A recent article in the respected Journal of Economic Perspectives reviewed the global cost-benefit assessments of the Kyoto Protocol by expert economists. The conclusions were damning. It found that the Protocol "manages to be both economically inefficient and politically impractical".

On some estimates it could cost US$1,000 billion to achieve the Protocol's emission targets. It appears the Third World could be given access to basic levels of health, water and sanitation for much less.

The rub is that the effects on global warming would be scarcely discernible, delaying projected temperature changes by about 6 years.

The Protocol hardly affects projected warming because it does not constrain the growth in emissions from developing countries. India and China 's combined emissions are projected to be about 50 percent of global emissions in a decade.

In reality the Protocol will not achieve even this reduction in projected warming because its targets will not be achieved. For example, the United States accounts for around 25 percent of emissions and does not intend to ratify. Neither does Australia .

For a variety of reasons, the countries ratifying the treaty are generally unlikely to be required to take drastic measures during the first commitment period of 2008-12. This defers the real costs of the Protocol.

Importantly, it is not yet clear that global action is necessary given the scientific and economic uncertainties. Because of fossil fuel substitution possibilities, atmospheric concentrations of carbon dioxide may not double by 2100 - or at all. Because of scientific uncertainties, global warming could be modest, even if a doubling did occur. Modest warming could benefit countries with temperate climates.

The Wall Street Journal Europe summed the situation up in March 2002 when it stated that "… Kyoto is a monstrosity projected to cost billions, possibly trillions of dollars to achieve a goal that will probably not avert a threat that no one is sure the world faces".

How might New Zealand be affected by projected global warming?

•  Modest warming of below 2-3 ° C could well benefit New Zealand , reflecting its temperate climate;

•  Warming for New Zealand may be only 60 percent of the global average because we are surrounded by ocean; and

•  The mid-point of the scientists' range for the effect of a doubling of atmospheric carbon dioxide is a global average rise of 3 ° C.

How might New Zealand be affected by ratification?

•  Ratification will impair economic growth by further undermining property rights and adding to regulatory costs;

•  It further distances New Zealand from Australia and the United States , despite our need to seize opportunities to strengthen these relationships for economic and strategic reasons; and

•  It exposes New Zealanders to potentially major costs beyond 2012.

Why is New Zealand ratifying? Good question.

The government's National Interest Analysis surely misrepresented both the science and the economics (see above) in baldly asserting that in the longer term any positive net effects for New Zealand "are expected to become increasingly negative". It also seemed to indulge in Enron-style confusion about how to account for the sale of carbon credits. The sale of an asset to foreigners is not a gain in income and could reduce wealth if it has to be bought back at a higher price.

The public service is a significant cost to taxpayers. We expect governments to seek its advice and we expect it to provide sound advice. What have the government's top economic and foreign affairs advisers recommended in relation to ratification? Who knows? Where is the accountability?

Ratification supports the widespread view amongst chief executives and economists that the country lacks a credible growth strategy. Growth is the critical issue for the welfare of New Zealanders. On one analysis the global benefits of achieving scenarios with higher economic growth outweigh the projected costs of global warming 20-fold.

In the Speech from the Throne this year the government made economic growth its most important task, and stated its belief that the appropriate mix of policies could return New Zealanders standard of living to the top half of the developed world. Well said, but how does ratification fit in?

For more information, contact:

David Young
Communications Manager
Ph: 04 499 0790
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz