Climate change
The Government is considering the Climate Change Response (Zero Carbon) Amendment Bill (the Carbon Bill). This is directed to reducing New Zealand’s emissions of greenhouse gasses, particularly carbon dioxide and methane, which are associated with climate change. The Carbon Bill is presented as carrying out New Zealand’s undertakings under the Paris Agreement.
The Paris Agreement
195 nations signed the Paris Agreement in 2016. This is an agreement within the United Nations Framework Convention on Climate Change, dealing with greenhouse-gas-emissions mitigation, adaptation, and finance. New Zealand is a signatory. The United States also is a signatory although President Trump has announced his intention to withdraw the United States from the Agreement.
“The purpose of the Paris Agreement is to:
- keep the global average temperature well below 2° C above pre-industrial levels, while pursuing efforts to limit the temperature increase to 1.5° C
- strengthen the ability of countries to deal with the impacts of climate change
- make sure that financial flows support the development of low-carbon and climate-resilient economies.”
(From About the Paris Agreement, Ministry for the Environment, Wellington, 2018.)
The Paris Agreement requires each signatory country to establish targets for its future emissions path. These targets are called Nationally Determined Contributions, NDCs. A country’s NDC target, developed by the county itself, is voluntary and it is not enforceable.
The Climate Change Response (Zero Carbon) Amendment Bill
The Carbon Bill is intended to provide a framework for pursuing New Zealand’s NDC targets.
The proposed legislation “will do four key things
- Set a new greenhouse gas emissions reduction target, to: −reduce all greenhouse gases (except biogenic methane) to net zero by 2050 −reduce emissions of biogenic methane within the range of 24–47 per cent below 2017 levels by 2050 including to 10 per cent below 2017 levels by 2030.
- Set a series of emissions budgets to act as stepping stones towards the long-term target.
- Require the Government to develop and implement policies for climate change adaptation and mitigation
- Establish a new, independent Climate Change Commission to provide expert advice and monitoring, to help keep successive governments on track to meeting long-term goals.”:
(From Climate Change Response (Zero Carbon) Amendment Bill: Summary, Ministry for the Environment, Wellington. 2019.)
The targets for methane reduction are less severe than for carbon dioxide because methane persists in the atmosphere for a shorter time than carbon dioxide.
The mechanisms to pursue these reductions are yet to be determined. Subsidies on imports of electric and hybrid vehicles are envisaged along with taxes on imports of other vehicles. Some linkage with emission trading schemes also is envisaged. However, most details of policy implementation are still to be worked out.
Relationship of the Carbon Bill to the Paris Agreement
The Carbon Bill goes beyond the targets of the Paris Agreement in several ways:
- The Bill aims for zero carbon emissions, rather reductions corresponding to the target of limiting the future temperature rise to 2° C;
- The Bill aims to achieve its target reductions sooner than the Paris Agreement target;
- The Bill aims to cut emissions from dairying by from 24 – 547 percent, despite emissions from food production being excluded from the Paris Agreement;
- The Bill intends to prohibit dairy farmers from gaining carbon offsets from planting trees, despite such tree credits being recognised in the Paris Agreement.
In short, the Carbon Bill goes beyond what is implied by the Paris Agreement.
Climate change benefits
Emissions of greenhouse gasses are accentuating worldwide climate change. The climate change process is global – the atmosphere, the oceans, the weather are all global; climate change is the result of these global conditions and global systems.
New Zealand’s emissions do not determine New Zealand’s weather. New Zealand’s weather is part of a global system. Whatever New Zealand does simply goes into the global climatic system, along with everyone else’s emissions.
New Zealand’s greenhouse gas emissions are around 0.17 percent of global emissions. Even if New Zealand reduced its carbon dioxide and methane emissions to zero the effect on climate change would be negligible. For all practical purposes, actions by New Zealand have no effect on climate change.
The only benefit of New Zealand’s emission actions is to be seen to be participating in the Paris Agreement. However, this simply needs New Zealand to go along with the basic thrust of the Agreement, to develop targets consistent with the Agreement. The targets implied by the Carbon Bill are more severe than those implied by the targets in the Paris Agreement.
Economic costs
Livestock farming would be directly impacted by the Carbon Bill. Dairying and dairy processing contribute around 3 percent of GDP. (GDP measures the value added or income created in these industries.) In addition, dairying and dairy processing activities purchase goods and services from other industries, adding to jobs and incomes in these other industries. The National Accounts input-output tables show that every dollar of value added in dairy farming and processing creates a further 3 dollars of income in other industries. Dairying therefore sustains around 10 percent of the economy. In addition, dairy products account for more than 25 percent of New Zealand’s merchandise exports.
Biogenic methane comes from ruminant animals. Accordingly, other livestock farming, such as for meat and wool, would also be restricted under the Carbon Bill. Meat and wool generate directly just under 2 percent of GDP and around 15 percent of New Zealand’s merchandise exports.
If there were no reduction in the emission intensities of dairying, meat and wool production and processing, the scale of these industries would have to be reduced by 24 – 47 percent. This would threaten some 7 percent of GDP and 20 percent of merchandise exports.
