the covered sector, the ETS could be usefully strengthened to make it both more credible and more effective. The Initiative has previously suggested ways of ‘bulletproofing’ the ETS. Revisiting those kinds of proposals would be worthwhile for a government committed to cost-effective approaches for reaching its net-zero goals. |
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| Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz | ||||||||||||
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Gandalf This week and last week, The Listener ran five articles revisiting New Zealand’s economic reforms from 1984 to 1993. Four of those articles had little good to say about them, or the people who led them with such clarity, courage and determination. Articles in this genre largely convey the following context-free narrative: “The neo-liberal reformers caused a lot of needless pain and inequality because they were a bunch of extremist, impractical and uncaring ideologues”. Add to this the undocumented claim that the reforms failed to achieve the reformers’ objectives. I wrote the fifth article. I did so wondering if in those 40 years The Listener had ever previously published an editorial or lead opinion piece that was sympathetic to the difficulties the incoming government faced in 1984, let alone one that gave the governments through to 1993 credit for successfully addressing real economic difficulties. But at least on this occasion it was inviting an economist with such sympathies to put that point of view to its readers. My article explained that the deep economic problems the governments from 1984-1993 faced were two-fold. The government needed to free economic activity from draconian controls (liberalisation) and it had to stop a public debt spiral (fiscal consolidation). Even before it could start on those tasks it had to address a foreign exchange crisis that instantly became a constitutional confrontation. It resolved the immediate constitutional crisis, devalued and made structural changes that allowed it to float the exchange rate in March 1985. Forty years have gone by with no material foreign exchange issues. That is a success. The two deeper tasks took around a decade to achieve. There was real pain for farmers and import-protected manufacturing. Wages and prices exploded after the devaluation and the lifting of the wage and price freeze. Disinflation is always painful. Brinkmanship in wage- and price-setting occurs at the expense of the most marginal workers. Involuntary unemployment can rise excruciatingly, and it did. The governments from 1984 to 1993 eventually won that battle. A new Reserve Bank Act sought to avoid another outbreak in inflation. That success lasted for around 30 years. Structural changes to avoid future recourse to prolonged government deficits have had a more mixed success. Forty-years later, through too much voter neglect some old problems have re-emerged, fiscal and regulatory, along with new ones in education, health and infrastructure. New Zealanders face a testing time, once more. |
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| Nick Clark | Senior Fellow Economics and Advocacy | nick.clark@nzinitiative.org.nz | ||||||||||||
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On Motukawaiti Island, 3.5km off Northland’s coast, authorities have mandated that a small swimming pool be enclosed. This pool, which has existed without incident for two decades, suddenly requires a barrier to protect against the unlikely event of unsupervised children under five accessing it. Meanwhile, the vast Pacific Ocean lapping at the island’s shores remains unfenced and unregulated. The owners’ argument that the sea poses “a similar or arguably greater risk to children” fell on deaf ears. Bureaucracy, it seems, only extends its reach to man-made hazards, leaving nature’s perils unchecked. This incident brings to mind Eric Crampton’s 2017 book, “The Outside of the Asylum,” in which he lauded New Zealand as a bastion of common sense in a world gone mad with excessive regulation. When asked for comment, Eric said that council swimming pool inspectors are part of a decades-long invasion of the Outside of the Asylum by bloody-minded Vogon bureaucrats. But perhaps he had it all wrong. If a pool on a private island needs fencing, shouldn’t we consider more ambitious safety measures? Why stop at the pool when we could fence the Pacific Ocean itself? This line of thinking brings to mind Douglas Adams’ character Wonko the Sane from “The Hitchhiker’s Guide to the Galaxy” - which is, of course, where Eric got the idea for his book’s title. Wonko, upon realising the world had gone mad, built his house inside-out, dubbing it “The Outside of the Asylum”. With bookshelves and soothing paintings on the exterior, Wonko’s creation served to keep the insanity of the world contained. Following this logic, what other natural dangers should we protect ourselves from? Perhaps it’s time to put a roof over New Zealand? We could start with Nelson, notorious for its sunny weather and dangerous UV rays. A giant sunshade over the city would surely solve that problem. Why stop there? The Southern Alps pose a clear falling hazard. Should we not wrap them in bubble wrap, just to be safe? And those treacherous beaches with their untamed waves and sneaky rip currents – clearly, they need to be paved over and fitted with handrails. If you think all this is too absurd to be happening to us, just visit Motukawaiti Island – and despair. |
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