Government assumes we are willing to take lower wages

This from the Wall Street Journal. It is run in full.

Global-warming alarmists tend to understate the true costs of cutting greenhouse gas emissions. So give credit to New Zealanders, who seem poised to give the rest of us a real-life illustration of those costs.

This month, Wellington is debating a cap-and-trade scheme to meet its Kyoto Protocol targets. Because New Zealand is already a low carbon-dioxide emitter, the bulk of its emissions come from agricultural sources, such as, well, sheep. So the government is proposing to implement caps not only on carbon dioxide from industry but also on methane and nitrous oxide from farms. If passed, the Kiwi plan would be the broadest cap-and-trade program to date.

As in smaller schemes in the U.S. and European Union, the government would cap the country's emissions at a level allowable under Kyoto, and then distribute tradeable credits to businesses and farmers. Low emitters could sell excess credits, while high emitters could buy credits to cover their "extra" emissions. Under Kyoto, New Zealand committed to reduce its emissions to 1990 levels, in effect a 30% reduction from expected emissions in 2012.

Meeting those targets will be hard. New Zealand already uses a wide range of hydropower and renewable energy to cut carbon dioxide use. For the agricultural gases, new kinds of fertilizers might help, but only to a point. For the rest of the cuts, farmers will have to persuade cows and sheep to emit less – or have fewer cows and sheep.

The cost, for farmers and industry alike, is likely to be prohibitive. The New Zealand Institute of Economic Research, an independent consulting firm, recently estimated that the government's plan would result in 22,000 job losses by 2012, or 1% of today's employment. That translates into NZ$4.6 billion ($3.6 billion) annually in lost GDP, or a NZ$3,000 cut in each household's annual spending.

This analysis assumes that as greenhouse gas fees make Kiwi industry less competitive globally, businesses and jobs will move overseas. The government disputes this conclusion, mainly because its own analyses assume New Zealanders will be willing to take lower wages. That's debateable, to say the least.

That aside, give the Kiwis credit for honesty. Having signed up for Kyoto, they're actually talking about shouldering the costs of meeting their commitments. Whether or not they end up regretting it, other countries will now have a chance to see what the anticarbon crusade does to an economy.

HT Lindsay Mitchell