(Where “doing something about” means some form of pricing of carbon, whether through the ETS or not)
There’s ongoing arguments about this amongst NZ economists and modellers. Most of this depends upon the assumptions you make about policies in the rest of the world, about how rapidly higher prices change what people buy, and how farmers farm. Previous models have given a wide range of answers, from “it’ll be the doom of NZ” to “it might be just fine”. Some of the previous models have been pretty widely panned.
To cut through all this crap, MfE told two of the main modelling to sit down together, play nice, and agree on some numbers. These numbers are still predictions, but they’re more valid than any previous ones. And the conclusion is:
“The New Zealand economy will continue to grow under a carbon pricing scheme, albeit at a slightly lower rate. In the absence of any policy change, we estimate RGNDI will grow from around $38,500 per capita in 2009 to $56,000 per capita in 2025. Under a carbon pricing scheme with a world price of $100, this will fall by between $1,700 and $2,000 by 2025.”
So rather than being $17.5k richer in sixteen years time, yer average New Zealander may be $15k richer. Obviously, there should be error bars on this prediction, whether that’s the price of oil changing, or the exchange rate, or a few years of good weather for farming or bad, but it seems a passable conclusion that the effect will be small but negative. Is that acceptable?
(All this ignores the potential cost of extreme events, droughts, Katrinas and the rest, coz economic models have a hard time with that kind of thing. That’s a bugger, coz the financial damage from extreme events may make this kind of modelling a pointless waste of time, but I digress…)