• NZ business says hold on ETS.
• Aust business says yes, but slowly.
• Recession will hit climate change policy.

Business NZ CEO Phil O’Reilly’s call this week to delay implementation of the Emissions Trading Scheme is just the first of a likely chorus of calls to ease up on costs to the economy from climate change policy while the world financial system is in such turmoil. Most OECD Govts are either signatories to the Kyoto Protocol or, in the case of the US and Aust, have extensive domestic policies aimed at cutting carbon emissions and, over the long term, helping reduce the build-up of gases which are contributing to climate change.

However, in the same way hard times in the West tend to see Western Govts backsliding on their commitment to global trade liberalisation, so the likelihood is hard-won policies to combat climate change will be among the first public policy casualties of a global recession. Of course, the recession itself is already leading to reduced demand for oil in the developed economies, with oil prices sliding back under $US80 a barrel, and some prospect of further downside yet. In theory, lower demand means lower greenhouse gas emissions.

However, much of the recent surge in renewables investment has reflected Govt encouragement, and the improved economics of previously un-commercial wind and geothermal sites which were unable to compete with gas and coal-fired alternatives, and rely on a carbon price to sustain their competitiveness.

Likewise, households’ and businesses’ capacity and appetite for investing in low carbon alternatives which involve significant up-front capital costs - eg, heat pumps, solar water heating, or electric motor, refrigeration and air-conditioning system refits, are just the sort of thing to go on hold right now as payback times on such investments can have long horizons. The inevitable fact is a global recession and its personal impacts are an immediate threat - while as always, the impacts of climate change are long term, diffuse, and will always struggle to compete against the here and now.

Meanwhile Aust business leaders have told the Rudd Govt to push on with its Emissions Trading Scheme, rather than delay in response to the global economic crisis. But they want its initial impact to be minimised. The Business Council of Australia says if the Govt pulls the plug and delays the system now, the level of uncertainty will be even more difficult to deal with. It says it’s critically important for business to know exactly what the Govt is planning and if it pulls back now it will be highly problematic. The economic situation makes it even more important it gets the design of the scheme right. The Minerals Council of Australia says delay will just add to the uncertainty. The Australian Industry Group wants the scheme to start as soon as the foundations are right, but to start “gently and sensibly.”

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