A recent report by David Law at the NZ Initiative has this astounding chart:
The bottom four countries are the four underperforming European PIGS. Little wonder Italy and Greece are in fiscal crisis territory when every $1 transferred to people on low incomes means sending $4 to people in the top 20% of incomes. I’m sure taxpayers in northern countries are thrilled to have seen their tax dollars going into the pockets of people who earn more than they do.
New Zealand comes out looking rather good. Remind me again what problem unemployment insurance is meant to solve?
I wish the EU all the best for its inevitable break up.
THEY’VE declared a climate emergency and now the government is taking steps to ensure we can continue to drink chilled Sauvignon Blanc in a warming world.
Agriculture minister Damien O’Connor has announced the government is investing in a seven-year programme led by Bragato Research Institute to help future-proof the sustainability of New Zealand’s Sauvignon Blanc grapevines.
“Sauvignon Blanc comprises 87% of our wine exports. This new $18.7 million grapevine improvement programme will introduce genetic diversity into our vines, and ensure they continue to thrive in New Zealand conditions,” O’Connor said.
“Many of our existing vines will need to be replaced in 10 to 15 years in order to avoid a loss in productivity.
“The new variants could also lead to new flavour and aroma profiles, resulting in exciting new styles of wine that will add further value to the sector.”
The government also gifted invested another $7.5 million through another MPI programme.
What is the problem the government thinks it is solving here? Does it think the horticulture sector has not heard of climate change? That growers could not possibly work out a way to cope with gradual changes in the distribution of temperatures, rain and humidity without someone to hold their hand?
“Anticipated climate change impacts require action now to ensure New Zealand continues to be considered the world’s Sauvignon Blanc capital.”
I’d guess there will be no shortage of action if the alternative is growers lose money or go out of business if they do not adapt to changing weather patterns.
If the standard for getting $26 million out of the government is that you might be affected by a changing climate – who does not qualify?
Of course, the problem the government is solving with its seemingly endless parade of nonsense on climate change is its own re-election in two years.
There is a fundamental problem across all of the government’s thinking on adaptation. The government is making no attempt to isolate the problems that property owners are not going to solve themselves.
Managed retreat from low lying land is a horribly exaggerated response to a problem that should mostly take care of itself. From the government’s perspective, 99% of the problem is going to be solved automatically by property owners responding to inundation risks. Nobody is better placed to weigh costs and benefits and tradeoffs between competing land uses than land owners.
The government’s magic bullet in all of this is finding a way to solve the commitment problem: the promise not to bailout wealthy landowners who suffer losses. Is there anybody in government thinking about adaptation in such gravy-free terms?
Yesterday, Rod Carr appeared before Parliament’s Environment Committee as Chair of the Climate Change Commission. Carr made the following statement (at 5:10):
I think the first thing to do is recognise not only as Chair but the Commission itself accepts that markets and prices will provide significant signals to producers, consumers and investors, that will play an important part in putting New Zealand on a pathway, which it is not currently on, to achieve the statutory targets for domestic emissions.
So, Carr told the Select Committee that New Zealand is not on track to deliver its “statutory targets for domestic emissions.”
There are two problems with his statement.
The first is that back in May the Climate Change Commission told the government that existing policies and an ETS price of $50 will deliver net zero emissions in about 2050.
Today, the ETS is at $68. At that higher price, the Commission’s models must show New Zealand getting to net zero emissions well before 2050.
I would say that puts New Zealand firmly on track to deliver statutory targets.
The second problem with Carr’s statement is his mention of “statutory targets for domestic emissions.”
What statutory domestic target?
The Climate Change Response Act defines net emissions as gross emissions minus domestic removals (for example, by forestry) minus offshore mitigation. The Act says emissions budgets must be met “as far as possible” by domestic reductions and domestic removals. But there is no “statutory targets for domestic emissions.”
I am perfectly willing to believe Carr misspoke, and that he meant “statutory targets.” But New Zealand is firmly on track to achieve its legislated targets.
So did Rod Carr mislead the Environment Committee by telling it New Zealand is “currently not on” track to deliver the targets Parliament has set?
Or did Rod Carr tell the Environment Committee New Zealand is not on track to achieve statutory targets which he invented?
