27 Apr 2018

Higher prices needed for low carbon economy

5:14 am on 27 April 2018

Households are being warned to expect substantial jumps in fuel and energy prices from any shift to a low carbon economy

Fuel pump.

Fuel pump. Photo: RNZ / Alexander Robertson

In a 508 page draft discussion document, the Productivity Commission estimated emission prices could rise from $21 a tonne of carbon equivalent, up to $250 a tonne to achieve the goal of net zero emissions by 2050.

The Commission also suggested bringing farmers into the Emissions Trading Scheme (ETS) and accelerating the planting of trees, among the 50 recommendations it made.

"It's challenging and achievable and we need to start now," said Productivity Commission chair Murray Sherwin.

New Zealand produces only 0.2 percent of the world's greenhouse gas emissions.

However, it was among the world's highest emitters on a per capita basis due to farming, which makes up nearly half of all emissions, as well as rapid population growth and an associated growth in cars.

"The last 10 years have really gone nowhere since the Emissions Trading System was introduced. We've only just begun to flatten off the growth in emissions," Mr Sherwin said.

"If we're going to turn the slope down, it needs a quite vigourous effort."

Top of the list is raising prices on activities that generate emissions, such as New Zealand's attachment to cars.

"The whole point about the emissions price is to shift behaviour," Mr Sherwin said.

"Depending on the assumptions you make about new technologies, you have to have quite a big increase from where we are now to make this sort of transition."

Infometrics last year estimated a $100 a tonne emissions price would raise retail petrol prices by 28 cents a litre.

AA spokesperson Mark Stockdale said motorists will feel resentful if it becomes a revenue generating exercise.

"Some people don't have any choices. This shouldn't all be about a stick approach. There also needs to be carrot approach."

The Commission agreed and acknowledged that the electrification of the transport sector would reinforce the shift to reducing emissions.

It suggested the government promote electric vehicles through the introduction of a "feebate" scheme, where importers would receive a rebate or pay fee based on the fuel efficiency of the imported vehicle.

Tax credits and benefits should also be used to support low income households facing significant transition costs, the Commission said.

Farmers will also have to do more, with the Commission recommending including them in the Emissions Trading Scheme.

Federated Farmers climate change spokesperson Andrew Hoggard said that would achieve little except make it harder for farmers to compete internationally.

"We're already world leading in terms of our footprint per kilo of production across all our sectors.

"I struggle to see how bringing agriculture into the ETS would actually change anything for the better or improve things," Mr Hoggard said.

Accelerating the planting of more trees was also crucial to reducing net emissions, particularly on marginal land currently used for beef and sheep farming.

While higher emission prices should bolster planting, the Commission argued simpler rules were needed to encourage forest owners to take part.

Nevertheless, the Commission was adamant nothing could be achieved without a long-term political consensus.

"Our inquiry shows that, if credible and stable climate policy can be established now, businesses, households and consumers will be better able to plan for change and manage the risks of moving to a low-emissions economy, " Mr Sherwin said.

David Frame, the Professor of Climate Change at Victoria University, believed a consensus was possible, but he said politicians needed to refrain from treating climate change as a political football to be kicked around at election time.

The Commission was now seeking public feedback and a final report is due in the second half of the year.

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