Productivity Commission and the path of least resistance

The Productivity Commission’s draft report on making a transition to a low-emissions economy is out this morning.   It is a 503 page document and so, of course, I haven’t read very much of it.  But electronic search is a wonderful tool.

As I noted yesterday, despite having had a fairly large (by international standards) fall in emissions per unit of GDP since 1990, New Zealand has had one of the larger increases in total gross emissions of any OECD country.  What reconciles those two observations isn’t some incredible surge in New Zealand’s productivity and GDP per capita – as is generally recognised, we haven’t done well on those scores –  but a large increase in the population.  And most of that increase in population is due to the planned immigration of non-citizens to New Zealand.  In other words, it is more or less a direct result of the policy adopted by successive governments (including the current one).

For any given set of technologies and relative prices, more people means more emissions both directly (more transport, more power) and indirectly –  people need to earn a living and so emissions associated with, for example, manufacturing or agriculture also rise.   As a rough first approximation, if we’d stayed with the rate of non-citizen immigration New Zealand had in the late 1970s and much of the 1980s, total gross emissions in New Zealand now would be at least 20 per cent lower.  For governments that want to materially reduce emissions that should be something to ponder (especially as New Zealand average units of GDP are themselves quite carbon-intensive)  It is, of course, water under the bridge now.  But the same high non-citizen immigration targets are still in place and, all else equal, will continue to drive up emissions in future.    Given those immigration policy pressures, more of a (costly) burden of adjustment has to be imposed on the economy through other instruments.   As marginal abatement costs here are widely accepted to be higher than those in most other advanced countries, the likely adverse economic effects on New Zealanders are large.

But you don’t get much of a sense of any of this from the Productivity Commission’s report.  There are quite a few references to the role of population in the growth of emissions.  It even makes one of their formal findings

Finding 2.7     Economic and population growth have been important underlying factors in New Zealand’s rising emissions. Over the last 25 years, New Zealand’s emissions per person and emissions per unit of output have decreased, but the increase in population and output has caused overall emissions to increase.

Flowing from this short discussion.

Strong population growth and economic growth have been key underlying drivers of New Zealand’s rising emissions since 1990. Between 1990 and 2015, New Zealand’s real GDP nearly doubled. During the same period, population growth was higher than most other developed countries (Figure 2.10). More people means greater consumption of goods and services that contain emissions (eg, more vehicle use, and greater demand for electricity). Economic growth (and, indirectly, population growth) means more emissions-intensive goods and services are produced, leading to higher emissions.

And there is the odd passing observation, such as that

Future population growth will provide a challenge in bringing down transport emissions.

although no apparent recognition of the connections to agricultural emissions.

But the Commission has chosen to treat population growth (past and future) as some sort of exogenous given.  For example, they report some results of some commissioned modelling exercises, and in each of the scenarios exactly the same future population growth is assumed.  That might make sense in a country where population changes were almost entirely the result of developments in natural increase (or even of the emigration choices of nationals), neither of which should be any sort of policy lever.  It makes no sense at all in a country where most of the population growth (last quarter century and next) is directly the result of policy choices.

No analytical sense that is.  But perhaps it makes sense if you are a government agency feeling your way with a new government that is strongly committed to the “big New Zealand” mentality and to current immigration policy, and where much of that government seems more interested in having New Zealanders don hair shirts and feel the pain (or alternatively conjure up imaginary futures in which a forced adjustment to net-zero emissions won’t come at aggregate economic cost to New Zealanders).  The path of least resistance politically presumably led the Commission to conclude that it was better (“safer”) not to mention immigration (policy) at all.

And so they didn’t.   In the entire 503 pages there is a single reference to immigration.

But that is just part of the (reproduced in full) Terms of Reference for the inquiry, set out by the previous government.

New Zealand’s response also needs to reflect such features as its high level of emissions from agriculture, its abundant forestry resources, and its largely decarbonised electricity sector, as well as any future demographic changes (including immigration).

