OPINION:
Inflation is central government's responsibility. The Reserve Bank sets monetary policy, and monetary policy drives inflation.
Inflation being central government's responsibility hardly means that local councils can just ignore it. Inflation affects everyone: households, companies, and councils. A council that ignored inflation would lose good staff by failing to keep up with wage increases, err in estimating project costs, and blow out budgets.
A superb council could help its residents by making sure its rules do not make it too hard for residents to adapt to rising prices. Easing zoning and consenting would help housing supply to respond to changes in demand, making the Reserve Bank's job easier, while improving housing affordability.
But it would be madness for a council to take on an anti-inflation mandate and try to combat inflation directly through local wage and price controls.
It would be worse than counterproductive.
The same is true for council-level policies for dealing with carbon emissions.
There is critically important work that only councils can do. But too much of what councils are trying to do, in dealing with carbon emissions, looks like trying to stop inflation by banning local restaurants from increasing prices.
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Advertise with NZME.Auckland Council's climate plan sets a goal of halving greenhouse gas emissions by 2030 and reaching net zero emissions by 2050. It includes strategies for retrofitting buildings to higher energy conservation standards, requiring new buildings to run at zero net emissions from 2030, installing solar panels on half of the city's homes and commercial buildings, reducing vehicle kilometres travelled by 12 per cent, making wastewater treatment plans self-sufficient in electricity and more.
Wellington Council aims to reduce emissions by 57 per cent between 2020 and 2030 through fossil-fuel-free streets in the central business district, home insulation schemes, and transport and urban planning initiatives including electric ferries.
Christchurch Council wants to halve non-methane emissions by 2030, with a focus on encouraging zero-carbon transport and redesigning the city to encourage more walkable neighbourhoods.
It all seems reasonable at a first glance. New Zealand has to hit Net Zero by 2050, so emissions are going to have to come down everywhere. But the same would be true of trying to reduce inflation through local wage and price controls: we know prices have to come down everywhere, so why not start local?
The problem would be obvious in local wage and price controls.
If the Reserve Bank takes sharper action to curb inflation, it is hard to predict which prices will change and by how much as higher interest rates work their way through the system.
Picking specific prices would get things wrong. Even getting one price right at one moment in time would mean being wrong not long afterward as circumstances change.
Tightening monetary policy allows the right prices for goods and services to emerge on their own, without anyone having to target a 12 per cent reduction in the rate of price growth for apples in Auckland or a 57 per cent reduction in the rate of price growth in insulation in Wellington. None of those numbers could hope to be right.
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Advertise with NZME.New Zealand's equivalent of monetary policy for greenhouse gas emissions is the Emissions Trading Scheme. Most urban council emissions are covered by the ETS. Every domestic transport emission is covered by it. So are the emissions from the energy used to heat and cool buildings, from construction, and even from city landfills.
Carbon prices in the ETS quadrupled in recent years. The scheme now includes a binding cap on net emissions. The cap will tighten as government sets a path to Net Zero in 2050, and carbon prices will rise.
Nobody could possibly pick the right number for the proportion of the path to Net Zero that should come from wastewater plant emission reductions in Auckland by 2030 as compared to building emission reductions in Wellington, or urban design in Christchurch.
But higher carbon prices, and expectations of higher carbon prices, will encourage investments in the places and sectors where they make the most sense.
Councils have hugely important work to do in enabling their residents and ratepayers to adapt to those rising prices.
People are likely to want more energy-efficient homes, so council building approval processes need to make it easy to adopt innovative building materials.
If higher carbon prices combine with greater ability to work from home to change how people want to use urban spaces, zoning needs to be flexible enough to allow commercial offices to turn into apartments and mixed-use developments.
Infrastructure planning for bike trails and public transit needs to be based on serious forecasts of how residents will want to commute when carbon prices are substantially higher than they are now, rather than aiming to push people into modes of transport that they may not want.
Getting this backward by targeting specific emission sources directly rather than responding to expected higher carbon prices is bundled with additional risk.
For years, councils have used their zoning and consenting functions to protect their balance sheets against the costs they believe they face in accommodating urban growth. The Labour Government's urban growth agenda seeks to stop councils from blocking growth.
Green building mandates would be a simple way for councils to make it difficult to build in places under Nimby pressure, simply by raising the cost of developing in those places. Local carbon mandates could provide councils with new ways of blocking growth at city fringes, to the detriment of housing affordability across the entire urban area. And since related emissions are covered by the ETS, countrywide net emissions would not even change.
We would all recognise that councils were straying dangerously from their core competencies if they tried to address inflation through local wage and price controls. Getting inflation back under control is important, but it is the Reserve Bank's job.
Councils face a big enough task in preparing their cities for rising carbon prices. They should not make that job harder by also trying to centrally plan local emissions.
• Dr Eric Crampton is chief economist with The New Zealand Initiative.
