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Economic Effects of Climate Change on the Transport Industry

This article examines the potential economic impact of climate change policies on the road transport sector, highlighting the risks of poorly-designed regulations and the importance of proper evaluation and consideration of the unintended consequences. It also emphasizes the need for businesses to pursue low emission options when economically feasible.

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Economic Effects of Climate Change on the Transport Industry

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  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

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