My guess is that the unelected Carr is making an unstated political judgment about the acceptable level of tree planting. With its current settings, a $68 ETS is going to plant a lot of trees, probably more than Carr and the Climate Change Commission would like. Perfectly reasonable position for them to take.
But if that is Carr’s objection, he should be clear about it.
There is a world of difference between “more trees than we would like” and “currently not on [track].”
New Zealand is firmly on track, in the important sense that, according to the Commission’s modelling, it will achieve net zero emissions well before 2050 at an ETS price of $68.
Here is why Carr’s misleading statement matters.
If New Zealand is already on track to statutory targets, that is going to be relevant context for deciding whether the cost and pain of the upcoming Emissions Reduction Plan is really necessary.
Pretending New Zealand is off track is the foundation officials and ministers need to claim their draconian Emissions Reduction Plan is necessary.
It is not.
It is a choice. The trade-off is between a) willingness to pay more for a higher share of gross reductions in emissions, versus b) paying less and relying more on trees.
This is a legitimate political choice. That choice is pre-empted when unelected officials say New Zealand is ‘off track’ in order to maintain that their sweeping plans for how each of us lives is needed, as if we have no choice.
Yesterday, in the Herald ($), I challenged Climate Change Minister James Shaw to explain how his Emissions Reduction Plan lowers emissions.
In this post, I want to head off what he is going to say. His lines are, frankly, not right. So let’s get that on the table and go through the argument before he says it.
Shaw’s plan is vast. It covers every sector of the economy. The government could regulator, tax or subsidise anything or everything in the name of reducing emissions.
But Shaw’s plan is not going to reduce emissions.* The government has already placed a quantity cap, a sinking lid, on emissions with the ETS. Legislation passed in 2020. It is widely accepted that cap-and-trade schemes neutralise other emissions policies. If the cap determines total emissions, policies under the cap do not.
This neutralising effect of an emissions cap is called “the waterbed effect”.
Here is how a cap-and-trade scheme will neutralise an EV subsidy, for example:
Imagine an economy normally produces 100 tonnes of emissions. This year, the government decides to cap emissions at 80 tonnes. It issues 80 emissions permits and demands the surrender of one permit per tonne of CO2. Emissions fall to 80 tonnes.
Next year, the government issues another 80 permits and introduces a new EV subsidy. The subsidy successfully reduces transport emissions by five tonnes.
Total emissions remain at 80 tonnes. Why? Because there are still 80 emissions permits available. The five permits which transport no longer needs due to the subsidy will be used elsewhere. They will raise emissions (or postpone reductions) by exactly five tonnes somewhere else in the economy.
So, the EV subsidy reduces emissions from one sector. But overall emissions do not change. This is the waterbed effect.
Now, before I go any further, let me say that “The ETS Is Not Enough”™ is not an answer. That line is a mantra in Wellington. It is useless except for the fact it has fooled everybody who hears it.
Somehow, nobody has noticed “The ETS Is Not Enough”™ does not make any case for doing other policies if those policies are going to be neutralised by the cap.
Even if the ETS leaves you short of your emissions target (because it is Not Enough™), the waterbed effect is still in play.
So even if the “The ETS Is Not Enough,”™ complementary emissions policies don’t help. If they are neutralised by the cap, then those policies are going to leave you exactly as far short of your target as if you had not done them.
Every day, this advanced logic escapes hundreds of public servants who do nothing except think about climate change policy at your expense. You pay their salaries but I assure you they are not working for you.
Anyway, if Shaw’s Emissions Reduction Plan is to reduce emissions, it has to find a way around the waterbed effect.
Shaw has previously spoken about how to avoid the waterbed effect. His solution seems obvious: lower the cap as policies bring down emissions.
[W]hat they’re talking about is something called the ‘waterbed effect’. If you cut emissions in one area and that takes things below the cap then it allows others to pollute more in the meantime.
But if you’re successfully lowering the cap every time then you minimise that effect because you’re saying, ‘Yes we’re taking emissions out here with the feebate and also with the ETS and then next time we set an emissions budget it will take account of the fact that emissions are lower.’
The way it works is you’ve got your 2050 target which is sort of long term. Then you’ve got your three five yearly budgets and each one is smaller than the one before. Every five years, at the start of each budget period, if circumstances dramatically change since you set the budget five years earlier, you can adjust at that time and say, ‘hey look things have moved far quicker or in unexpected ways we can adjust the budget to take account of that emissions budget.’
