Consultation on NZ’s future targets short on time and information.

A big economic call the Government has to make this year is what emissions target New Zealand will commit to for the 2020s.

A brief public consultation process is under way, though unlike a similar exercise in 2009, the Minister responsible is not fronting up.

The consultation document he released three weeks ago is a perfunctory and tendentious affair.

The Government also recently released the result of economic modelling it commissioned to inform this decision.


But the possible worlds it asked the modellers to explore bear little resemblance to the one we inhabit, so they illuminate the debate we ought to be having in a pretty limited way.

The brief the Government has given modellers at Infometrics and Landcare is essentially to interrogate their models of the New Zealand economy and the wider world with this question: for a limited set of combinations of global carbon prices and New Zealand emissions targets, what would be the impact on the country's output and national income?

Spoiler alert: It turns out, for all but the most extreme scenario, to be pretty small.

But before we take too much comfort from that, we have to recognise what the modellers were being asked to assume and to ignore.

First, the baseline - the counterfactual with which the various emissions targets are to be compared. It is a world in which no action to reduce emissions is taken by any country.

That is hardly business as usual. New Zealand already has a target of 5 per cent below 1990 levels by 2020 and a statutory commitment to 50 per cent below by 2050.

The expectation on every country is that the coming Paris conference will see them commit to doing more. The United States, China and Europe, which between them account for most global emissions, have already tabled offers which significantly increase their effort.

Surely the more relevant baseline would have been the status quo.


Taking the consultation document's numbers at face value, the central scenario of a target 10 per cent below 1990 levels would reduce household consumption by 2027 by $1300 a year, from the $85,000 it is projected to be by that time. That is a sacrifice of 1.5 per cent compared with doing nothing, but just $30 a year more than the present target.

A key set of assumptions given to the modellers relates to international trading in "carbon", that is, certificates representing a tonne of CO2-equivalent emissions avoided somewhere in the world.

The climate does not care where emission reductions occur or who pays for them. So trading is an efficient way of enabling countries to move up the cost curve at more or less the same pace - provided the reductions are genuine and there is no double counting.

In principle. In practice, while there is an emerging archipelago of national or subnational emissions trading schemes, and a supranational one in Europe, we are a long way from the world the modellers had to assume.

It is one in which there is such a thing as "the global price of carbon", rising from $25 a tonne in 2020 to $50 a tonne by 2030.

Unrestricted access to an international market in carbon is almost certain to be a key condition attached to whatever offer New Zealand makes, but in the meantime the Government has managed to get us excluded, from about now, from the only international market there is, set up under the KyotoProtocol.

Anyway, under that strong assumption, Infometrics finds that for the central scenario of a target 10 per cent below 1990 by 2030 and a carbon price rising to $50, a fifth of the target would be met by emission reductions within New Zealand, and the rest by purchasing carbon on the international market.

National income (real gross national disposable income in the statisticians' jargon) would grow by an average of 2.3 per cent a year in the 2020s, compared with 2.4 per cent if there was no target, so that by 2027 it would be 1.2 per cent lower than in the baseline.

GDP growth would average 2.1 per cent a year instead of 2.2 per cent.

Landcare's model found a higher proportion of the target would be met domestically - just over a third, rather than a fifth in Infometrics' model.

The difference seems to largely reflect base-year effects on the switch out of fossil fuels in the electricity sector.

A smaller carbon import bill is reflected in an even smaller reduction in the growth in national income in Landcare's case - 0.6 per cent against Infometrics' 1.2 per cent.

Assuming a higher track for carbon prices, rising to $135 a tonne by 2030, increases domestic emissions reductions, but also increases the impact on GDP and national income.

Tellingly, the modellers were asked to assume that agricultural emissions - nearly half the national total now and more than half in the 2020s - are included in the national target but would not be subject to a carbon price.

This violates the principle of polluter pays and seems to reflect an official - or perhaps political - assumption that imposing a carbon price on livestock farmers would reduce their international competitiveness and output, to little environmental purpose.

But that assumption ignores the possibility - to put it no higher - that treating them the same as other emitters would only reduce the rate at which farm land prices climb, with little effect on output, while excluding them reduces the chances they will find or take up ways of reducing emissions.

For industrial emitters the modelling does not include the breaks they get under the present ETS - a free allocation of units to trade-exposed emission-intensive firms and the buy one, get one free provision.

Even so, the Infometrics model finds only small impact - around 1 per cent under the central scenario - on the output of most industrial sectors. The exceptions to that are coal, oil and gas, and electricity generation.

The models make no allowance for more than incremental uptake of clean technologies such as electric vehicles.

And crucially, they do not attempt to model the impact of higher carbon prices on forest planting, even though plantation forestry has provided a crucial offset to the growth in gross emissions.

Given how much that sector has been jerked around by policymakers over the years, that would have been a pointless exercise.

Submissions on the target close next Wednesday. The short consultation timeframe and the limited information the Government has released suggest its attitude is one of shoulder-shrugging indifference: "Climate change? Is that still a thing?"

Read the full document here:

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