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Hodgson And Business Clash After Report Shows Big Kyoto Liability Looming For NZ    Chris Mole - Associate Editor

6th October 2004

A new report estimates the Kyoto Protocol will cost NZ between $9bn and $14bn during the next 20 years, providing fresh ammunition for the anti-Kyoto lobby. The analysis, by Castalia Strategic Advisors, concludes the Govt will have to buy emissions credits from other countries to meet its Kyoto targets during the first 4 commitment periods between 2008 and 2027. It adds the contingent liability is so large it should be shown in the Govt’s financial statements.

The report has sparked heated debate between Business NZ and Climate Change Minister Pete Hodgson over the Govt’s commitment to Kyoto and the accuracy of its emissions projections.

A key finding of the report is the Govt’s policy of exempting agricultural emissions from carbon taxes (about half NZ’s total emissions) and protecting certain businesses through Negotiated Greenhouse Agreements will force NZ to buy emissions units from overseas to meet its Kyoto obligations. This cost will be largely offset by carbon taxes.

But by 2020, carbon tax revenue will no longer be sufficient to cover the Govt’s obligations. Other taxes will need to rise.  The report concludes “This increase in tax burden will come at the same time as the expected increase in tax burden needed to cover the costs of superannuation. The combined effects will be dramatic.”

Business NZ CEO Simon Carlaw has called on the Govt to reconsider its commitment to Kyoto in light of the Castalia report, noting Ireland’s recent decision to abandon carbon taxes, due to the cost to the country’s economy.

Carlaw adds “the Castalia Report underlines the fact that $9bn to $14bn will be removed from the pockets of NZers over the next 20 years - a huge amount that will have an enormous impact on our economic growth prospects. This is exactly the reason why Ireland has made the move it has, and the reason why Aust and the US have declined to join the Protocol, and instead taken a more sensible response to climate change.”

Hodgson has hit back at Business NZ’s criticism, claiming the Castalia report is flawed, due to “a combination of methodology errors and forecasting assumptions at the bottom end of credibility.” He notes the Auditor General disagrees with Castalia’s view any Kyoto liability should be recorded in the Govt’s books.

Hodgson adds Business NZ apparently wants to impose carbon taxes on farmers of around $1bn a year and abandon Negotiated Greenhouse Agreements with companies whose competitiveness would otherwise be at risk – “driving one lot into the ground and the other offshore.” He stresses the Govt will not simply be pocketing carbon taxes but recycling the money back into the economy.

In response to Ireland’s decision, Hodgson believes it has “simply chosen a different method of addressing climate change and emissions trading, rather than abandoning its commitment to act.”

The Castalia report is at:  nzenergy-environment.co.nz/castalia.pdf

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