It feels a lot like abdication, and not at all like the sort of free and frank analysis and advice that a body like the Productivity Commission should be providing if it is to be any long-term use.  The Commission seems to have been so scared of upsetting its liberal readers –  political and other –  that it isn’t even willing to address the issue.

It would be one thing if they’d devoted some substantive discussion to the issue and concluded, whether on the basis of reasoned analysis or modelling, that the economic benefits to New Zealanders from the immigration policy were sufficiently large, and the marginal abatement costs of other approaches in a portfolio of measures to reduce emissions were sufficiently small, that winding back non-citizen immigration targets should not be part of a preferred response strategy.  Reasonable people could debate that sort of proposition and the evidence advanced for it.  But the Productivity Commission chose to totally ignore the issue.   Since as an institution they don’t seem to be gung-ho enthusiasts for the economic benefits of New Zealand’s immigration policy (see my discussion of their narrative of New Zealand’s economic underperformance) it looks a lot like playing politics, going along with a Labour/Greens (and their acolytes) narrative.  In the short run that might make it more likely they get a hearing from the government. In the long run, that sort of approach to issues won’t stand them  –  or the cause of good policymaking and analysis in New Zealand, already enfeebled enough – in good stead.

(It was also noticeable that amid all the happy talk in the document, there was no sign of any attempt to estimate, or model, the likely real economic costs of the sorts of carbon reduction policies the Commission is dealing with.   There is an entire chapter reporting initial modelling results, but –  as far as I could see –  no reference to the implications for GDP per capita (or any of the cognate national accounts measures).  No doubt, the average New Zealander in 2050 will be wealthier than we are today, but the relevant issue for policy isn’t that baseline, but the deviations from it.  In particular, they should have focused much more attention on what the economic implications of various possible policy levers –  perhaps including immigration policy –  might be, and how best to minimise the economic costs to New Zealanders of making the adjustment the government is planning to target.     And it is fine for enthusiasts for aggressive policies to talk of unpriced externalities etc, but even with those unpriced externalities our economic performance over decades has been startlingly poor, and it isn’t obvious why removing them won’t further worsen economic outcomes.  That might be an acceptable trade-off, but there doesn’t seem to be anything much in this report suggesting just how large those costs and benefits might be.)


23 thoughts on “Productivity Commission and the path of least resistance

  1. How are your modelling skills Michael? The absence of modelling leaves an opportunity to model different immigration scenarios and the impact on carbon emissions/marginal abatement costs of each of them.


    • If we deal with facts it would make things easier. Population growth for sure does have an impact. But moving one person from one location to another location does not impact on emmissions overall because that same person would still emit whether they live in Africa or in NZ. That is why population movement is not considered in the impact in a global sense.

      But if you consider that NZ electricity is 80% hydro then a person moving from Africa that burns coal and moves to NZ then that move reduces emmissions globally by that movement. Therefore from a global emmissions reduction point of view it would be in the World’s interest that a country like NZ takes in more people rather than less.


      • I don’t think that is true, on at least two counts:

        1. NZ govts should be making policy for NZers, not for “the world”. And since we discretionarily choose our emissions reduction goal that seems to be the approach of both past and present govts.
        2. Although we use lots of hydro, there is no new hydro coming on stream, and it is the marginal emissions associated with population growth that really matters.

        But also, since the abatement costs here seem to be higher than those elsewhere, it is wrongheaded for NZ to take more people, and thus impose more of the abatement costs on the NZ economy than on the economies of other countries. We take a lot of UK immigrants for example, and emissions per capita and per unit of GDP are lot lower in the UK than here.

        In principle, I’d have no particular problem with us choosing to do something for “the world”, but even if so we should carefully identify the costs to NZers of choosing to do so.


      • That’s not actually true. When you import a person from a country (like India, or the Philippines) that has a very small carbon footprint per capita, and transplant them into a developed country with huge per capita carbon footprints (like NZ, Australia or Canada), as those people adopt the lifestyles of the countries they migrate to it has the effect of increasing total global carbon emissions.

        Liked by 1 person

      • Jill, the carbon footprint should not be any different if we adopt all the latest technologies like electric cars and electric public transport. You can’t just decide it is better to leave people in Africa in poverty and digging for worms for food and not progress?