Shaw’s logic, as I understand it, is this: Ministers set the cap; Ministers can link the cap to complementary policies (EV subsidies, for example); complementary policies therefore lower emissions.
In the earlier example, emissions stayed at 80 tonnes after the EV subsidy had cut transport emissions. That is because there were still 80 emissions units in circulation. The intuitively obvious solution is to lower the emissions cap to 75 tonnes. Total emissions come down in line with the emissions benefits of the EV subsidy. Problem solved.
[Linking] the cap with complementary policies may imply the policies lowered emissions. However, this is an illusion. To see why consider this from the earlier example:
# If the government reduced the cap to 75 tonnes without the complementary policy, emissions would fall to 75 tonnes.
# If the government did the complementary policy but left the cap at 80 tonnes, emissions would remain at 80 tonnes.
The cap is doing all the work.
Accordingly, it is wrong to say that linking the cap to complementary policies means complementary policies reduce emissions. The connection is arbitrary. Ministers could link the cap to, say, cumulative rainfall, but nobody would suggest last week’s storm had lowered emissions. It is the cap, not the complementary policies, which lowers emissions. Complementary policies are still neutralised by the emissions cap. The waterbed effect is not avoided.
The cap is doing all the work. So long as the government has the option to reduce emissions simply by tightening the cap, other policies cannot cause emissions to come down (provided they are subject to the cap). The other policies are redundant.
The next obvious question is: what happens when the government does not have the option to simply tighten the cap? What if carbon prices rise to the point that voters or Parliament will not countenance any further tightening? Can complementary policies help further reduce emissions then?
This does open the door to complementary policies reducing emissions, but only by the smallest amount. Our submission walks through the weird permutations which are needed to get complementary policies to to cut emissions under an emissions cap. Short answer: we see no real way for complementary policies to cut more than a little extra emissions, at best.
If anything, complementary policies are more likely to raise emissions because of their lower economic efficiency and likely political inefficiency. The high cost of top-down emissions policies probably translates to a higher burn rate of political capital per tonne of emissions. That may seem like a fairly esoteric metric, but it matters in principle when the limiting factor on further reducing emissions is political feasibility.
Think about it this way: if the reason the ETS becomes politically constrained is because voters don’t like its cost of living effect, then how can policies which spend far more per tonne of abated emissions be any solution?
Complementary policies only have the opportunity to make any difference to emissions, up or down, if the ETS first becomes politically constrained.
It is hard to see any way the ETS is going to become politically constrained before 2050. New Zealand is already comfortably on track to achieve net zero emission in 2050 with existing policies. We include a list of reasons why in our submission. Nearly all of the evidence shows existing policies get us there.
I need to be clear about what “politically constrained” means. I mean it in the sense that a future government has no politically feasible way to net zero emissions.
Sure, the government could force the ETS price all the way to $500 if it stamps hard enough on trees and other removals technologies and rules out offshore mitigation entirely. That is what this government wants to do. And voters could well object to paying $500 per tonne of carbon.
But the ETS is not politically constrained if the government has the option to just stamp a bit less hard on trees or open the door slightly to offshore mitigation. Politically constrained is when the government cannot tighten the ETS any further, it cannot plant more trees, it cannot commission other removals technologies, and it cannot go offshore, and it is still short of net zero emissions.
Not going to happen. See the submission for why.
So, there is no question at all that right now we have legitimate, affordable, genuine pathways to net zero emissions, and we have options. We can plant a less trees and still get to net zero. We could plant no more trees and get to net zero. None.
Which means the government will always have the option to tighten the cap.
Which makes complementary policies under the cap redundant, including existing emissions policies.
Which means James Shaw’s vast plan is not going to reduce emissions. Not by one tonne.*
* For policies covered by the ETS cap, which is nearly everything except agriculture.
With its Emissions Reduction Plan released last week, the government is promising unprecedented control over every aspect of your life.
How you move. What you eat. Where you live. How you heat your home.
It is little short of a revolution. Between its emissions plan and next year’s Budget, which will also be about climate change, future governments of this country will have more to say about everything.
The problem is that existing policies already have this country firmly on track to deliver emissions targets.