Tourism is a large industry for New Zealand, contributing around 6 percent of GDP. This is even larger than dairying. Tourism supports around 7.5 percent of employment/work in New Zealand. Tourism would be impacted by the Carbon Bill as a result of restrictions on transportation. Tourism depends on air travel both to/from and within New Zealand. While international air travel might be exempt from the restrictions, domestic air travel appears not to be exempt. At present, and in the foreseeable future, there is no carbon-free way of air travel. A zero carbon environment would diminish tourism.
Transport would be forced to change under the Carbon Bill. Electric cars are already a reality although they are at present not competitive with petrol cars. A move to electric vehicles would raise the price of cars. Air and maritime transport for the foreseeable future will be dependent on hydrocarbon fuels. Truck transport may be able to be converted to electric drive although costs would increase. Delivery costs of goods would increase, contributing to an increase in the cost of living.
Many mobile machines in construction, forestry and logging depend on diesel. With present technologies, many of these could not be replaced by batteries and electric drive. These are large sectors in their own right. And, construction underpins many other types of economic activity, incomes and jobs.
The Carbon Bill would place at risk many incomes in dairying and dairy processing, in meat farming and meat processing, in tourism, and in the many industries supplying these sectors. The cost of living would increase because the reduction in exports would drive down the New Zealand Dollar, raising all prices. Standards of living, measured in terms of the purchasing power of incomes, would decline. Note that this a reduction compared to likely incomes without the Carbon Bill, not relative to incomes today; rising average incomes would likely still be possible.
Social costs
There would be social costs associated with these economic changes. Life in rural areas and provincial towns would be affected by any reduction in dairying, meat, logging and tourism activity.
Reductions in the purchasing power of incomes would hurt some people more than others. Even slowing the rate of economic growth – the rate of growth of incomes – would exacerbate social tensions. If incomes are generally increasing then people tend not to be dissatisfied with their lot. But with little growth in incomes, those at the lower end of the income distribution tend to become dissatisfied, vocal and agitate for government measures to increase their share of total income. Social divisions become intensified.
Evaluation of the Carbon Bill
The benefits to New Zealanders of the Carbon Bill are miniscule. The Bill would do essentially nothing to restrict climate change. Action on emissions would uphold New Zealand’s commitment to the Paris Agreement but this would require New Zealand simply to set targets consistent with the Agreement’s. The Carbon Bill goes well beyond this in terms of the timing and severity of proposed emission reductions.
The economic and social risks associated with the Carbon Bill are substantial. The targets could not be met with present technologies. Relying entirely on new, or as yet non-existent, technologies is risky, especially when the costs in terms of material standards of living are substantial if these technologies do not eventuate.
An intelligent evaluation of the Carbon Bill involves comparing rewards to risks, benefits to costs. The Government has not done this evaluation. The Carbon Bill is driven by ideology rather than careful analysis.
The environmental benefits/rewards of reducing New Zealand’s greenhouse gas emissions are negligible. The costs are uncertain because it is impossible to forecast the future development and costs of emissions reduction technologies. It is irresponsible to blithely assume, as the Government does, that such technologies will be developed.
The cost side of the evaluation is an exercise in risk assessment. There is the potential for substantial impacts on incomes. Michael Reddell (in CPR June 24, 2018) posits a reduction in incomes of 25 percent. The Ministry for the Environment (Zero Carbon Bill, Regulatory Impact Assessment, 2019) gives economic cost estimates which correspond to around 5 percent of GDP. The Ministry for the Environment (in Our Climate Your Say: Consultation on the Zero Carbon Bill. 2018) estimates economic costs at around 9 percent of GDP. We think the potential reduction would be more than 10 percent.
Energy and environment policy
The Carbon Bill, if fully implemented would create virtually zero benefit in terms of reducing climate change. It would comply with the Paris Agreement recommendations but in fact would go beyond what is needed for that. These emission reductions would impose significant costs on New Zealanders. In the best case, new technologies might be developed which could achieve the targets but there would still be considerable costs in developing and implementing these technologies; these costs are unknowable at present. In the worst case, New Zealand’s GDP would end up being around 10 percent lower than without the policy.
It is irresponsible for the Government to lead New Zealand into such a situation – to incur these costs, the only uncertainty being how large the costs will be, while achieving no benefit in terms of reducing climate change.
In this regard, the Carbon Bill is similar to the Crown Minerals (Petroleum) Amendment Act 2018 which bans new offshore oil and gas exploration permits. Future oil consumption will not be affected as foregone local production will be replaced by imported petroleum. Some of the foregone production of natural gas will be replaced by electricity (at considerably greater cost) while foregone production used as feedstock will require the closure of these industries. There will be loss of income, especially in Taranaki, as well as loss of tax revenue and of export revenue. The environmental benefits, in terms of reducing climate change, will be essentially zero while the costs will be considerable. Here too, the Government appears to have been driven by ideology and reached its policy position without a balanced evaluation of benefits and costs.
There is an unfortunate trend under the present Government for environmental policy, in these cases regarding climate change, to be driven by ideology and not by realistic evaluation of efficacy, and of benefits and costs.