      • No amount of adopting technologies is going to reduce a developed person’s carbon footprint by 80-90% to make it the equivalent of an African’s, unfortunately.

        What we should be doing is letting developed countries populations gradually decline (as nearly all have reproductive rates below replacement), at the same time as moving away from fossil fuels as rapidly as possible. We should also be pouring resources into the developing world for renewable energy, sustainable agriculture, child and maternal health and education, food storage and security of supply, to enable those countries to reduce their birth rates and raise the standard of living of their people.

        The scientific consensus is that the earth can sustain 3 – 4 billion people maximum, and the more quickly we can get to that number the better.

        Liked by 1 person

      • Hydro power 80% is out of date
        Year 2017, Coal and Gas produced 23% of NZ power
        Geothermal energy produces about 13% of New Zealand’s electricity supply

        Over the last year, coal and gas produced 12.71 percent of NZ’s electricity, at the Huntly plants and others, but poor conditions for hydro pushed that to 23 percent last week. Genesis Energy said it had to import coal from Indonesia to help supply its Huntly plant

        Liked by 1 person

      • And declining. As more power becomes used by recharging EV’s overnight where is that power going to come from. Not Hydro. Where?


      • No wonder my Huntly rents have jumped to $410 a week. All this economic activity from the Power Station must be increasing the level of highly skilled electricians and electrical engineers that need accommodation. Certainly a lot better than the previous lot of jobless louts and hangabouts previously when they were shutting down the Huntly Power Station when the government was paying the accommodation supplement that does not even meet market rents. I now have proper high skilled paying tenants.


      • This is where solar power technology can make a difference. The Greens have been awfully quiet about getting households into solar power generation. There is currently a problem with the current pricing model because as more people turn to solar, the existing infrastructure costs are being passed onto the existing owners which is not a bad thing because it forces households into transitioning to solar. However, the infrastructure companies are fighting back by levying solar users extra charges


  2. So the Productivity Commission works within government but not for the people of New Zealand; is essentially globalist in it’s outlook. While our politicians huddle in a mass like reef fish (eyes darting in every direction) and no one big enough, in parliament, to speak up?
    When push comes to shove the Green Party view is that immigration isn’t population increase as the total (world) population doesn’t increase.

    NZ First managed to get a fisheries reserve cancelled (thanks from their sponsors).


  3. The first sentence is a bit harsh. I think they are just bureaucratic operators (often good analysts as well), trying to serve some mix of what they see as the interests of their bureau (as public servants typically do) and the interests of New Zealand


  4. Coming up on RNZ Country Life – Labour Crisis Bites Horticulture

    This year there has been a chronic shortage of seasonal labour to harvest apples. The crisis is now flowing onto kiwifruit which is just hitting its peak harvest time. Unless the shortage is resolved horticulture will struggle to meet its planned target of a $10b industry by 2020. Large holes are also appearing in the supply of people taking up permanent horticultural jobs.
    Off you go – What will you do about your accommodation in (say) Auckland? maybe you like your flat and flatmates and it was hard to get. Will you keep on paying rent?

    What sort of jobs might people be otherwise doing that keep them from fruit picking? It isn’t as though we all work in ICT?

    Once at dinner an elderly lady asked me: “What do people in Queenstown dooooo”. I thought: “that’s harddddddddd!!!“. An ecosystem gets it’s energy from the sun. Plants capture it; herbivores browse on the plants and carnivores eat the herbivores. A tick makes a living on the herbivore.

    In Germany they get in foreigners to do the more menial jobs, but we are a menial job + social welfare supported economy?


    • Maybe Germany and certainly some Arab oil states employ foreigners to do menial jobs; in Victorian Britain it was often the Irish. It goes against my upbringing to have any identifiable group doing the dirty work.

      When I was a child I was told the long summer school holidays were originally designed to allow the children of farm workers to bring in the harvest. Surely a similar approach can be used with university students and I mean Kiwi students not pseudo-students from overseas. If it means adjusting University terms does it matter? Auckland is awash with students – what is preventing them picking fruit? My guess is established 3rd world wages.