Today’s carbon price is $65. So we are ahead of schedule.
Which makes the government’s Emissions Reduction Plan redundant. We get to our targets without the Plan. Emissions will come down about as quickly with the plan as without.
New Zealand should get more credit for its progress on emissions. On a per-capita basis, greenhouse gases have been falling since 2006. They are down 22% overall, and down 34% if agriculture is excluded.
Net emissions of long-lived greenhouse gases – relevant for the net zero target – are down 25% per person.
And it is not pine trees that are doing all the work. More than 100% of the fall in net emissions is due to lower gross emissions.
So current policies are already doing the business demanded by environmentalists. There is no need to add thousands of dollars to the cost of vehicle imports, or any of the many other impositions being looked at, since we are already on track to deliver the stated goal.
There should be no question existing policies will deliver all of our emissions targets if they are given the chance. That is because, apart from methane, New Zealand has set net emissions targets. Both domestic law and international agreements recognise three pathways to lower net emissions: lower gross emissions; removals by trees and other carbon capture technologies; and offshore mitigation.
Removals and offshore mitigation are each affordable and scalable enough on their own to deliver net zero emissions in 2050.
But voters prefer reductions. Fine.
So the task for emissions policies is to assemble a mix of reductions, removals and offshore mitigation which
delivers emissions targets; and
reflects the premium voters are willing to pay for more reductions, less removals and less offshore mitigation.
The government is not thinking about climate change this way. In fact, it does not seem to be thinking about emissions at all. It has published an Emissions Reduction Plan which will bring down emissions by about the same amount as existing policies to achieve the same emissions targets.
What, then, is the point of an Emissions Reduction Plan if it does not reduce emissions?
Judging from its effects, the point is control. The plan will have two clear effects. Ministers will decide how and where emissions come down, not you. Second, you will pay more – ten times more, on the government’s own analysis – for the benefit of their judgment.
What a terrible deal. For the environment. And for your back pocket.
And all based on the twin lies that reducing emissions requires central control, and that the government’s Emissions Reduction Plan reduces emissions.
The government has introduced legislation which will allow the Minister of Health and the Director General to take over private companies doing COVID testing (further description is here). The likely target of this change is Rako, which has sought a commercial negotiation with the government for the last year. The amendment, which is before the Select Committee, will give the government the option of taking Rako’s property and unilaterally determine compensation.
So, what do officials see as the costs of de facto nationalisation of COVID testing?
Here is what the Ministry of Health has to say in its Fact Sheet 5: Regulating COVID-19 laboratory testing and managing testing supplies and capacity:
The proposed change will not have any direct impacts. Orders made under the new provision may impose obligations or restrictions on testing laboratories to ensure quality of testing, integration of test results with the public testing repository and regulation of testing consumables.
It is important to note that an Order to requisition supplies or redirect capacity to the public health response would only be made if there was significant COVID-19 resurgence where there is insufficient testing capacity in the public system.
There may be modest costs to the Crown in administering any regulatory regime should this be required. There may also be administrative and other costs for public/private laboratories depending on what is proposed. These costs would be assessed at the time any order is made.
The RIS essentially repeats that last sentence when it says, “A full cost assessment would be undertaken should a COVID-19 Public Health Order (Order) be proposed using the new provisions.”
As for benefits, the RIS says “[t]his proposal will ensure flexibility in the legislation to make orders to effectively manage laboratory testing (if required) to ensure appropriate regulation of quality control and minimum standards in relation to testing, integration of COVID-19 test results into the public health, management of the supply of testing consumables.”
Set aside the fact that officials who cannot secure MIQ or order vaccines on time obviously cannot deliver any of those benefits.
Focus on costs. Officials seem to operating with a cost model that threatening to take a company’s IP is costless, and costs crystalise only when property is actually taken.
I wonder what Rako’s investors and employees think about that view? In fact, I wonder what every owner of intellectual property in every sector thinks about the Ministry’s view.
Because the cost of taking companies’ property is not the administrative overhead, as officials suggest in the RIS.
The cost is all the investment in innovation that will not happen in the future.
Those costs are large, big enough to be measured in percentages of GDP. So it is laughable that officials could list administrative costs as the only real downside of their proposal.
