Economic Effects of Climate Change on the Transport Industry

1. Economic Effects of Climate Change on the Transport Industry Brent Layton Sunday 16 September 2007

2. Is climate change the big risk? • For those currently involved in the road transport sector, the big risk is not climate change itself • The climate changing is not going to have a material impact in the foreseeable future on the cost of roading, the cost of a rig or the cost of running a rig • The climate changing (if that is all that happened) is not even going to have a material impact in the medium term on the demand for trucking • The risk for the road transport sector is the probability of policy changes with unintended and ill-considered consequences aimed at climate change reduction

3. Good and bad policy • If the policy changes to deal with climate change are well thought through and aimed at: • effectively reducing greenhouse emissions at minimum costs to the New Zealand economy • being non-distortionary as regards the different sectors and forms of emissions world-wide • ensuring that New Zealand’s economy is not put at a competitive risk relative to the economies of other countries with lower or no obligations • Then the economic impact on New Zealand is likely to be modest

4. Good and bad policy • In these circumstances the impact on the road transport sector is also likely to be modest • Your industry is likely to gain a little business at the expense of domestic air freight, but not much • Your industry might lose a little business to rail and coastal shipping (although I suspect that if the policy playing field is truly level you will actually win a bit off rail) • Your industry will also lose a little because the economy fails to grow quite as fast as it would have without climate change policies • Overall, however, the impact on your industry will be modest if the policies are good

5. Risks of bad policy • There are several reasons to fear that policy will not be good • Some reasons are general • Other reasons are specific to road transport

6. General reasons • Has been less emphasis on cost benefit analysis and regulatory impact analysis in policy decision making recently • E.g. Telecom split, KiwiSaver, Working for Families 2 • Policy advisors seem keen to offer advice that is acceptable • Acceptable advice is not necessarily the best advice • Timetables for action suggest decision making around this topic will not involve significant consultation • Strong political interest in topic and some interest in NZ leading the charge to “save the world”

7. Transport specific • Climate change policy is a magnet to those predisposed towards intervention and regulatory controls • To many of these people, cars and trucks are “obviously bad” and so something which reduces their use is “obviously good” • Trucks (and cars) are subject to many standards and “so what’s the problem with a few more like requirements in regard to form of fuel use, maximum power, etc. etc.”

8. Potential forms of bad policy • Policies that have New Zealand “leading the charge” globally • Result in significant reductions in income and growth of economy and hence demand for transport • Policies that in effect tilt the playing field in one direction or another and do not allow the market to work out lowest cost solutions e.g. • subsidies for bio-fuels • “subsidies” for rail and shipping • Irrational restrictions on trucks and the choice of technology among truckers

9. What to do about it • Apply pressure for proper and open evaluation of policies in terms of their: • Benefits and costs • Impact on various sectors and interest groups • Point out the unintended and perverse consequences of regulatory constraints • Get on with the job of seeking low emission options in your business when economic to do so