by Greg Ansley
New Zealand Herald, 1dec97 page C3
CANBERRA - The size of the stake New Zealand will take to the table at this week's climate change negotiations in Japan has been demonstrated in an analysis by Australia's key commodity adviser.
Commissioned by the Treasury, computer modelling by the Australian Bureau of Agricultural and Resource Economics (Abare) suggested that however green New Zealand might consider itself, global reduction of greenhouse gas emissions would hit the economy through trade, imports, business costs and falling incomes.
And although renewable energy was likely to become the rising star of the market, the natural gas industry could disappear, and coal production could be slashed.
There was no guarantee that a binding agreement would come out of the Kyoto talks, given the fears of a number of major players -- including Australia, which regards itself as one of the economies most at risk from international good citizenship.
New Zealand's position is that mechanisms for reducing atmospheric carbon dioxide are more important than binding targets, such as the creation of carbon sinks (tree plantations to absorb the gas) and tradable emission quotas.
But the heavy-hitters are demanding a hard line. The United States wants legally binding commitments to stabilise greenhouse gas emissions at 1990 levels by 2012, with further reductions in the following five years.
Europe wants developed nations -- including New Zealand - to reduce emissions to 15 per cent below 1990 levels by 2010.
According to Abare modelling, either proposal would wallop New Zealand: a "less stringent" scenario of a back-to-1990-by-2010 outcome at Kyoto would, it suggests, prune gross national expenditure (gne) by 1.5 per cent; a "more stringent" requirement to cut emissions to 10 per cent below 1990 levels would almost double that cost.
Abare used gne rather than gross domestic product to measure impact because of advantages in gauging welfare impact. As the sum of private consumption and investment and Government expenditure, gne "better captures the impact of changes in the current account on consumption and investment poli- cies," Abare said.
Costs begin as industrial production costs and consumer prices rise throughout the developed world, forcing a switch away from carbon-intensive fossil fuel to more expen- sive alternatives.
As economic activity slows and demand for labour and capital declines, returns to capital and real wages are reduced, in turn hitting income and economic welfare.
Emission reduction targets would also be felt on the global trading system. Large importers of fossil-fuel-intensive products, such as New Zealand, would face higher prices, reducing international buying power through reduced ability to buy imports from export eamings.
Abare said the economic cost were closely related to the marginal costs of emission abatement policies, defined as the increase in in- dustry costs associated with reducing emissions by a further tonne.