Do officials at the Ministry of Health understand how investment in specific assets works? Do they understand that investment in intellectual property, and in all sunk assets, depends on the credibility of the government’s promise not to take the property once it is created? Do officials recognise that even threatening such opportunism in one sector could have wider ramifications about security of property elsewhere? That prospective investors in wind turbines or EV charging infrastructure won’t notice the government putting in place machinery to take the property of medical companies?
Could officials and the government be any more short-sighted?
Both the government and the Climate Change Commission have misrepresented how much land will be covered in forests in 2050 with current emissions policies.
In its final report, the Commission told the government the existing policies and the Emissions Trading Scheme at $50 will deliver net zero emissions in 2050.
That extraordinary finding put a significant dent in the case for the Commission’s plan which has us paying somewhere between $250 and more than $500 per tonne of emissions – not $50 – to achieve the same emissions goal.
The Commission needed a way to explain why we should not stick with existing policies, which its own modelling shows more affordable and as effective as their plan. Their primary argument is that existing policies plant too many exotic trees.
[T]he pathway to getting to net zero at the least cost… involve[s] converting virtually every farm in the country into pine forestry.
Shaw’s statement is not close to being correct.
In its final report, the Climate Change Commission says getting to net zero emissions with existing policies including the ETS at $50 will require an additional 1.24 million hectares of exotic forests to be planted by 2050.
That is only 11% of the 11.7 million hectares of New Zealand farms which are not already forested. So much for Shaw’s “virtually every farm” claim.
Perhaps Shaw meant some time after 2050? So at what date could the last New Zealand farm be forested if we extrapolate from the rate between now until 2050?
On conservative assumptions, the earliest date exotic forests will cover the last New Zealand farm will be in the year 2250. That is about the same year the USS Enterprise from Star Trek is scheduled to launch.
But that date is based on the most conservative assumptions possible: gross emissions never fall from their current levels; all trees are only planted on farmland; agriculture pays a carbon price near zero; and zero access to offshore emissions units.
More realistically, the last farm land will not be forested until sometime after the year 2500.
Except the last farm will never be covered in trees – ever. We have land markets which mean trees will become an uneconomic way to capture and store carbon emissions long before the last farm is covered in pines.
In any case, the afforestation problem does not have to be solved today and certainly not by the central government. Local councils should be asked to do the job of capping afforestation in their areas, which has the advantage of being democratic and based on the circumstances which confront them in the future.
Remember there is a constituency for trees as well as against. Many landowners like trees because they are profitable. Funny how a carbon price helps do that.
The Commission’s main argument that existing policies will plant too many trees is almost equally applicable to its own plan.
The Commission’s modelling shows its plan will plant a further 4.4% of New Zealand’s total land area in forests. That compares to an extra 5.1% for current policies.
The Commission’s plan plants more native trees and fewer exotics, but this change in composition is hardly earthshaking. With current policies, exotics will make up 24% of all trees in 2050; under the Commission’s plan, 19%. Would anybody but industry insiders notice the difference?
See if you can spot the difference in outcomes between existing policies, which deliver net zero emissions in 2050 with an ETS price of $50, and the Commission’s plan, which has us paying between $250 and more than $500 per tonne of carbon:
By contrast to these minor changes in land use, households and businesses will not fail to notice the effects of the Commission’s plan on their cost of living. With carbon prices of between $250 and more than $500 per tonne, the Commission’s plan will profoundly affect the cost of everything, especially energy and travel. Its worst effects will almost certainly fall on low-income households.
As far as I can tell, the Commission has not considered the consequences of its ruinous plan for households and individuals living on low incomes. Its distributional analysis mainly considers effects across economic sectors of the economy – which is not really a distributional analysis at all. For all the talk about equity, it is not clear the Commission has checked what $500/tonne means for the price of bread, the cost of your daily commute, your power bill, or a flight to Auckland.
Another problem is that the Commission has presented existing policies as relying too much on trees and not enough on gross emissions reductions i.e. reductions at source.
But the Commission’s modelling shows existing policies do far more than just plant trees to lower emissions. Modelling for its draft report (it does not seem to have been repeated for the final report) showed that by 2075, 74% of the reduction in net emissions would come from lower gross emissions with existing policies including the ETS; only 26% from removals.
Is successful delivery of our emissions targets, but with a few more exotic trees and a somewhat more gradual transition in gross emissions, so bad as to justify paying between five to ten times more per tonne of carbon? Consider which option puts our emissions targets at greater risk.
