Sunday 11 July 2021

Hazeldine on the ETS

I can't disagree with anything Auckland University's Professor Tim Hazeldine has to say about climate policy.

Also mostly pointless, are the multitude of policy recommendations that pour forth from the report. If the real decision-makers in the economy (i.e. all those listed above) are getting the correct price signal from the ETS, then there is generally no justification for further government intervention. What should be done will be done.

The main exception will be in the provision of what economists call "public goods" – in particular research results that can be freely used by everyone, such as how to breed better-mannered cows.

But, in any case, with the emissions price signal sorted, all proposed programmes and policies should just go through the Treasury's standard cost-benefit analysis. The commission is no help here.

And - not so incidentally - the expensive scheme to subsidise purchases of electric vehicles that the commission has foisted on the current government will almost certainly fail the cost-benefit test. Around 90 per cent of the well-heeled beneficiaries of the scheme's largesse would have purchased an electric car anyway - we have just given them an $8000 present.

Along the same lines, but harder perhaps for non-economists to grasp: none of the large sums of money that will be raised by auctioning emission quotas or (the alternative) imposing a carbon tax should be diverted into climate-related programmes in addition to those which will be done anyway because they pass the social cost-benefit test.

These funds should be revenue-neutral. They are incurred by the team of five million, and they should be returned to them, Each billion of carbon tax or quota money would fund a $200 Christmas present for everyone on the team.

Our climate change policy should be solely about climate change. "You can't kill two birds with one stone" is a cliche but it is not trite. It is true and important in almost every policy context. Yet the Commission considers it should in future "consider broader well-being factors, like eradicating poverty, safeguarding food security and addressing other environmental outcomes". Wrong, wrong, wrong and wrong.

I wonder if Tim had my colleague Matt Burgess in mind here: 

So, what to do? The Climate Change Commission has, in just a few months, seriously outgrown its boots. The Government should step in, and with polite thanks for their efforts, de-commission the commission. It should then persuade a super-smart mid-career research-grade Kiwi economist – tough-minded but humble (they do exist) – to take the reins of a slimmed-down secretariat.

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