Not about emissions

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.

In both its draft and final reports, the Climate Change Commission said current policies and a $50 carbon price will be enough to deliver net zero emissions in 2050. Its analysis did not show undue reliance on removals by exotic trees, although Ministers and officials have repeatedly made misleading statements about the Commission’s findings.

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.

How do officials think about the costs of expropriation?

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.

Here is what the Regulatory Impact Statement says about costs:

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?

How much land do we really need to plant with trees?

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.

The Commission and ministers have made various statements to this effect. For example, back in June, James Shaw told Parliament’s Environment Committee this (at 44:07 and again at 44:22):

[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.

Keep climate policy focused on the social cost of carbon

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.

Numpties

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

New competition for the Flat Earth Society

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.

What, no Kiwibuild or Kiwirail?

Venezuela has state supermarkets. Looks like their low, low prices deliver empty, empty shelves. Sorpresa!

Source: npr.org