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Economic and Environmental Challenges

Economic and Environmental Challenges. New Zealand in a Post Kyoto World. Institute of Directors 11 September 2007. Post Kyoto Scenarios. Scenario 1: No global deal to continue the Kyoto Protocol even in the medium term Diplomatic efforts to reach agreement fail

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Economic and Environmental Challenges

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  1. Economic and Environmental Challenges New Zealand in a Post Kyoto World Institute of Directors 11 September 2007

  2. Post Kyoto Scenarios • Scenario 1: No global deal to continue the Kyoto Protocol even in the medium term • Diplomatic efforts to reach agreement fail • Scenario 2: A universally applicable deal is achieved under which: • All emissions are treated equally on a CO2e basis, irrespective of industry and country of source • Sequestration is treated as a negative emission on an equal footing • The cap for each country is set relative to GDP

  3. Post Kyoto Scenarios • Scenario 3: A Kyoto-type deal is concluded under which: • Developed economies are subject to an absolute cap • Developing economies are not subject to any cap • Scenario 4: A two-tier deal is concluded under which: • Developed economies are subject to a cap related to GDP • Developing economies are subject to a cap related to GDP but with a higher level of emissions permitted

  4. Environmental and Economic Challenges • Scenario 1: • Climate change impact on NZ • ?? • If accept scientists then warmer, wetter in west and drier in east, more violent fluctuations, some sea level change • Relatively moderate for NZ because of maritime effect • Economic impact on NZ • NZ agriculture will need to adjust locations and methods but it is used to doing that • Some impact on coastal and other property risks and costs (ChCh?) • Need for better, rational water management (ChCh?) • Growing demand for our products especially from Australia

  5. Environmental and Economic Challenges • Scenario 2: • Climate change impact on NZ • Moderated • Economic impact on NZ • No competitiveness at risk issues • Low carbon footprint of our agricultural production will mean it is advantaged world-wide • NZ may have comparative advantage in forest sequestration • International tourism likely to suffer as visiting NZ carbon intensive. Domestic tourism likely to get boost • Transport costs generally likely to rise • Overall in medium term not likely to be a great impact on NZ income levels or growth

  6. Environmental and Economic Challenges • Scenario 3: • Climate change impact on NZ • Effectively same as for Scenario 1 but may actually be worse • What will change is where emissions come from in the world. More from developing economies • Economic impact on NZ • Major competitiveness at risk issues for our export oriented and import competing economic activities • Industries and agricultural production will over time leak overseas to developing economies • Significant impact on NZ income levels and growth prospects

  7. Environmental and Economic Challenges • Scenario 4 • A mixture between scenarios 2 & 3 • Where in the spectrum will depend on how close the cap for developing economies is to the cap for developed economies • If similar caps, then impact likely to be close to scenario 2 • If dissimilar caps, then impact likely to be close to scenario 3

  8. Implications • The economic impact on NZ will depend much on the nature of the deal so we need to mount a major diplomatic effort • My suggestions are based on my thinking about the situation. Solid research using complex general equilibrium modelling to help us understand the likely impacts of various alternative deals is essential • If I am right, NZ should be pushing for “all in” and at most concede minimum concessions to developing economies

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