Carbon tax could lower emissions

A University of Auckland doctoral researcher has developed a new way of modelling the impact of carbon pricing that could slash the tax burden on consumers.

Sina Mashinchi has developed a model he argues could both lower carbon emissions and allow a GST cut. 

He worked in collaboration with experts at Cambridge University to develop a model that shows how a carbon tax targeting emissions-intensive industries and a revamped Emissions Trading Scheme (ETS) could boost economic growth.

The extra tax generated through a carbon tax could be used to cut GST from 15 percent to 12.5 percent.

Mashinchi says he wanted to prove New Zealand could move closer to its Kyoto emission targets without negatively impacting economic growth.

New Zealand is committed to cutting greenhouse gas emissions by five percent below 1990 levels by 2020, and in half by 2050, but in 2013 the country’s emissions were up 21 percent from 1990 levels.

Sina Mashinchi

The ETS is the main economic tool used to lower carbon emissions. Industries start with a set number of carbon credits, and when they use them up through generating greenhouse gases, they have to buy more.

The price of carbon credits is currently sitting about $17 per tonne and the new modelling shows even if the price was gradually raised to $300, the 2050 target is out of reach.

Mashinchi says the ETS is based on a weak model. His suggested changes to the model draws on 45 years of economic, environmental and energy data from 1970 to 2014, compared to the ETS, which is based on one year of data.

“It shows how New Zealand reacted to global events such as the oil shocks and the great financial crisis,” he says.

Mashinchi experimented with ways to evolve ETS and include a carbon tax. His findings show that if the price of carbon credits increases now to $75, and rises by $20 each year, the government could use the extra tax takings to lower GST by 2.5 percent to 2.5 percent.

Businesses would pay for carbon credits or pay for a carbon tax – not both.

This would stimulate the economy, encouraging investment in new technologies, energy efficiencies and public transport, Mashinchi says. According to the modelling, GDP would rise by an average of 2.2 percent each year and emissions would fall 14.2 percent from current levels in 2030.

“This still falls short of our Kyoto target, but it’s a lot better than emissions going up.

“It’s about shifting tax from ‘good’ things to ‘bad’ things – from labour, income and investment to pollution and waste. This modelling shows its possible to boost GDP and the employment rate and lower GST.”

New Zealand has an uphill battle ahead, there is no shortcut to reducing carbon emissions, but Mashinchi says his model is a step in the right direction.

“We should be optimistic about the future. This modelling shows us one economically viable way forward.”