      When a kilo of Braeburn apples is regularly sold in Auckland for less than a dollar per kilo wages must be chronically bad. You couldn’t employ me to pick them off the floor for under a dollar per kilo so once you allow for farmers costs and transport and storage and the retailer’s margins the workers must be suffering. I’d be happy to pay far more for what is a great apple.


      • It seems logistical problems around transport and accommodation deter a lot of potential workers, and the difficulty transitioning from a benefit into short-term work and back again makes it too hard for unemployed people.

        I believe you can make good money fruit picking if you’re fit and strong and a hard worker.


      • Jill: sounds solvable but requiring govt intervention. Convert old double deckers into mobile homes, give Uni students a 10% discount from their fees if they have earned over $500 fruit picking, close down all universities in cities and move them to the country (selling of Auckland Uni buildings and land will pay for everything and reduce congestion – would be a big hit on house prices and especially investment properties and who cares), integrate with the PI foreign worker scheme (they don’t stay long enough to register as immigrants and the earning spent back in PI country of origin does more good than foreign aid). Sounds like a win win for the economy.


      • A Cromwell orchardist says when she employs students they say “Mrs J we want two weeks off as our friends are camping at Arthurstown”


    • I know where all the tourist workers have gone to. A couple of friends came in from Australia so I took them to the Penthouse Strip club. There were girls working for $2 tips and $170 lap dances from France, Turkey, Columbia, India, England, Brazil. Between us we dished out $100 in two dollar tips within an hour. There were at least 20 girls from all over the world, a United Nations of women.


  5. A lot of the discussion about countries’ emissions reductions also seems to ignore the fact that developed countries’ emissions have simply been exported to China along with the manufacturing that produces them.


    • I’m sure there is an element of that, although China’s own emissions per unit of GDP seem to have been faling as well. The OECD only has China data for 94 and 05, but emissions over that period fell from 1.49 to 1.02 per unit of GDP. Still a lot higher than anywhere in the OECD of course.


  6. Has Globalization Gone Too Far? By Dani Rodrik.

    Clearly there are winners and losers from globalisation. There comes a time when social welfare can no longer be maintained.

    On Nine to Noon Paul Spoonley discusses growth with Katherine Ryan: “you will hear a lot of talk about agglomeration; that is what is drawing them in to the golden triangle (Auckland, Hamilton and Tauranga).Later KR asks if it is all worth it. Spoonley replies that we need to raise the age of super and “it makes me mad” (that the government won’t consider it).

    Immigration is part of our globalising effort Spoonley says so in Smart Talk at The Auckland Museum – Immigration. If you believe the series immigration is about Silicon Valley: ICT is our 2nd? biggest export,
    Perhaps falling wages in Tourism and Hospitality don’t matter?

    One of the downsides of globalisation must surely be sales of property to foreigners (even if they do become residents)

    Harcourts Shanghai have $800m of property on display [RNZ]

    “Chinese economy we all know about…
    Chinese government says it’s time to grow offshore…..
    Let’s take a good selection of New Zealands “products” over….
    “We’re all New Zealanders, we all love the country so I think it’s healthy for us to have the debate and make the right decisions for our country…. but hey!…. young people coming through see it as “our planet” rather than “our country”

    So what does Martin Cooper love about the North Shore?
    “The real sense of community. We have a very welcoming community with most people having moved here from somewhere else at some stage. You can’t beat the lifestyle either. We are spoilt being surrounded by water and it is a great place to bring up children with great schools and universities. We are also really close to the city without all the hustle and bustle. I love the fact our economy is growing as that’s good for our business. Mayor Len Brown tells us that the population is due to double and if he is right, that will make for real estate heaven!”

    [BTW – Houston is building on floodplains]

    If globalisation has a downside the media don’t acknowledge it. Academia and the bureaucrats, journalists and politicians they spawn is stacked with subversives who we have to fund through our taxes. As Spoonley says: ‘It’s very lonely on the right’


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