A new paper in the journal Climate Policy says “Keep climate policy focused on the social cost of carbon”. Its abstract:
In the context of climate change, the application of cost-benefit analysis to inform mitigation policies can help to achieve the best outcomes and avoid the worst: spending trillions of dollars but failing to get the job done.
The job, of course, is to cut emissions.
The costs of a climate policy are the abatement costs of reducing emissions of carbon dioxide (CO2) (or other greenhouse gases). The standard measure of the benefits of a climate policy is the social cost of carbon (SCC), which measures the avoided economic damages associated with a metric ton of CO2 emissions. Recently, however, there have been calls for an alternative approach to policy evaluation that ignores the benefits of avoided climate damages and instead focuses only on minimizing the compliance costs of a given, politically determined climate objective. We argue here that a shift from use of the SCC and cost-benefit analysis to an alternative approach for evaluating policy that focuses on costs alone would be misguided. Rather than advocate for alternative approaches, now is the time to support efforts to update the SCC and its application to official climate policy evaluation.[emphasis added]
I note the Climate Change Commission used neither the social cost of carbon, nor cost-benefit analysis, nor costs alone to inform each of its recommendations to the government in its final report.
Perhaps the authors of the Climate Policy paper could write a follow up piece called “At least do something, for goodness sake” and send a copy to the Commission.
Let’s Get Wellington Moving wants to spend $350 million to reduce emissions by 1,000 tonnes. That is a bad deal – for you, the environment, just about everyone except Let’s Get Wellington Moving, it seems. Here is part of the summary of a plan called “City Streets”:
Let’s pretend for a moment that the government had not capped emissions with the Emissions Trading Scheme last year. Let’s ignore the statutory cap on emissions.
At a discount rate of 6%, Treasury’s standard rate for public spending, $350 million has an annual cost of $21 million. Which means Let’s Get Wellington Moving is proposing to spend $21,000 per tonne of emissions avoided.
Spending that much on each tonne means the country goes bankrupt before we get to net zero. At $21,000 per tonne, net zero emissions costs 230% of GDP.
Of course, we have an ETS, domestic transport is in the ETS cap, and the ETS cap is the law. As a result, LGWM will reduce emissions by exactly zero tonnes. You’re not helping your grandchildren by borrowing to pay for emissions policies that don’t cut emissions. You’re just saddling them with debt and making them poorer.
Notwithstanding the whole not cutting emissions thing, congratulations LGWM. You’re in the hall of fame:
Let’s Get Wellington Moving IBD, August 2021, $21,000/tonne
EECA Low emissions contestable fund, December 2020, $33,000/tonne
Auckland Harbour walkway and cycleway, June 2021, $7,800-$230,000/tonne
Supermarkets are easy, apparently. So easy, according to this article on Stuff, that you can set up and run a chain of them and at the same time “actively work towards other government goals across the environment, technology, business, and the labour market.”
What does that mean? The author helpfully explains (I am not making this up, somebody actually said this):
develop[ing] skills and technology in software, robotics, and distribution systems
developing 21st-century skills across the New Zealand workforce.
sustainable practices such as innovative packaging, bulk product refill stations
solar-powered warehouses could give consumers more reasons to use Kiwishop
prioritising local suppliers to reduce transportation costs
ensure better nutritional values for produce
incentives for food suppliers to use sustainable practices… utilising hybrid, organic, or te ao Māori farming methods
sustainable seafood manufacturing practices could be rewarded, further enabling the Government to achieve its related objectives.
better business practices, such as paying staff at least the living wage
strong work-based education programmes
leading to poverty alleviation, increased literacy, and a reduction in prisoner recidivism.
That’s right. The government’s new supermarket will help solve climate change and lower recidivism. All while remaining competitive with Foodstuffs and Progressive. It is just that easy to sell food.
Kiwishop is an opportunity to create a new ecosystem of food sourcing and sales with a smarter way of achieving economic, social, and environmental aims. In short, a much-needed disruptor in a market that has stunk for far too long.
The world is just one big free lunch. God help me.
The author concludes,
Kiwishop is a big idea, but so is KiwiSaver, Kiwibank, and Three Waters. We know how to do big in this small country.